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Tehan’s tax take

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.

 

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18 comments

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  1. susan

    No one in the LNP or Nats and very few Labor people are even pretending to care about 99% of Australia.

  2. gangey1959

    Does this butter pay it’s rightful tax ?

  3. Jaquix

    Kaye is spot on by saying the easiest way to fix the “problem” of bracket creep, is to increase the tax free threshold. Or they could simply adjust the levels at which tax rates kick in. Why do they carrry on as if its all so hard? Yes, I know, because taking these simple measures to ensure fairness, would mean they would need to actually act on all the areas where revenue is bleeding – like various tax concessions which the more well off currently enjoy.

  4. Kaye Lee

    The butter picture is from January last year when Tehan was sent out to canvas the idea of broadening the base of the GST.

    “We should look at things like food, like health, like education and see whether it is better to apply the GST to those sectors of the economy,” Mr Tehan told The World Today.

    “Then you look at providing direct relief to those on fixed incomes and you also look at reducing your income tax and your company tax rates.”

    It’s worth listening to him, not because he makes sense, but because several times he has presented, supposedly as his idea, things that are obviously being considered as Coalition policy.

    http://www.abc.net.au/news/2015-01-05/gst-liberal-mp-dan-tehan-calls-for-broadening-budget/6000802

  5. flohri1754

    There is no real case to be made for the lowering of tax rates. Waving and comparing “statutory” tax rates around means nothing. A real furphy. What is vital is what are the “effective” tax rates, the actual amount collected by a tax system. It means nothing if you say you have a tax rate of 50 percent, if, in reality (after deductions, exemptions, rortings,, etc) a country is only collecting a minimum amount.

    It is very humorous following arguments for “lower tax rates” in the US by the Republicans. The same people who idolize the 1950s as a “Golden Age” and when the highest Corporate tax rate was 90 percent. Don’t ask me what the “effective” rate was then however.

  6. Möbius Ecko

    It’s worth listening to him, not because he makes sense, but because several times he has presented, supposedly as his idea, things that are obviously being considered as Coalition policy.

    I made this point about Tehan a little while back. What he’s averring as new ideas have been raised on more than on occasion almost word for word by someone from the Liberals in the past.

    This seems to be one of their memes to trot out at regular intervals just far enough apart to make them appear as new so as to ingrain the idea as logical in people’s minds. A form of long term brain washing.

  7. Caroline

    I live in hope of the day a politician has the balls to admit that sovereign govt is not like a household or business. That it cannot go broke or need a surplus.

    If that day ever comes I will die happy.

  8. Lee

    The Libs are obviously expecting the majority of Australians will be too dense to perform some primary school level maths calculations and recognise the consequences of this proposal. It disturbs me to think that they probably do have some data suggesting that such a blatant attempt at screwing lower paid workers is likely to be successful.

  9. Matters Not

    Tehan is indeed ‘useful’ when the powers that be decide that the views of a backbencher would help the public debate.

    Need someone to argue for increased military activity? Then Dan’s your Man. In such matters, he has some gravitas because he’s Chair of the Parliamentary Joint Committee on Intelligence and Security. Because he’s been around politics (staffer and member) for some time, he’s not going to stuff up. And if he does, then he’s only a backbencher.

    Dan is in search of a reward somewhere down the track.

  10. philc

    Hmmm. Just worked out Dopey Dan’s suggestion would have this retired public servant and his wife, living on a defined benefit super income, over $50 a week worse off. While hip pocket is not the be all and end all for determining public policy I would have thought that taking money off people with relatively modest incomes and who have no hope of increasing their income to simply provide additional income for those already very well off is, what is the phrase now, er, f***ing disgusting. That’s it.

  11. Kaye Lee

    philc,

    Everyone who earns between $33,000 and $165,000 would be paying more tax under Dan’s proposal….and I thought the income tax “cuts” were to compensate us for bracket creep and an increased GST?

  12. Ricardo29

    How can these cretins possibly be talking tax cuts at the same time as they are saying we have a revenue problem, oh that’s right it’s an expenditure problem isn’t it? Not a revenue problem. Economic ignoramus and just further muddying the waters.

