Google AI

Weekend Times


The Times

Business News

stealth tax rises are eating into your income – but we know the solution

  • Written by: Richard Holden, Professor of Economics, UNSW Sydney
stealth tax rises are eating into your income – but we know the solution

A curious feature of the Australian tax system is “bracket creep”. Taxpayers whose income climbs by no more than prices (inflation) get no increase in their living standards. Instead, they see more and more of their income pushed into their highest tax brackets, or to even higher tax brackets.

It means the government’s income from income tax keeps climbing, even if there are no more people paying it and the value of what they earn hasn’t climbed.

Here’s how it works. The first A$18,200 are tax-free, the rest up to $45,000 are taxed at 19 cents in the dollar, the rest up to $120,000 at 32.5 cents in the dollar, the rest up to $120,000 at 37 cents in the dollar, and anything in excess of $180,000 is taxed at 45 cents in the dollar.

Australia’s income tax scale

What each extra dollar of income is taxed at, excluding Medicare levy and offsets

Australian Tax Office[1] It means that as someone’s income climbs from, say, $80,000 to $90,000, a greater proportion of it is taxed at 32.5% and a lower proportion of it is either taxed less or untaxed. This happens even if rising prices mean what that person can buy hasn’t changed – or at the moment, with prices[2] climbing faster than wages[3], means their buying power has shrunk. Bracket creep is increased tax by stealth It’s why every few years the government trumpets a tax cut, which in reality is often no more than giving back some of the proceeds of bracket creep. It could all be ended if the thresholds at which each tax rate cut in were indexed to inflation, climbing each year in line with price increases. Read more: The budget's dirty secret is the tax hikes you're not meant to know about[4] Prime Minister Malcolm Fraser briefly introduced tax indexation in 1976[5] but abandoned it partially in 1979 and fully in 1982, finding himself not thanked for it. This week in the Australian Financial Review, economics professor Steven Hamilton made a persuasive case[6] for indexation based on “starving the beast.” As he put it, indexing brackets to inflation at this year’s budget may be the Liberals’ last chance this decade to put some brakes on the relentless creep of the state and the sapping of hard work and entrepreneurship, having spent a decade enabling it This argument has a degree of truth to it, for sure. An ever-expanding government is bound to become lazier and spend money less efficiently than a government that is income constrained. And it certainly doesn’t suggest that there is no role for government, as is suggested by US anti-tax campaigners such Grover Norquist[7]: I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub But there is also a progressive case for indexation. The progressive case for indexation If governments had go to voters and ask for a tax increase to fund additional spending (for any given budget surplus or deficit) then the link between tax and spending decisions would become clear. If voters wanted more services, such as better hospitals or a better national disability insurance scheme, they would have to vote for higher taxes. Bracket creep means the link is effectively hidden from them, as it shrouds the funding of spending. Read more: A simpler tax system should spark joy. Sadly, this one doesn’t[8] It sounds like a subtle shift, but it would be a significant one. Instead of the debate being about “we can get what we want without increasing taxes”, it would become “tax is worthwhile because unless we increase it we won’t get what we want”. Progressives ought to support the shift. The bottom line is that whatever your politics, there’s a strong case for indexing tax thresholds to inflation. It would make our tax and our political system more honest, ensuring politicians actually acted in our interests. References^ Australian Tax Office (www.ato.gov.au)^ prices (www.abs.gov.au)^ wages (www.abs.gov.au)^ The budget's dirty secret is the tax hikes you're not meant to know about (theconversation.com)^ 1976 (taxpolicy.crawford.anu.edu.au)^ persuasive case (www.afr.com)^ Grover Norquist (diehealthy.org)^ A simpler tax system should spark joy. Sadly, this one doesn’t (theconversation.com)Authors: Richard Holden, Professor of Economics, UNSW Sydney

Read more https://theconversation.com/vital-signs-stealth-tax-rises-are-eating-into-your-income-but-we-know-the-solution-177630

The Weekend Times Magazine

The Psychology of Your Floor Plan: How Layout Shapes the Way You Live

When most people think about designing a new home, they focus on finishes, colours, or even the kitchen benchtop. But the quiet hero of liveability is the floor plan. A...

Turning fashion into power - Beauty with Brains

During this unfortunate time of our lives there’s a hidden gem business which keeps the hopes up for many lives of women of all walks of life. Fashion...

Why Carpet Cleaning Services Are Essential for Clean and Healthy Interiors

Clean carpets are a defining feature of comfortable and well-maintained interiors. Carpet cleaning services play an important role in preserving cleanliness, improving indoor comfort, and supporting healthier environments across residential and...

Does Sydney Australia Have a Good Nightlife Scene?

In the last several years, Sydney's nightlife has changed dramatically. The New South Wales state government adopted Draconian lockout regulations in 2014, forcing city center venues to close their doors...

When Your Perth Pool Needs More Than Maintenance: A Guide to Pool Renovation and Resurfacing

Every pool surface has a finite life. The fibreglass gel coat of a fibreglass pool, the pebblecrete or render of a concrete pool, the vinyl liner of a vinyl pool:...

Year 11 Chemistry Tutor: Preparing Students for Senior Chemistry

Families considering year 11 chemistry tutor often look for a program that can support the student’s current subjects while building skills for future study. Zhang’s HSC Coaching provides structured programs, experienced educators...

The Importance Of Professional Electrician Services Sydney For Safe And Reliable Electrical Work

Modern homes, workplaces, and commercial facilities depend on safe and efficient electrical systems. When electrical issues arise or new installations are required, relying on expert electrician services Sydney ensures that all...

Understanding Root Canal Treatment – What You Need to Know

For many people, hearing the term root canal treatment brings immediate anxiety. It’s one of the most feared dental procedures, often associated with pain and discomfort. However, this perception is outdated...

Republicans have used a ‘law and order’ message to win elections before. This is why Trump could do it again

In 1991, Donald Trump’s mother, Mary, was mugged on a New York street. As Trump’s niece recounts in her new book, the young assailant slammed Mary’s head into her Rolls...