The Opal or Not Report: The hidden $98 (or $54) million fare hike

Krinklewood Carriages, Pokolbin, NSWAbout half a year ago, I launched the Opal or Not website that compares the fares of Sydney’s new Opal transit smartcard and the paper tickets it replaces.  As I’d hoped, this quickly went viral, bringing attention to Opal’s hidden costs and ending up in the Sydney Morning Herald.

Now getting my mug in the SMH is all well and good, but my end goal was to “make Transport for NSW to come up with a saner fare scheme”. Instead, TfNSW sent me a rather bizarre good cop/bad cop letter telling me to they’d love to cooperate, but implying they will sue me if I don’t stop using the Opal logo.  When I offered to play ball, changing the logo as a token of good faith, they sent me a 26-page report about all the things with my site that they were unhappy with; quite handy, as you’ll see later, but not exactly the kind of action I was hoping for.

Meanwhile, as they prattled on about how they’re committed to transparency yadda yadda, another arm of the same bureaucracy has been steadfastly stonewalling my request for a copy of that 7% report.  At time of writing, after half a year of increasingly absurd effort, they have yet to confirm in writing that the “7%” report they keep talking about even exists.  And maybe it doesn’t, because in other places they claim the figure is 4%!

Well, fine.  If TfNSW is not going to release their report, based on their vague projections, I’m going to write my own report, based on the cold hard data of the over 130,000 fare comparisons made on the site.  And here it is.

The short version

Who will pay more with Opal? Cost of Opal to Sydney commuters?
Transport for NSW report 4%? 7%? [citation needed] They’re not telling
Opal or Not report, model A: optimal tickets
61% [1] $98 million/year [1]
Opal or Not report, model B: estimated tickets
26% [1] $54 million/year [1]

Here’s how you can help fix this.

The long version

Wagon, Felton, CA, USA

Now there’s two basic requirements for Opal or Not’s data for it to be of any use: it has to be representative, and it has to be correct.

So the first question is, are the 130,000+ fare comparisons made on Opal or Not a representative sample of the Sydney commuter, instead of (say) an escapist chimpanzee recalculating his fare from Taronga Zoo to Bondi over and over again?  In terms of sheer sample size, it should certainly qualify: 812,000 people use Sydney’s public transport on an average weekday, so even if we discount every other comparison, we’re reaching a good tenth or so.  For comparison, the Bureau of Transport Statistics Household Travel Survey 2011/12 (HTS) is based on the survey responses of about 3,000 households.

A more useful comparison of the quality, though, is to compare Opal or Not’s mode distribution against the HTS.  This isn’t entirely straightforward, since Opal or Not compares door-to-door ‘journeys’ (eg. bus & train) while HTS counts single ‘trips’, but by making the not unreasonable assumption that a bus & train journey equals one bus trip plus one train trip, we get a 70/26/4% split for train/bus/ferry, while HTS has 59/37/4%.   This is unsurprising, since Opal for buses remains very much a work in progress, but it does skew the results a bit since the average train commuter loses more from Opal (an extra $65 a year, to be precise) than the average bus commuter.  Long story short, if we adjust the mode split to match the HTS, this shaves $5.7m off the paper advantage.

“But wait”, I hear you say, “even if the sample population is representative, what if the calculation itself riddled with errors”?  To make sure all potential problems are covered, I’m going to go through TfNSW’s llst of 18 “issues” with the site and analyze their impact on the results one by one.  You might want to a brew a stiff coffee before you read on.

1. Incorrect fares shown for some train journeys

Opal or Not computes train distance bands based on actual distance, not wacky-world fare distance, which can throw off estimates by a few km.  This means that users whose trip lengths are right on a fare boundary (10 km, 25 km, etc) may be quoted fares for the wrong fare band.

However, Opal and MyTrain bands are defined identically by distance.  This means that, even if a user is quoted the wrong zone, they are quoted the correct fares for those zones, and the comparison is thus fair.  No adjustment needed.

2. Train journeys that cannot be calculated

There are some cases where the underlying Google Directions API only offers buses, because they’re much faster, so Opal or Not cannot estimate the train distance.  But if the site can’t calculate the route, it can’t get the comparison wrong either.  No adjustment needed.

