Andrew Leigh

“When Australians spend the first six months of the year working for the government with tax rates nearly 50 cents in the dollar it is a disincentive. You’re working July, August, September, October, November, December just for the government and then you start working for yourself and your own household income after that.” – Joe Hockey, 3AW, 19 January

Joe Hockey's suggestion that Australians pay almost half their incomes in tax doesn't stack up, so why does he keep repeating it?

Why applied maths is too taxing for Joe, Daily Telegraph, 23 January

Since Joe Hockey claimed Australians pay almost 50 cents in the dollar in tax, plenty of people have pointed out the flaws in his maths.

But is it true that the man running Australia's economy really doesn't get the basics of our tax system? Or is he just so focused on the wealthiest Australians that he's lost sight of everyone else?

The first thing wrong with Hockey's claim is that Australia's top tax bracket is 45 cents in the dollar.

Factoring in a further 2 per cent each for the Medicare Levy and the government's high-income levy gets you to 49 per cent. But that would still only apply to people earning more than $180,000 a year; the back of my envelope suggests that less than 2 per cent of Australian adults have an individual income that high.

Then there's the difference between marginal and average tax rates. Each of us pays a base amount, with a marginal rate applied to every dollar over certain thresholds.

For someone earning the median Australian wage of $55,000, their income tax bill is $3572 plus 32.5 cents for every dollar over $37,000.

Adding in the Medicare Levy brings the total tax bill to about $10,500 that's an average rate of just 19 per cent. So the typical Australian pays less than half the rate of tax Mr Hockey claims. Oops.

Of course, if you earn enough, all that matters is the top marginal rate.

Take someone earning $10 million a year: their average tax rate is a tick over 48 per cent. That's close enough for Mr Hockey's statement to apply to them.

So when the Treasurer says he's worried "Australians" are working half the year for the government, he's really only talking about the minuscule fraction of people earning multi-million-dollar incomes.

Some may be tempted to chalk this up as just another Hockey gaffe.

But the Treasurer has form here.

Think of his suggestion that "the poorest people either don't have cars or actually don't drive very far in many cases". Or his claim that the government's $7 GP tax wouldn't hurt because "you can spend just over $3 on a middy of beer, so that's two middies to go to the doctor".

Every time the Treasurer puts his fancy shoes in his mouth, it shows how removed he is from the reality of regular Australians.

Joe Hockey is set to hand down his second Budget in four months' time. Before then, he'd do well to step out of the boardrooms with Harbour views and spend time with the 98 per cent of Australians who aren't in the top tax bracket.