Before my retirement my workmate Paul said he hates working overtime because he pays way too much tax on the money earned. We talked about this time and again as he knocked off while there was still work to be done. His departure threw that workload onto those who stayed back.
At a marginal tax rate of 30c for each dollar earned at a base rate of $32 per hour, Paul’s overtime hour is worth $48, on which he pays $14.40 in tax, but keep $33.60. On his base pay his annual pre-tax income is about $61,500 and the tax paid through PAYE is about $11,500, so after tax earnings about $50,000 or $961.00 per week.
When seen just as the amount of extra tax that is paid, it certainly looks like a lot of money to be taken from the extra effort of an hour’s work, but the amount left can make a bit of difference in the take home pay.
Paul hates paying tax, and he is not alone, but as a wage earner there is very little he can do about it. It seems the ATO has their hands on his pay packet before he even gets to see it. By using a tax consultant to prepare his tax return, Paul gets around $700 back from the ATO, so his total tax bill for the year is about $10,800, just over $200 per week.
It seems Paul is not alone in hating to pay tax. In the 2021-22 financial year, 102 people who earned over $1million paid no income tax, up from 66 the previous year. The tax liability of $1million currently is $440,667, leaving $559,333 as after tax earnings or $10,756 per week.
I think a fair assumption would be that most of those 102 million dollar earners made a few dollars more that just the one million for the year, so the figure quoted above are the minimum. Yet by supporting their charities of choice and using the best accountants that money can by managed to not pay any income tax.
To me that sounds a little bit unfair.
As taxpayers, what do we get for our money?
Government is complex and has direct and indirect impacts on our daily lives, the Federal government responsibilities include foreign affairs, social security industrial relations, trade, immigration, currency and defence. In fact, there are twenty-nine Ministers in the Federal Government, with responsibilities across the spectrum of the needs we have as a nation, to ensure the wellbeing of all Australians. Each ministerial portfolio has a department which administers those responsibilities to ensure that the resources we have are utilised for all who need them.
The taxes we pay are used for the greater good, to protect us both as a nation and as individuals. But it seems that ‘the greater good’ is able to be redefined to ‘my greater good’, overriding the responsibility of paying taxes.
The deductions claimed, according to the ATO include payments to tax-deductible charities, in the 2021-22 financial year those 102 no-tax payers contributed to the $240 million donated to those causes. And no doubt those charities do amazingly good work and cover a multitude of interests from health research, education, the arts, trade associations, animal welfare, religious institutions, the list is comprehensive, so when you earn enough to be able to give to the charities you like, you can avoid paying income tax. But then not contribute to the greater good of providing government services. In other words, supporting an art gallery or an opera company is tax deductible, as is giving to the RSPCA or the Cancer Council.
I am not suggesting that these various organisations are not worthy of support, but at the expense of the essential government services.
Is ‘my greater good’ more significant than ‘the greater good’ of providing essential government services which are there for the entire population as distinct from personal vested interests?
How is this tax imbalance to be addressed?
For Paul and so many others, in fact the vast majority of the Australian workforce, to donate from their incomes to avoid paying tax, that is getting all their tax paid back as a return they would need to spend more than they could afford, so their tax liability is unavoidable, but for those high earners the avoidance is affordable. So those high earners can support the Opera and Symphony Orchestra, the National Gallery and National Portrait Gallery, the Cancer Council and many other health related charities as well as the RSPCA and the prestigious schools their children attend and have enough left over for a most comfortable life.
No, it is more than a little unfair, it is an obscenity.
It seems that those with the most are more than willing to leave the responsibility of paying taxes to those who have less.
The tax laws need to be addressed to correct this. Donations for favoured charities and causes should not be a means avoiding the responsibility of paying taxes.
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There is a very simple solution: if you have a pretax income of say 10 times or more the average weekly earnings of Australians in any year, then no matter what your tax deductions amount to, 20 per cent of that excess amount is your minimum tax debt.
I was walking and unfortunately thinking as I walked. Silly move really, but it dawned on me that the amount of lost tax revenue for those charitable deductions is huge.
Keeping the figures fairly simple, that in pretax income is $1million, give away $992,000 in donations and tax consultancy fees so that the remaining income is below the 0% tax threshold and the $440,667 dollars in tax revenue is lost to the ATO, but the cream on the cake is that a refund of guess what, $440,667 is deposited in the generous person’s bank account. So the million dollar earner has about $458, 667 income for the year. The cost to government revenue is $881,334.
Generosity is great, but that is hardly generosity, the charitable rich person is lauded for their generosity where in actual fact they are a drain of government revenue, a greater drain than say an aged pensioner. It is probably more like theft from the public purse. That person would probably decry an unemployed person as a dole bludger.
Your workmate Paul missed that if today, there would be an 11.5% SCG or super contribution from his employer on gross pay; guess he would describe that as a ‘tax’ too, but on employers and would refuse?
Too easy playing with and confusing people on language and meaning…..includes all things employment, taxes, finance and economics too.