3. Incorrect morning peak times for Intercity trains

Opal or Not assumes that morning peak is always 7am to 9am, when it’s actually 6am to 8am when traveling from Intercity stations.  However, the website does not ask for exact times, it only asks for time bands, so the relatively few users affected can self-adjust.

But yes, those who do enter 6:30 Intercity trip as “before 7 AM” will get quoted an off-peak Opal fare when they should be paying a peak fare.   Since there are more of these people than there are 8:30 Intercity travellers who get quoted peak for off-peak, the net effect of the error is in Opal’s favor: the true cost of Opal is higher.

4. Weekend off-peak fares not included

Opal or Not does not implement train off-peak fares all day on Saturday (or Sunday) for either Opal or paper tickets, instead applying the weekday off-peak rules. This has two effects:

  1. Peak period travel on Saturday is incorrectly calculated at weekday peak fares.  This inflates the cost of both Opal and paper equally, producing no net effect.
  2. Off-peak travel is calculated with weekday off-peak periods.  This gives an unfair advantage to Opal, since this grants ~26% of travelers the discount, vs. ~16% for paper travel.  (The actual figure is, of course, 100%.)

All told, the net effect is again in Opal’s favor.

5. Description of MyBus and MyFerry tickets as zonal

This is a wording quibble: MyBus and MyFerry tickets are based on distance travelled, and strictly speaking should not be called “zones”, since that usually implies geographical areas.  (By comparison, MyMulti is a true zonal ticket.)  Fair enough, but obviously no impact on fares.

6. Change in method of calculating bus fares

The website currently assumes that that MyBus sectors map one-for-one to Opal’s distance-based fares, which is not the case. However, without access to the exact sector data, which TfNSW does not make public, it’s not possible to compute what difference this makes in practice.  Opal claims some fares will be cheaper, but the SMH has some cases of people whose fares nearly double, and as we know, while TfNSW probably has their own estimates for this, they refuse to release them.  I’ll give them the benefit of the doubt and call it a draw: no impact.

7. Incorrect MyMulti ticket recommended for some journeys

Opal or Not’s determination of what MyMulti ticket to use combines bus and train distance bands, meaning issues 1 and 6 (train and bus distances) apply and users may be quoted the incorrect MyMulti zone.  Again, since there is no systemic bias in either direction, this alone does not bias results.

MyMulti zone shiftingThere is, however, one important source of error in the MyMulti calculations: they assume that train fares bands map directly to MyMulti zones.  This is correct for trips originating or terminating from the CBD, but will incorrectly compare to a MyMulti 1 for someone traveling from (say) Blacktown to Parramatta, actually MyMulti 2.  The diagram to the left attempts to demonstrate this, with the top ‘ovals’ representing how Opal or Not calculates trip costs and the underlying colored bands showing how the actual MyMulti zones apply.  The bits marked “+1/2” show undercharging, whereas “-1/2” shows overcharging: for example, somebody traveling from Hurstville to Parramatta would have been computed as MyMulti 3, when actually a MyMulti 2 would suffice.

We can attempt to correct for the error by applying the known distribution of train travel distances to major destinations in and out of the CBD (both courtesy the Compendium of Sydney Rail Travel Statistics, 8th Edition, RTS), times the number of train travellers using MyMultis and finally the cost incurred (or saved) from using the wrong MyMulti zone.  The math is fairly hairy and makes a few rather generous assumptions (eg. that each station’s patronage follows the general distance distribution and that the Inner Sydney statistical area is close enough to the rail CBD fare zone), but because the under- and overcharging tend to balance out, the net effect is fairly minor: $300k off paper tickets.

For completeness, I’ll note that the same issue theoretically applies to ferries.  However, since ferries are a relatively minor form of transport and the overwhelming majority of ferry travel is to/from the CBD, the approximation used by the website is more than good enough for our purposes: Ferry 1 = MyMulti 2, Ferry 2 = MyMulti 3.

8. No provision for customers with complex travel patterns

Opal or Not is not a general-purpose fare calculator, but a single-purpose tool geared solely at making it easy to check how Opal will affect the cost of your commute.  Per the HTS (Table 4.3.3), we know that commuting to work and school/uni account for the vast majority of public transport usage, so this means the results also represent the vast majority of Sydney’s public transport users.  And once again, if the site doesn’t support a given travel pattern, then it’s not giving inaccurate results, it just doesn’t support it.  No adjustment needed.

