Mid­dle-in­come earn­ers' tax hit to pay for Coali­tion com­pany cuts

The Guardian Australia - - Front Page - Gareth Hutchens

The gov­ern­ment’s plan to re­turn the bud­get to sur­plus is heav­ily re­liant on per­sonal tax in­creases across ev­ery in­come bracket but hit­ting mid­dle-in­come earn­ers hard­est, the Par­lia­men­tary Bud­get Of­fice has re­vealed.

Mid­dle in­come earn­ers (with an av­er­age tax­able in­come of $46,000) will ex­pe­ri­ence the high­est av­er­age tax in­creases of any in­come quin­tile, jump­ing 3.2 per­cent­age points, from 14.9% to 18.2% over the next five years.

The PBO’s pa­per, re­leased on Wednesday, re­veals for the first time how the Turn­bull gov­ern­ment’s pro­jected bud­get sur­plus in 2020-21 is re­ly­ing on spe­cific in­creases in av­er­age per­sonal in­come tax rates.

The tax hikes re­flect a seis­mic shift in the tax­a­tion bur­den from busi­nesses to in­di­vid­u­als. The per­sonal tax in­creases are nec­es­sary to com­pen­sate for the gov­ern­ment’s con­tro­ver­sial $65.4bn com­pany tax cut.

Ac­cord­ing to the PBO, the av­er­age tax rate on in­di­vid­ual Aus­tralians is es­ti­mated to in­crease by 2.3 per­cent­age points be­tween 2017-18 and 2021-22.

But there are large dif­fer­ences be­tween in­come quin­tiles. Tax­pay­ers in the first in­come quin­tile (the low­est 20% of in­come earn­ers) will see their av­er­age tax rate in­crease by 0.2 per­cent­age points over the next five years.

Tax­pay­ers in the sec­ond in­come quin­tile will see their av­er­age tax rate in­crease by 2.5 per­cent­age points.

Tax­pay­ers in the fourth quin­tile will see their av­er­age tax rate in­crease by 2.3 per­cent­age points.

Tax­pay­ers in the fifth quin­tile (the high­est 20% of in­come earn­ers) will see their av­er­age tax rate in­crease by 1.9 per­cent­age points.

The PBO re­port shows the Turn­bull gov­ern­ment is re­ly­ing heav­ily on “bracket creep” to bring the bud­get back to sur­plus. Bracket creep is the phe­nom­e­non whereby tax­pay­ers shift into higher tax brack­ets when their nom­i­nal in­comes grow, due to in­fla­tion and/or real wages growth.

The PBO says the gov­ern­ment’s pro­jected bud­get sur­plus is re­ly­ing heav­ily on more than 1 mil­lion Aus­tralians shift­ing into higher tax brack­ets over the next five years, where their av­er­age tax rates will in­crease.

Pro­jec­tions show over 900,000 tax­pay­ers will move from a mar­ginal tax rate of 32.5% to 37% be­tween 2017-18 and 2021-22.

Sim­i­larly, 700,00 peo­ple are pro­jected to move from a mar­ginal tax rate of 19% to 32.5% over the same pe­riod.

“In ad­di­tion to the ef­fect of nom­i­nal in­come growth, av­er­age tax rates are pro­jected to in­crease due to pol­icy changes, most no­tably the pol­icy de­ci­sion to in­crease the Medi­care levy from 2019-20,” the PBO re­port says.

Two weeks ago award-re­liant work­ers in the fast food, hos­pi­tal­ity, re­tail and phar­macy sec­tors lost mil­lions of dol­lars in in­come col­lec­tively after their pub­lic holiday penalty rates were cut in Vic­to­ria, Queens­land, New South Wales, the ACT and South Aus­tralia.

Ac­cord­ing to the McKell In­sti­tute, a La­bor-aligned think­tank, those work­ers may have col­lec­tively lost be­tween $4.7m and $9.5m on the grand fi­nal week­end, de­pend­ing on how many were ros­tered on.

The PBO warned ear­lier this year that the Turn­bull gov­ern­ment’s plan to re­turn the bud­get to sur­plus on the back of ris­ing per­sonal in­come tax re­lied heav­ily on a sharp ac­cel­er­a­tion in wages growth over the decade.

It warned the “sig­nif­i­cant slow­down” in wages growth ex­pe­ri­enced in the past few years sug­gested this gam­ble by the gov­ern­ment was sub­ject to “down­side risk”.

Pho­to­graph: Dave Hunt/AAP

Those with an av­er­age tax­able in­come of $46,000 will bear the high­est tax bur­den un­der in­creases pro­posed by the Turn­bull gov­ern­ment.

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