Les Nielson
What are the proposed changes?
Table 1 shows both the current and proposed personal income
tax rates for Australian tax residents.
Table 1: Current and
proposed personal marginal income tax rates, $p.a.
|
Current
|
|
|
From 1 July 2016
|
|
Taxable Income
|
Rate %
|
|
Taxable Income
|
Rate %
|
0–18,200
|
Nil
|
|
0–18,200
|
Nil
|
18,201–37,000
|
19
|
|
18,201–37,000
|
19
|
37,001–80,000
|
32.5
|
|
37,001–87,000
|
32.5
|
80,001–180,000
|
37
|
|
87,001–180,000
|
37
|
180,001 and over
|
45
|
|
180,001 and over
|
45
|
Sources: ATO[1] and Budget Paper No:2[2]
The above table does not include the Medicare levy and the
two per cent Temporary Budget Repair levy for taxable incomes over $180,000.
Table 2 shows examples of tax payable at various income
levels under both the current and proposed resident personal income tax rates.
Table 2: Tax paid, by
gross taxable income, current and proposed tax rates, $ p.a.
|
Annual Income
|
Current Tax
Amount
|
Proposed Tax Amount
|
% Change
|
20,000
|
342
|
342
|
-
|
60,000
|
11,047
|
11,047
|
-
|
100,000
|
24,947
|
24,631
|
0.013
|
190,000
|
59,047
|
58,731
|
0.005
|
Calculations by Parliamentary
Library
Table 2 does not include the Medicare Levy and the Temporary
Budget Repair levy.
As can be seen, the proposed personal income tax reductions
for higher income earners are quite modest on an annual basis.
Those affected
The proposed changes will affect those in different personal
income tax brackets. Table 3 shows the number of taxpayers, by their top
marginal personal income tax bracket in 2013–14:
Table 3: Selected Personal
Income Tax Statistics, 2013–14
|
Tax Bracket ($p.a.)
|
Number of Taxpayers
|
% of Total
|
Net Tax $m
|
% of Total Net Tax Paid
|
0–18,200
|
2,484,095
|
19.2
|
76
|
0.05
|
18,201–37,000
|
3,106,352
|
24.0
|
4,190
|
2.5
|
37,001–80,000
|
4,840,065
|
37.3
|
47,764
|
28.7
|
80,001–180,000
|
2,157,515
|
16.6
|
64,616
|
38.9
|
180,001 and over
|
376,267
|
2.9
|
49,551
|
29.8
|
Source: ATO Taxation
Statistics[3]
The proposed changes would, on the basis of latest available
figures, affect about 19.5 per cent of taxpayers in the two highest personal
income tax brackets. These account for 68.7 per cent of personal income tax
paid, based on 2013–14 figures. The government notes that this measure will
ensure that around 500,000 taxpayers, whose top marginal rate is 37 cents in
the dollar, will not be subject to the next highest tax bracket in the next
three years.[4] The likelihood of this outcome
will depend on wages growth, which is projected to be modest, at best.[5]
Proposed thresholds and
inflation/average wage increases
The current personal income tax scales have remained
unchanged since 2008–09. Since then the Consumer Price Index has increased by
18 per cent, and average weekly ordinary time earnings have increased from
$1119.60 to $1500.50 in November 2015 (equivalent to about $78,026 per year); an
increase of 34 per cent).[6] Taking into account that
the current rates and thresholds have not changed since 2008–09 (setting aside
the various budget repair and disaster levies) these figures underscore the
extent of bracket creep since that time.
The economic impact
Prominent Australian economist, Professor John Freebairn has
recently observed that:
Lower personal income tax rates provide incentives for a more
productive economy and higher living standards through two main mechanisms.
Lower marginal income tax rates increase the incentive for, and the rewards
from, joining the workforce, working more hours, and putting more into
education and skill acquisition. These incentives are especially important for
women with children and older workers.
Also, lower personal income tax rates reduce distortions to
household decisions on how much to save and where to invest savings in owner
occupied homes, other property, financial deposits, shares, superannuation and
other options.[7]
Doubtless the extent to which the above economic impacts
occur depend on the size of the personal income tax cuts. Eventually, these
impacts may reduce over time, while a corporate tax cut may produce longer lasting
benefits (see Corporate tax rate reduction: large companies).
Savings verses consumption
An important influence on any boost that the proposed tax
cuts give to the economy is what the taxpayer actually does with the additional
disposable income. Overall, the household savings ratio has increased steadily
since 1990.[8] Generally, it appears likely
to be the case that higher income households will save rather than spend a tax
cut.[9]
To the extent that this occurs, it limits any immediate economic boost from a
personal income tax cut.
[1]
Australian
Taxation Office website, Individual income tax rates
[2].
Australian Government, Budget measures:
budget paper no. 2: 2016–17, 2016, p.42.
[3].
Australian Taxation Office, Taxation
Statistics 2013-14, Summary-Table
5.10, Number of Individuals and Net Tax, by Tax Bracket, 2013-14 Income Year.
[4].
Budget paper no. 2 2016–17, op. cit., p. 42.
[5].
Australian Government, Budget strategy
and outlook: budget paper no. 1: 2016–17, 2016, pp. 1-7.
[6].
Figures sourced from Monthly
Statistical Bulletin, Parliamentary Library, Canberra, 2016.
[7].
J Freebairn, ‘Explainer:
how company versus personal tax cuts boost the economy’, The
Conversation, 21 March 2016.
[8].
A Duncan and R Cassells, ‘Australians
are saving more, but are more comfortable with debt’, The Conversation,
17 June 2015.
[9].
R Finlay and F Price, ‘Household
saving in Australia’, Research Discussion
Paper, 2014-03, Reserve Bank of Australia, April 2014; L Berger-Thomson, E
Chung and R McKibbin, ‘Estimating
marginal propensities to consume in Australia using micro data’, Research
Discussion Paper, 2009-07, Reserve Bank of Australia, November 2009.
All online articles accessed May 2016.
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