9. No consideration of the customer’s current ticket

Locomotive #7 "Sonora", Felton, CA, USATfNSW, and quite a few of my readers, think it “unfair” to compare Opal to monthly or quarterly tickets, for two distinct reasons: 1) people do not use them very much, and 2) they are not a good fit for some people.  Let’s analyze these in detail.

First, do people actually use them?  TfNSW loves to trot out the statistic that only 4% of ticket sales are periodicals, but this is highly misleading: if person A buys a yearly ticket once a year, and person B buys two singles every working day, only 0.2% sales will be for yearly tickets, even though 50% out of A and B use them. The best statistics for actual usage that I’m aware of are in RTS Table 20, which extrapolates from ticket sales and covers trains only: according to this, periodical tickets (weekly or longer) account for 50% of usage, with 8% using monthlies or longer.

At the end of the day, though, this is kind of irrelevant: Opal or Not is all about showing people the best possible fare, and I can only assume that its users are rational economic actors who choose the cheapest fare.  In the same way, I’ll give Opal the benefit of the doubt and assume that its users are religious about tapping on and tapping off, so they never get accidentally charged the maximum fare — a lip-smacking $8.10 if you forget to tap off the train!

The second objection is that people are rational and choose not to opt for periodicals because, when accounting for vacation etc, they cost more.  However, since a train quarterly covers 13 weeks of travel but costs the price of 10 weeklies, virtually everybody who uses the train would actually be better off buying them, even if they take two weeks off that quarter.  For buses and ferries, TravelTens are unequivocally more flexible and cheaper than Opal if you have even slightly irregular commute patterns.

What’s more, comparisons for monthly and quarterly tickets were introduced only after launch, meaning the initial 5,000 or so users did not benefit from them, and a rounding error meant that the next 10,000 or so had quarterlies incorrectly computed as 12 weeks instead of the correct 12.85, again a bias in Opal’s favor.

All in all, I’m going to call it a draw and say no adjustment needed.  If you have better stats, or thoughts on how to quantify this, I’m all ears.

Update: By popular demand, I’ve taken a stab at adjusting the pricing comparisons to be in line with ticket usage from RTS Table 20.  This is rather rough and ready, because Opal or Not does not collect the user’s actual ticket types or record non-optimal paper fares, but long story short, this shaves $44m off the paper advantage and converts 280k people into the Opal camp, meaning only 26.46% pay more with Opal.  This, mind you, is still about 4x more than what TfNSW is claiming, and it goes to underline what we’ve seen from previously: those who win from Opal win a bit, while those who lose generally lose a lot.

The previous calculation is now Model A, and this version is now Model B.

10. Opal trip advantage not always applied

More specifically, the site does not cater to the case where there is less than 60 minutes between the trip out and the trip back. Again, since Opal or Not is a commute comparison tool and most people work/study more than 60 minutes a day, this scenario is irrelevant.  No adjustment needed.

11. No provision for journeys with multiple transfers

Setting aside ferries, there are three possible realistic multiple transfer combinations: train/train/bus, bus/bus/train, bus/train/bus.  The first and most common is already catered for, since Opal or Not can compute the fares between any two train stations, including transfers.  For the second, Opal would be cheaper if you were currently foolish enough to purchase separate tickets, but as we know MyMulti is nearly always the better option even for a single bus/train transfer, much less two; not covering this thus tilts the balance in Opal’s favor.

So that leaves the third option, bus/train/bus.  Getting good data on this is hard, but Bus Users in Sydney, 2002 p5 (not a typo, that’s the latest available) tells us only around 7% of bus journeys involve two buses, and Rail Travel Statistics 2012 section 3.2 tells us 17.7% of train users transfer to bus, from which we can determine a conservative upper bound of 1.2% travellers affected.  Not that this helps Opal’s case any, as MyMulti will almost certainly wipe the floor with Opal for these poor people, but I’ll graciously not dock Opal’s score for this.  In Opal’s favor.

12. Many NSW TrainLink Intercity stations not included

That’s because they were not covered by Opal at the time the service was launched, although support has since been added both to Opal and Opal or Not.  Once again, if you can’t compare it you can’t get it wrong, so no impact on accuracy.

14. $2.50 Sunday cap not included

Neither Opal’s all-day-for-$2.50 offer nor the more limited Family Fun Day ticket it replaces is covered by Opal or Not.  While this is clearly a win in Opal’s column, for the vast majority of Sydney’s commuters it’s a nice bonus, not an actual commute cost-saver.