  13. Paul Murchie

    Jaquix ( :

    “Why do they carrry on as if its all so hard?”

    because every time they wheel out another vacuous, distractionary LIE it gets harder for them to not step on their corporate brown tongues ! if the Australian People NEED a tax-REFORM, the only way for this to be reasonable and fair is to LEAVE THESE PARASITES OUT OF IT !

    #TearUpTheTPP

  14. David

    Dan amuses me. Dan as Matters Not correctly alluded to, has been around for a long time, well just over 5 years but for some a week is a long time in politics. Dan’s a back bencher, yes a loyal foot soldier, a ‘go tell it on the mountain lad’ and all for the good of the leadership and the Party, whoever that may be at the time, as long as Dan gets his pat on the head, told what a wonderful job he is doing and to carry on trooper you will receive your award (sometime).
    Dan could, to use a word Kaye Lee used in her piece, creep. Creep described in the Webster as ‘to enter or advance gradually so as to be almost unnoticed..yep that’s Dan or
    1
    ; a strange or unlikable person
    2
    : a slow, timid, or quiet movement
    3
    : gives a feeling of nervousness or fear —usually used in pl.

    For me Dan is a combination of them all. I ask myself, why is it Dan who has been around for a long time, well we’ve touched on that, but has never been rewarded with high office Ministerial post.

    No I fear he has reached his high, he has climbed his mountain and he will continue to float ideas when his Tory masters deem they need a creeper, to do what they don’t wish to be burdened with. I guess Chair of the Parliamentary Joint Committee on Intelligence and Security carries a decent retainer.

    Creep on Dan Tehan, someone has to do it. Its a bit like driving a refuse truck, the smell doesn’t bother you, it is not even there.

  15. philc

    Sorry I made a mistake in my post. We will only be $50 a fortnight worse off if this unlikely idea went ahead. We are not rich enough to be $50 a week worse off. My, perhaps poorly made, point is that many in coalition think the purpose of tax policy is to reduce tax, and particularly for business and the very wealthy. Many of us were more than happy to have a carbon tax (even without compensation), we do not quibble at paying a medicare levy, we recognise the social benefits of tobacco excise and we can appreciate the need to pay for our public services.

    Morrison, Turnbull and the gang are saying that the point of any tax change is to decrease the tax burden on business and provide incentive to people to be more productive. This is typical capitalist code for dismantling welfare systems, further enslaving the workers and smaller government. Tax is a tool for social policy as well as a means of funding essential services. We can see very clearly what type of social policy lies at the rotten core of this bunch through their comments about tax. Mind you we can see that in almost every other aspect of their behaviour.

  16. Florence nee Fedup

    It is nothing to do with economic well being of this country. They use health as lever. Simple just raise the Medicare levy.

    It is all to do with social engineering and their neoliberal ideology of small government and low taxes.

    They believe markets should be unfettered with no government intervention or regulations. Free to do as they wish.

    They believe that welfare is bad, encourages people to be slothful and lazy.

    All should stand on their own feet. All are out to rip those whom god has deemed worthy of success. Yes, they have even built churches to where they can celebrate their wealth and power. Not sure what bible they use, as Jesus casted out the money men. Said it was as easy for a rich man to get into heaven as a camel through the eye of a needler. Seems to dasy, in their eyes, it is the poor who are sinners, not worthy of any support or respect.

    Yes I come back to bracket creep, which today is hardly a big problem because of years small wage growth and low inflation. Just indfex wage growth to the brackets. Problem solved.

    Shorten with his so called useless rant against GST over the last few months has neutered raising or widening GST, leaving this government with nowhere to go.

    Has left PM waffling about tax has to be fair but no answers.

    Their aim of moving the tax burden from industry and the wealthy to low income earners has hit a brick wall.

  17. Michael Lacey

    Tax: Governments automatically have inbuilt system of loopholes you do not tax unearned income or the rich or tax land rents and economic rents. Close the loopholes! When the neoliberals had a free reign to run a society as they did in Russia and other countries after 1991 they basically created a kleptocacy they also included a flat tax they wanted to prevent progressive income tax , they wanted a flat tax mainly on Labour on earned income that does not fall on capital gains which are land price gains and natural resource gains and gains from rent extraction or gains from unearned income that is not earned by industry or labour. Neoliberal tax is essentially to create kleptocracies to shift the tax system off land off natural resources and off the wealthy to labour and impoverish labour.

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