Bam wrote on Aug 20
th, 2013 at 9:29pm:
Another issue that appears to be forbidden: removing bracket creep in the PAYE tax system by indexing the tax brackets.
Without indexation, bracket creep slowly causes PAYE taxpayers to pay a greater percentage of their income in tax over time. For average incomes, this adds up to a couple of hundred dollars of extra tax every time there's a pay rise.
Example: Someone earning $60,000 pays $11,047 tax (18.4%). A 3% pay rise gives $61,800, with tax of $11,632 (18.8%). Note the higher percentage: this is bracket creep. If the tax brackets were indexed, the percentage of tax at the new pay level would be the same 18.4% - the tax would then be $11,378 - $254 less. This extra $254 tax is the extra tax that is paid due to bracket creep.
Same example, $150,000: tax = $43,447 (29.0%). 3% pay rise: $154,500, tax = $45,112 (29.2%). Tax on $154,500 at 29.0% = $44,750 ($362 less).
This is why most "tax cuts" are actually not real; they are just returning the proceeds of bracket creep. Both major parties do this because tax cuts are popular and few people know enough about bracket creep to know the truth. Thus, we will not see tax indexation discussed by either major party.
tax scale indexation is merely maintaining the status quo and while I agree with it, I understand why it is not automatic. It allows a govt to claim it is giving you a tax cut when in reality it isn't.
What I therefore find amusing is the oft-repeated and rather humorous claim by lefties that Howards tax cuts were evil and rewarding high-earners etc, They were largely nothing more than indexation cuts and therefore not really cuts at all.
Labor will never support indexation as it would automatically give tax cuts to the evil, oppressive high income earners which they hate with a passion.
The last govt to have indexation was a liberal one.