The second complication is that since the Travel Reward is accounted for, this applies to only people who travel on Sundays without accruing 8 weekday journeys.  Since Opal or Not does not ask about days of week, and I’m not aware of any TfNSW data for this, quantifying the size of this group is difficult.

All in all, no adjustment made, but underlying bias is in paper tickets’ favor.

13. Domestic Airport and International Airport stations not included
15. Opal Child/Youth fares not included
16. Opal Senior/Pensioner fares not included

Opal or Not is a weekly commute calculator, all these are explicitly out of scope and do not affect the accuracy of results.  No adjustment needed.

17. Daily tickets not included

The Opal $15 daily cap is included in the site; however, the $23 MyMulti day ticket is not.  This skews the results in Opal’s favor.

18. Fares for services and classes of Opal cards that have not yet been announced

I had to read this one twice: TfNSW apparently considers it a flaw that Opal or Not does not cover Opal fares that have not yet been announced?  I’ll be happy to address this once somebody lends me a time machine.  No adjustment needed.

We’re done!  Almost, anyway, since magnanimous soul that I am, I’m going to include a large source of error that TfNSW did not notice:

Bonus. Off-peak fares on trains

Off-peak fares are frequently cited as a major win for Opal, and while Opal or Not now supports them, this option was not available initially, affecting the first 26,925 comparisons.  Looking at the additional statistics kept for off-peak fares, we can see three general trends:

  1. The 15% of train travellers who travel outside both peak periods are unequivocal winners, Opal saving them around $200/year.
  2. The 20% who have one peak and one off-peak trip come out a wash, gaining or losing less than $100/year.
  3. The 65% who hit both peak periods pay on average $270/year more.

So while the majority still lose, the gains of the small group of winners are so large that they translate to a 30% decrease in the overall cost.  Adjusting the data accordingly (see spreadsheet), this docks some $14 million off paper’s advantage.  Better start waking up before 7 AM!


Roaring Camp Railroad, Felton, CA, USAOf the 20 potential issues identified by TfNSW and yours truly:

  • 4 bias the results in paper tickets’ favor, and are accounted for by adjusting down by $20m,
  • 3 bias the results in Opal’s favor, which means Opal’s actually even costlier than this report indicates, and
  • 13 have no measurable impact.

In other words, this report bends over backwards to give Opal the benefit of the doubt, and it still comes up a cropper to the tune of $54 to 98 million dollars.


Call to action

So what should Transport for NSW do to fix Opal?  I have two simple suggestions:

  1. Allow bus, train and ferry transfers.  A wide array of wise men all agree: if Melbourne, Perth, Brisbane and Adelaide can all do it, there’s no sane reason why Sydney can’t. Penalizing modal transfers makes Opal a huge leap backwards for Sydney transport.
  2. Lower the base fare and drop the Travel Reward.  The “Travel Reward” is supposed to encourage using public transport, but it ends up discouraging it for many people, and only encourages gaming the system instead.

If you agree, let the Minister for Transport know.  Gladys, the buck stops with you here: it’s not too late to fix this, and turning Opal from a PR disaster into a win for your Sydney voters will only take a stroke of your pen.

And if you’re a commuter who wants to hedge your bets, lock in your savings before Opalcalypse on September 1st, 2014, and buy a quarterly or yearly ticket today.


Sydney’s screwed-up smartcard, or why I wrote “Opal or Not”

The backstory behind Opal or Not.

Last year, Sydney started trialing its new “Opal” transit smartcard.  As a regular commuter on Sydney Ferries, the first service to roll out Opal, I awaited its arrival eagerly.  After all, they couldn’t possibly screw it up worse than Melbourne’s Myki, whose ludicrous cost overruns and sheer technical incompetence I had witnessed first hand earlier.

Screen Shot 2014-02-21 at 10.39.12 PM

Alas, while Opal has indeed been lighter on the government’s purse and is mostly capable of registering card taps, Transport for NSW still managed to completely stuff up something that Melbourne didn’t: the fare structure. For many users including me, Opal is much more expensive, in my case translating to $332.80 more every year for the same commute.

