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Personal Income Tax System in Australia

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on 13 June 2013

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Transcript of Personal Income Tax System in Australia

Thank you!
 I. Introduction  
1.1 About ‘Progressive Tax’
1.2 Principles of A Good Tax System

II. Examination of Australia’s Tax System
2.1 Overview of Current Tax System
2.2 Inequity
2.3 Lack of Simplicity

III. Conclusion

I. Introduction
A key source of funds
Fund activities and serve the public
2.2 Inequity
2.1 Overview of Current Tax System
Total Tax Revenue as a Percentage of GDP (2012)
3. Conclusion
Source: Australian Taxation Office
1.1 About ‘Progressive Tax’
Progressive Income Tax System
1.2 Principles of A Good Tax System
Income Tax
"The more you make, the more you pay in taxes"
Tax rates 2012-13
The most able should pay the highest amount of tax
Efficient taxes raise revenue without negative distortions
2. Efficiency
A simple system should be comprehensible
3. Simplicity
Australia does not have high overall tax levels
Source: Adapted from OECD
Much analysis of the latest tax reforms suggest that Australia’s tax system breaches all the principles.

e.g. Income inequality is widening
Is the Australian Income Tax System Simple to Understand and Apply?
A large proportion of Australia's tax revenue is sourced from wage and salary earners
2.2 Inequity
- Marginal tax rate
Low to middle income earners being disadvantaged through changes in the marginal rate of income tax.
Top, Marginal and Average Rates of Tax for those on Average Weekly Earnings (AWE)
An unfair tax system
A disincentive for low to middle income workers to work
Source: Australian Taxation Office
Tax Rates
Tax Rates
Source: ACTU calculations
Effective Tax Rates for High Income Groups ($180,000+ per annum)
Source: Adapted from Australian Council of Social Service (ACOSS) (2011)
Source: Australia’s Future Tax System (2008), Architecture of the Tax and Transfer System.
Percentage of Taxpayers Using A Tax Agent, 2005
Source: OECD (2005)
2.3 Lack of Simplicity
1. ACOSS. (2011). A fairer, more efficient tax and social security system. Sydney: ACOSS. Retrieved from:<http://acoss.org.au/images/uploads/A_fairer_more_efficient_tax_and_social_security_system_-_Sept_29_2011.pdf>
2. ACTU. (2011). Paving our way. Personal income tax in Australia. Melbourne: ACTU. Retrieved from:<http://www.actu.org.au/Images/Dynamic/attachments/7488/ACTU_Tax_Paper_4_Paying_Our_Way.pdf>
3. OECD. (2012). OECD tax revenue statistics 2012. Paris: OECD. Retrieved from: <http://www.oecd.org/ctp/taxdatabase>
4. OECD. (2005). Survey of trends in taxpayer service delivery using new technologies, Centre for Tax Policy and Administration, Forum on Tax Administration. Paris: OECD.
5. Treasury. (2006). International comparison of Australia’s taxes. Canberra: Commonwealth Government.
6. Treasury. (2008). Australia’s future tax system. Architecture of the tax and transfer system. Canberra: Commonwealth Government.
Personal Income Tax System in Australia
3. Increasing the tax-free threshold
The changes in marginal tax rate
Different treatment of various income source
Complexity of tax system
Inequities & Inefficiency & Lack of simplicity
1. The marginal tax rates
Tax brackets widen

Top marginal tax rate for the highest income earners
Reducing the tax advantages of diverting personal income into private companies and trusts, which have lower tax rate.
2. Taxing different types of income
in a more consistent manner
Q & A
Increasing top income tax rate for highest income earners to over 50% is a viable way to ensure fairness and reduce the gap between the rich and the poor. Do you agree? Why? (Current top tax rate is 45%)
Under the progressive tax system, a taxpayer's income is taxed in progressively higher blocks called "brackets".
Basic Criteria
People who earn similar incomes should pay the same level of tax
Horizontal equity
Vertical equity
II. Examination of Australia’s Tax System
Low to Middle Income Earners
High Income Earners
Source: Adapted from data from Treasury, 2006, OECD, 2012, ABS, 2012
Income Tax Liability by Income Level
– 2000 (indexed) and 2010
2.2 Inequity
Different treatment of various income sources
Rates scale
Lack of a concise definition of taxable income
Complex deduction rules
Numerous tax offsets
A variety of exempt (tax-free) forms of income
Australia does not have
a good personal Income Tax System
Reducing tax pressure for low to middle income earners

Favoring the low to middle income earners to work
e.g. Reducing work & investment incentives
26% of GDP
Reducing opportunities to avoid paying tax
Needs to become more progressive not less
Full transcript