Wednesday, February 25, 2009

We've had tax cuts, right? Right?

IF SIX straight years of tax cuts have left you feeling bemused, it could be because you're earning an average income.

Figures prepared for tax conference to take place in Canberra today show that average earners hand over in tax about the same proportion of their income as they did two decades ago.

In 1986 an average earner paid out 21 per cent of his or her income in tax. After this year's July tax cuts the figure will remain little changed at 20 per cent.

By contrast high income earners pulling in two and a half times the average wage will be much better off. In 1986 they had to hand over 43 per cent of their earnings. By July this year it'll fall to 30 per cent.

The subsequent tax cut penciled in for July 2010 will benefit high income Australians even further...

...but will again scarcely change the outlook for middle and low income Australians.

The academic group Tax Watch warns that its figures overstate the extent to which ordinary Australians have a hope of benefiting from tax cuts because or a statistical quirk which means that most Australian workers earn less than 80 per cent of the average wage.

"We want to state the facts and not get too much into expressing a view," says the group's conveyor Professor Julian Disney of the University of New South Wales.

"This isn't about politics, it's about being fair and rigorous.

When the group attempts to compare the Australian tax take with those overseas it finds that we are in the low-tax third of OECD countries and also in the low tax third of the nine most important OECD nations. We would need to pay to pay $40 billion extra in tax each year in order to reach the OECD average.

The group also reports that we are becoming less keen on tax cuts. Back in 1987 two thirds of Australians surveyed said they would prefer tax cuts to increased government spending. By 2006 less than one third said yes to the same sort of question.

Today's conference will be addressed by Treasurer Wayne Swan, tax specialists from the OECD in Paris and the Washington-based Brookings Institution.

Addressing a Sydney tax conference the chair of the Henry Review, Treasury Secretary Ken Henry attempted to build expectations for change, declaring that "times of economic weakness are often also the best times to implement large change".

He has proposed scrapping Australia's system of dividend imputation and using the savings the sharply cut Australia's company tax rate.

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2 comments:

Anonymous said...

Pin-up boy of regressive tax mentality - the Aus tax system.

One solution to making taxes fair would be to index the tax-free threshold ($6000) to the cpi, and say backdate it about 23 years.

If it is good enough for high income earners to get a 13% percent tax reduction since 1986, why not the same for those who actually need it - low (especially) and, to a lesser degree, middle income earners? Any shortfall in revenue could be clawed back by increases to the top tax bracket, say increase from 30 to 35 percent.

It would not be too difficult to get some kind of revenue neutral system that is progressive, not regressive. Perhaps just exchange some intelligent policy makers for the current crop of clever ones.

Anonymous said...

I look at the table and see a progressive income tax system - it's just that it's a lot less progressive than it used to be.

It could be argued that the changes have been regressive.

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