Virtually every smart card in the world prices individual trips lower than the equivalent single fare, meaning it always make financial sense to use the card.  Not Opal: for ferries and buses, a single fare costs more than a trip on the TravelTen paper ticket, and only on your 10th trip of the week does the cap finally make Opal cheaper again.  And if, like me, you occasionally bike to work or work from home, meaning you use the ferry or bus less than 10 times a week?  You fall into the Opal Fail Zone, shown in red above: that’s the premium you pay for the privilege of using Opal.

Screen Shot 2014-02-21 at 11.05.16 PM

But believe it or not, I soon found out that there were others even worse off than me.  Say you live in Dee Why, take a bus to Wynyard, and switch to the train to Central.  (Substitute with bus/train combo of your choice.)  Because Opal has no replacement for MyMulti, your commute is going to rocket up $728 a year, even if you travel five days a week!


Just look at that thick red slab of Opal Fail: if you’re commuting by bus and train, unless you’re doing it exactly 6 times a week, it never makes sense to switch to Opal.

Is it easy to figure this out?  Hell no, it takes an intimate understanding of Sydney’s convoluted fare structure and a whole lot of flipping between browser tabs to come up with the actual numbers.  The Opal website has some contrived examples, every single one of which shows Opal as cheaper, but lacks even a basic Opal fare calculator, never mind any way to compare to non-Opal fares.

Now I could have written feedback to Opal, which would have gotten me a form letter response with sneering thanks before getting chucked in the bin.  Or I could have written an angry blog post (well, I am writing one), which with some luck would have been retweeted a few times before being overtaken by Justin Bieber’s latest drunken antics.  But neither would have had any real impact.

Instead, I wanted something that would:

  1. Let people see exactly how the switch to Opal will hit their wallet
  2. Collect statistics on how many people are positively or negatively impacted by Opal, and by how much
  3. Ultimately make Transport for NSW to come up with a saner fare scheme that encourages all public transport use and does not penalize transfers.

So I spent a few evenings coding up a fare calculation engine (and Jesus Christ that was a pain, just look at this shit) and a few more slapping a web interface on top, and the result is Opal or Not.  Here’s hoping it was worth it!

Half the Donut: Why an entrepreneur earning $100k gets to keep over $99k in Singapore but under $57k in San Francisco

The donut of doom: Total earnings vs total tax in California

You’re about to quit your job and start living the life of a one-man entrepreneur. Living in your basement, you have no rent and no employees, and since you’re selling your skills you don’t need venture capita yet, but you’re still dreaming big. All things being equal, where should you base your business?

Tip: Probably not in the place where the taxman takes a red bite like this out of your income donut.

More specifically, in each of San Francisco, Helsinki, Sydney, Tokyo and Singapore, if your business earns $100,000 in net revenue and pays you a “ramen-profitable” $2000 monthly net salary:

  1. How much post-tax profit will your company make in a year?
  2. If all of this profit is paid out in dividends, how much does will you have left after taxes?

If you’re wondering why I picked those five cities, part of the reason is that it’s a nice geographical, cultural and political spread, but mostly it’s because I’ve either founded a company or worked for a company based in each of them.  The $100k net revenue/$2k net salary model, funding product development on the side, is basically what I modeled my one-man consulting company on back in 2006.

To jump straight to the answers, click here. If dividend imputation and municipal inhabitant taxes get you all tingly and excited, read on. Hardcore masochists who’d like to double-check my math are also invited to examine the gruesome innards of this Google Docs spreadsheet.


This is a hypothetical exercise, so I’m going to simplify as much as I can, the accounting is still stupidly complicated and there’s a whole lot of cramming square pegs into round holes going on.  In particular:

