Millions face shift into higher tax brackets

    David Uren
    The Australian
    April 04, 2014


INDIVIDUAL taxpayers will be slugged at least $32.5 billion more a year and the number of people in the top two tax brackets will double to 4.6 million over the next decade unless there is a new round of personal income tax cuts.      

Analysis carried out exclusively for The Australian by the University of Canberra National Centre for Social and Economic Modelling underlines the urgent need for tax reform.

The analysis shows that, in the absence of tax cuts, the number of people paying the top tax rate of 45c in the dollar would soar by 134 per cent over the next decade to just under 900,000 as they were pushed into higher tax brackets by inflation and wage rises — so-called bracket creep.

The number of Australians paying the second-highest rate of 37c in the dollar would leap 85 per cent to 3.7 million.

And the effect of people being pushed into higher tax brackets would increase total personal ­income tax by 21 per cent or $32.5 billion, before allowing for growth in the population and workforce.

NATSEM principal research fellow Ben Phillips said the ­effects of this “fiscal drag” over 10 years would “likely have bad consequences for workforce participation at exactly the same time as Australia pushes up against an ageing population”.

With a crucial Senate election in Western Australia this weekend, politicians from both sides were ducking for cover yesterday in the wake of warnings from Treasury secretary Martin Parkinson that Australia could not rely on personal income tax to cover the budget gap and needed to consider the mix of taxes, including the GST and fuel excise.      

However, business leaders and economists said the issues raised by Dr Parkinson had to be confronted.

“Australia is in a productivity hole and tax reform is one of the important ways of improving productivity,” University of Melbourne’s John Freebairn said.

Wesfarmers chief executive Richard Goyder said the tax system had to be dealt with as a whole, with problems not simply solved by lifting the GST.

“Whatever we do on tax has to be holistic — it can’t be bits and pieces,” he said.

Medium-term budget forecasts provided by Joe Hockey’s office to state and territory treasurers last week, and included in a briefing note at the weekend, ­assume there are no personal ­income tax cuts for the next 10 years, with commonwealth revenue rising to an all-time high of 26 per cent of GDP. Even this would leave a budget deficit of 0.5 per cent of GDP.

The NATSEM modelling backed Dr Parkinson’s argument that failure to deliver personal ­income tax cuts would be damaging to the economy and carry a high political cost.

The analysis shows average tax rates would rise for all workers, but the impact would be greatest at the bottom end of the income spectrum. People earning $990 a week now, which is about the median income, would see their average tax rate jump from 8 per cent to 15 per cent.

Professor Freebairn said that this was exactly the income zone where social benefits were being withdrawn, so the result would be “horrendous” effective marginal tax rates that would stop people entering the workforce.

The number of people paying no tax would drop by 44 per cent to 2.9 million, with growing numbers of people having to return some of the government benefits they receive as tax.

A spokeswoman for Joe Hockey said that while the Treas­urer was aware of the broad content of Dr Parkinson’s speech, he had not approved it, adding: “The views are Dr Parkinson’s own.”

Foreign Minister Julie Bishop, who is supporting the government’s election campaign in her home state of Western Australia, was the only minister to field media questions on tax yesterday. She said the government had no plans to increase either the GST or fuel excise.

“We’re not a government that believes in higher taxes,” she told ABC Radio. She said the GST was an issue for the state governments, not the commonwealth.

Labor Treasury spokesman Chris Bowen said he was prepared to be constructive in a debate about tax reform, but added: “We don’t support increasing the GST or increasing petrol excise”. Mr Bowen noted Dr Parkinson’s comments about the need to stop the long-term decline in the share of indirect taxes, including the GST, had been excised from the version he actually delivered to the Sydney Institute on Wednesday night, suggesting he had been censored by Mr Hockey, ­although they were included in the version of the speech posted on the Treasury website.

Dr Parkinson’s speech showed that, unless there is tax ­reform, personal income tax will rise from 49 per cent of all ­government tax revenue to 56 per cent, while the share of ­indirect taxes and the GST will fall from 29 per cent to 21 per cent.

Business Council of Australia chief executive Jennifer Westacott said Australia had to stop the political point-scoring over tax and have a mature discussion.

“We have to start thinking long-term and face up to the fact that our tax system needs an overhaul and our budget needs serious ­repair,” she said.

Not necessarily - you can go with a reduction in services. Seriously, how do you expect to have services if taxes aren't collected to pay for them? 

Quote:


If by 'Australians' you mean the poor, then the answer is yes. If you mean the rich then we all know that the Liberlas are all about lower taxes for the rich.

We will have to pay more tax in order to pay for Abbott's harebrained baby bonus for billionaires scheme.

We will have to pay more tax to cover the gap created by Abbott's harebrained scheme to scrap the mining and carbon taxes.

We will have to pay more tax to fix the hole created in revenue streams when Howard scrapped the petrol excise.

What we can expect under Abbott is tax by stealth on the poor by bracket creep which means more poor Australians will be forced to pay higher rates of tax as Abbott refuses to raise tax brackets in line with inflation.

We can expect outright tax increases on the poor by Abbott's plan to increase the GST.

Suffer the poor under Abbott.

I dont mind paying more tax, but I would like to be sure we have a government that has the right priorities when spending my tax.
The left are irresponsible spenders of tax, I no like dat.

I would rather we had tax on spend i.e. GST than tax on earnings.
I see people who arrange their earning to avoid earning enough to pay tax, thats not good for the country.

Income tax is a tax on working, people who can work should work.
Then if we direct the welfare to the genuine only we can compensate for the tax on spend GST.

I cant stand Bishop, but West Australians have every rite to talk about GST

Armchair_Politician wrote on Apr 4^th, 2014 at 9:10am:


Well - if the government owned the services they would pay for themselves . . . . .

SOB

Actually both would be good,
If we just had the two we would be laughing.
We have a raft of other taxes glueing up the system and only contributing about 10% of tax revenue.

Two is great.

Swagman wrote on Apr 4^th, 2014 at 12:37pm:


Of course the poor pay tax - did you mean the unemployed or something?

SOB