Experienced flag waver Dan Tehan has been sent out again to float the idea of what he calls cuts to income tax which are apparently essential to solve the ‘problem’ of bracket creep.
He is proposing that the tax free threshold be lifted to $25,000 and for there to be a flat rate of 35c in the dollar above this to $180,000. He does not mention if there will be changes to the rate above $180,000.
For people who earn up to $18,200 this will make no difference as they already pay no income tax. From $18,200 to $25,000 you will save between 0 to a maximum of $1292. After $25,000, the saving decreases again to become zero for those earning $33,075.
After that you will be paying more tax up to a maximum of an extra $1703 for someone earning $80,000. So much for concern about those on the average wage!
The amount of extra tax then declines until reaching zero again at about $165,000. Someone earning $180,000 or above will actually pay $297 less even without a reduction to the top marginal rate.
Tehan quotes some very dubious figures about bracket creep based on assumptions that wages will increase by 30% over the next seven years. This is totally unrealistic in light of the slowest wage growth since the early 1990s.
Last November, Scott Morrison told an economic forum that “Australia relies more on income tax (personal and company) than any other country in the OECD except Denmark.”
What he doesn’t say is that Australia is one of only two countries who do not levy a social security tax. Social security contributions across the OECD represent a significant source of revenue, accounting for one quarter of tax revenue in developed countries and over 40 per cent of total taxation in some countries (such as Japan and the Netherlands).
Compulsory social security contributions paid to “institutions of general government” include payments towards unemployment benefits, accident, injury and sickness benefits, old-age and disability pensions and the OECD publication notes that contributions can be levied on both employees and employers.
The average worker in Australia faced a tax burden on labour income of 27.4% in 2013 compared with the OECD average of 35.9%. Australia was ranked 27 of the 34 OECD member countries in this respect.
The government would have us believe that our relatively high corporate tax rate of 30% is deterring investment but there is little evidence to back up this claim – after all, the rate is almost 40% in the US. As has also been shown, very few of the big players pay anything like the full 30%. Despite the high corporate tax rate, Australian resident shareholders effectively pay a lower tax rate on their dividends than other country shareholders thanks to imputation.
For “direct” forms of taxation, including personal and corporate income taxes, compulsory social security contributions and payroll taxes, the OECD average is 61 per cent of all taxation and Australia’s rate is only slightly higher at 63 per cent.
Australia’s reliance on indirect consumption taxes, including the GST, is the 23rd highest in the OECD and below the OECD average.
There seems little argument for reducing taxes. If bracket creep is considered a problem it would be easy enough to periodically adjust thresholds by actual wage growth but that would mean cutting billions from projected revenue which currently includes that estimated taxation income.
If we are going to have a discussion about taxation reform then it would be good if the government would give us a representative who can do maths and read graphs and who gave the full picture instead of their cherry-picked version.