  • I ignore all non-financial considerations. Visas, availability of talent, infrastructure, economic prospects, legal and political environment etc are all important real-world factors for locating a business, but out of scope for today.
  • $100,000 is net revenue, we ignore all expenses aside from salary and tax. In other words, $100,000 is what’s left over after business registration, accounting, stationery and whatnot, and we also assume that those costs are the same across all countries.
  • We assume sales tax does not apply.  This is not as unfair as it seems, since most countries exempt companies until they reach fairly high yearly sales thresholds and exclude online and/or international/interstate sales.
  • The business has no tax deductible expenses. This is particularly unrealistic for the United States, where 72,500 pages of federal tax code means creative deductions are a national pastime, but them’s the breaks.
  • Pensions are accounted for on a defined contribution (what-you-pay-is-what-you-get) basis, so $1 put in now is worth (at least) $1 later. This is true for Singapore, Australia, US 401(k)/IRAs and some Japanese corporate plans;  this is manifestly not true for US Social Security or the national plans in Finland and Japan, but for lack of a better measure we assume it is anyway.
  • Taxes are computed assuming that pension and health insurance contributions are tax-free, which allows me to ignore the distinction between employer and employee contributions.
  • The owner is a full-fledged local resident under 40 for the purpose of tax, pension, insurance etc brackets.
  • For the sole purpose of minimizing futzing about with exchange rates, for income tax thresholds etc I’m going to merrily assume that 1 USD = 1 SGD = 1 AUD = 1 EUR = 100 JPY. This is obviously not correct, but is not all that much worse than picking actual exchange rates that’ll be out of date in moments anyway.

Last but not least, this is a work in progress, a revision history is at the bottom of the article.   Now, let’s roll up our sleeves, channel the spirit of the late great Herbert Kornfeld, and balance this shit wit’ a quickness.

Round 1: Paying a salary

$2000 x 12 = $24,000, leaving $76,000, right? Not so fast. There are four main things to worry about here: income tax, pension fund contributions, payroll taxes and health insurance. Both pensions and health insurance are tricky since our countries’ systems vary so widely, so we’ll just attempt to standardize the legislative minimum. And since all these fees are usually percentages of salary, we have to work our way backwards starting from desired post-tax income to get to the employer’s cost.

Golden Gate BridgeIn San Francisco, I’m going to cheat a bit and outsource the otherwise horribly complex income tax computation to the MIT Living Wage Survey, which figures that for a single adult, it takes pre-tax earnings of $26,692 to have $1,929/mo left over after tax, an effective tax rate of 13.28%.  Optimistically assumes that rate stays the same at $2,000/mo, we now need $27,675.  Next, we add in a 6% employee pension contribution with 6% employer matching (+$3203) and boost medical from $149/mo to a post-Obamacare estimate of $368/mo (+$2628).  On top of this, employers have to pay 6.2% of wages for Social Security, which I’ll lump as a “pension” for the purposes of this article; 1.45% for Medicare; 3.4% for CA unemployment, plus 1.2% and 0.1% of the first $7,000 only for federal unemployment and employment training tax respectively. (Huge props to ZenPayroll.)  In a rare bit of good news, SF’s payroll tax (1.5%) only applies once total salaries exceed $150,000, so we can ignore this.  We thus arrive at $36,773.

Ice, HelsinkiIn Helsinki, personal income tax is so complicated the only sane way to compute the effective rate is to punch numbers into the official tax calculator.  A gross income of €29,000 and zeroes for everything else, including being a godless pagan who avoids church tax, nets income of €23,978, for an effective rate of 17.32%.

As a >30% shareholder of his own company, our hero can apply the lower “YEL” pension employer contribution of 17.55% for two years.  On top of this, we have the employee side pension contribution of 5.15%, 2.04% mandatory health insurance, and 0.80% employer/0.60% employee unemployment insurance.  We thus arrive at €36,615, which is, rather incredibly, a hundred bucks less than SF, and this gets you a cradle-to-grave Scandinavian welfare state!

Expressways in Shinjuku, TokyoIn Tokyo, national income tax (shotokuzei) is 5% for the first Y1.95 million and 10% above, plus a flat 4% prefectural and 6% municipal tax (which combine to form jūminzei, resident tax), which works out to 16.6%.  For pension, you can pick the national plan (kokumin nenkin) at a fixed Y14,980/month regardless of income, or a standardized company pension (kōsei nenkin) at 17.120% split evenly between employer and employee; being cheapskates, we pick the national plan.  National health insurance is 80% of municipal and prefectural tax paid, which in Tokyo equates to 9.97% split between employer and employee. Phew!  (Dōmo arigatō to Japan Consult.)   Final damage 33,448 hectoyen, and I’m delighted to find out that I’m apparently the fifth person in the history of the Internet to use that lovably awkward term.

