A recent forum hosted jointly by The Insitute of Chartered Accountants Australia and New Zealand and The Tax Institute, suggests it is highly likely personal income tax cuts will feature in future Federal Budgets. At the forum the Treasurer said Australia had “no choice” but to reduce personal income tax.
The following observations were made in the speech;
N.B This is a direct extract from the following article;
Chartered Accountants and New Zealand (2015) Treasurer Argues The Case For Personal Tax Cuts. CA Tax Bulletin, Edition 32. Retrieved from http://services.ica.trclient.com/online/18259018-277.html
Australia relies heavily on personal income tax. It is our largest source of tax revenue. It raises around $170 billion per year. Combined with corporate taxes, this makes up around 60% of our tax revenue, compared with an average of 34 per cent across the world’s top economies in the OECD.
In Australia, the highest marginal tax rate is 47 cents for each extra dollar earned. To contrast this, New Zealand’s is only 33 cents; Singapore’s is 20 cents; and Hong Kong’s is only 15 cents.
Our top rate kicks in relatively quickly, at $180,000. That is only 2.3 times the average full-time wage. This is extremely low when compared with other OECD nations. In the United Kingdom, their top rate kicks in at 4.2 times their average wage. This matters because our existing personal income tax rates make us uncompetitive.
High personal income taxes - along with company taxes - are particularly harmful for economic growth.
There is also a social cost associated with high income tax rates. Gradually but increasingly high personal income tax rates will become a major incentive for Australians to live and work overseas.
At the moment, 2.7% of Australian taxpayers fall into the top income tax bracket. And they are paying more than 28% of all personal income tax. And the top 10% pay almost half of all personal income tax. Back in 1996–97, the tax burden was less concentrated, with the top 25% paying a majority of income tax.
What this shows is that our redistributive tax system has created a situation in which we as a nation are over-reliant on a very narrow base.
Lower personal income tax will also encourage our budding entrepreneurs to climb the ladder of opportunity.
Not only is our personal income tax system uncompetitive: it is increasingly penalising lower income or secondary earners in our society. This is particularly the case when our tax rates are mixed in with the transfer system for social security. The combination that determines household net income weighs heavily on the minds of many Australians.
The Opposition Leader, Bill Shorten, sees tax reform as more all en-compassing, as noted in his sppech to the National Reform Summit, 26 August 2015:
“If reform was just increasing taxes, if reform was as simple as increasing the GST, we should all just go home. When has increasing a regressive tax ever been the solution to a nation's problems? Surely the standard conservative view - save more, produce more - combined with the standard progressive view distribute fairly - does have some enduring truth. Increasing tax is not tax reform. There are plenty of lowperforming economies with high GSTs, where the only net economic benefit here would be a small dividend on consumption.
The problem with our current tax system is that it gives discretionary benefits to some, and a high marginal tax rate to all. Reform is not on one hand allowing some access to generous concessions and on the other hand offering tax cuts as well. It is not fair that everyone pays tax, but only a few can claim the full concessions. The problem with our superannuation system is we have a system which does not address inequality to women and the low paid. It is unreasonable for a few to have uncapped tax concessions while it delivers far less advantage to millions more.”