Sydney Opera HouseIn Sydney, the Tax Office says the first $18,200 of income are tax-free and the next bracket until $37k is 19%, for an effective rate of 5.36%.  The minimum pension (superannuation) contribution is 9.25% and Medicare (public health insurance) levy is 1.5%, and since our total income is under $84k, we’re not required to pay the Medicare levy surcharge for not having private insurance.  Payroll taxes in Australia are administered at the state level, but New South Wales only applies its rate of 5.45% once payroll exceeds $750,000, so that particular bullet is dodged, and at $28,087, the end result is easily the lowest of the bunch.

Shophouses in Katong, SingaporeIn Singapore, income tax is easy: 0% for the first $20k, 1.4% for the next $10k (usually 2%, but they’re discounting 30% in 2013), for a scarcely believable effective rate of 0.24%.  Mandatory pension (CPF) contributions for employees under 50, which include a health insurance component, are 16% for the employer and the 20% for the employee, with a maximum contribution of $1800/mo (not applicable here). The only other obligatory cost is the Skills Development Levy at 0.25% of salary, capped at $11.25/mo.  This equates to $32,777.

We can now compare the total cost of employment, ie. how much it costs the company to pay the owner that $2000/mo salary:

Employer cost vs take-home pay

But while taxes disappear into the gaping jaw of Leviathan, pensions are retained by the owner in some form of another (see Disclaimer), so a more instructive comparison deducts salary and pension from total cost to arrive at what I’m calling “employment overhead”:

Employment overhead

At the end of Round 1, Singapore is the clear winner ($117!) and Sydney a close second, followed by Helsinki and, at the back of the bus, Tokyo and San Francisco, where nearly $8k disappear in a puff of smoke.

Round 2: Corporate tax and dividend taxation

In our idealized mini-company, everything that was not paid out to the employee is pure profit. If the company wants to dish them out to its sole shareholder, how much do they get after the taxman takes his share?

Cable car, San FranciscoIn California, a C corporation pays 8.84% corporate tax.  (A pity we’re not in Nevada, where it would be zero.)  Pile on federal taxes at 15% to $50k and 25% to 75k, noting that you can deduct your state corporate tax first, and we get 23.7%. Since California treats dividend income as ordinary taxable income, in the $36k-to-87k tax bracket you’re looking at 25% to Uncle Sam, 12.3% to California, 3.8% to Medicare and 1.2% for “deduction phaseouts” (wat?), totaling a whopping 42.30%. Tot these up, and our entrepreneur is left with 44% of what the company earned, or $27,828.  And if that sounds bad, here’s a calculation that arrives at 26% when you max out both tax brackets!

That said, if you’re going to do this in real life and do not have ambitions to grow to be the next Google, you should almost certainly opt for an S corporation or an LLC instead.  These don’t pay corporate taxes: instead, they pass their income (or loss) onto their shareholders, who then pay normal income taxes.  This is good if you’re keeping the money, but terrible if you were planning to reinvest it.  However, since all other corporation types in this little survey are “real” companies that can choose to reinvest or issue dividends, I felt that a C corporation is a fairer comparison point.

Geese in Hietaniemi Bay, HelsinkiIn Helsinki, both corporate tax and the tax treatment of dividends was revamped in 2013.  From January 2014 onwards, corporate tax is 20%, leaving €63,385 in post-tax profits.  The basic capital gains tax on dividends is 30% (but 32% above €40k), with a tax break of 75% on the first 8% of “free capital”, which for our newborn company equates to the total yearly profit.  This works out to an effective rate of 28.59%, leaving €36,211 in our hero’s bank account.

Cherry blossoms in Korakuen Garden, TokyoIn Tokyo, corporate taxation makes Japanese payroll and income taxes look simple.  Based on this handy summary from JETRO, for “a small company in Tokyo”, corporate tax is 15%, “restoration corporate surtax” (read: Fukushima surcharge) is 1.5%, prefectural and municipal “inhabitant taxes” in Tokyo are 0.75% and 1.85% respectively, “enterprise tax” is 2.70% (I presume this is meant to discourage entrepreneurship?) and as a cherry on top “special local corporate tax” is 2.19%, for a total of 23.99% but an effective rate of 22.86% for reasons I won’t even claim to understand. But wait! Once your earnings top Y4m, new rates apply and you now get socked for 24.56%.  In effect, the effectively effective rate is an ineffective 23.54%.

So that’s taxes, now dividends, which are even more like tentacle porn. To quote Japan Tax, “As so often seems the case with Japanese individual taxation, what would be expected to be a simple tax matter is made overly complicated by a range of expiring tax benefits (that are often revised or extended) and a range of alternative obscure reporting elections, deductions or exemptions.” The short of it is that the withholding tax rate for unlisted shares is 20%. The long of it is that you can then choose to report or not report it as ordinary income. If you do report, you have to pay income tax, but receive a dividend deduction of 12.8% for overall income of Y10m or less but 6.4% above which offsets the withholding tax and, you know what, fuggedaboudit. Pay 20%, end of story, and keep 40,709 hectoyen.

Sydney Monorail on Darling BridgeIn Sydney, company tax is a flat 30%, no if ands or buts, and the highest rate in our survey.  Dividend income is treated the same as ordinary income and taxed at same rate, except that thanks to dividend imputation you get “franking benefits” that are meant to offset the corporate tax already paid.  Acting on the optimistic assumption that they do, this means all that’s left is the difference between the corporate tax rate and the receiver’s marginal income tax rate, in our case 32.5% (for the $37k+ tax bracket) plus 1.5% levy, or 4%.  This leaves a rather juicy $48,326.

Singapore city at duskIn Singapore, corporate tax is usually 15%, but new companies in many sectors including IT pay zero (0%) tax for the first three years for their first $100k in profit, no special applications needed.  There’s also a whole slew of other tax incentives, including 4x deductions of IT gear and, most incredibly, cash transfers of up to $5,000/year from the tax man for companies that make a loss despite earning over $100,000 in revenue, but that’s another story and our rules exclude this kind of thing anyway.

Singapore has no capital gains tax, so Singapore company dividends are also tax-free. The company can thus pay out $67,223 in dividends, and the shareholder gets every last cent. This means our entrepreneur’s yearly earnings after tax are $91,223, and adding in the $8,640 sitting in their pension fund, they have managed to hold on to $99,883 of it.

Company profit vs dividends after tax

Dear reader, if you made it this far, I salute you. Now all that’s left is to sum up your salary, your pension and what’s left of your dividends to see how much of your $100,000 you still have left over.


Total left over from $100k

Singapore romps home as the undisputed winner, with the entrepreneur keeping a scarcely credible 99.9% of what they started with. It’s just a real shame that, for political reasons, the government has recently gutted the EntrePass scheme and thus made it close to impossible for a foreign one-man entrepreneur to set up shop.  (If you’re keen anyway, check out the Singapore Expats “Business in Singapore” forum or drop me a line.)

Somewhat to my own surprise, Sydney rocks up in second place with 74.6% left over.  Australia’s not what you’d call a low-tax (much less low-cost) country, but income tax is highly progressive and the dividend franking system means you only pay tax once on dividends, meaning that at low incomes you get to keep most of what you earn.  The calculus would change pretty rapidly if you earned $200k and found yourself in the 45% income tax bracket.

Helsinki and Tokyo show up neck and neck in 3rd and 4th place, with 66.8% and 66.5% respectively. Both have heavy taxation of income, payroll, corporate profit and dividends, but no total clangers. (Except Finland’s 24% value-added tax, the exclusion of which makes Helsinki unrealistically rosy, unless you can source all your income from outside the EU.)  The canny entrepreneur could nudge up both of those figures: in Tokyo, you’d actually want to pay yourself more salary since income tax is lower than corporate tax, while in Helsinki the reverse applies.

And trailing the pack with barely half left over is poor old San Francisco with 56.9%.  Now obviously there’s more to deciding where a company sets up than taxes, because otherwise Silicon Valley would be empty… but unless you really need to be there, from a financial point of view setting up pretty much anywhere else seems to make a whole lot more dollars and cents.


Thanks to corporate law ninja Joe & serial entrepreneur Juha for a sanity check of the US, Finland and Japan calculations, Tuomas Talola for corrections to Finnish calculations, and my Singaporean accountant, the infatigable Ms Tan, for clueing me onto this stuff back in the day.  If you spot any mistakes, drop me a line.

Incidentally, Joe says that a fairer version of this exercise would model the corporate and personal taxes of each country and then solve for the optimal combination of salary and dividends.  Any takers?

Revision history

31 Oct 2013

  • Recomputed Finnish income taxes with tax office calculator.
  • Adjusted Finnish employer pension to use YEL rate instead of TyEL rate.
  • Corrected Japanese pension to pay national pension (kokumin nenkin) only.