Bracket creep

 

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Where does the money go?
Sunrise Show on Ch.7 Prime  7am - 7.20am ongoing topic

Sunrise website http://www.seven.com.au/sunrise  

 

Organisations that monitor tax wastage

Waste Watch

Estimates Committee in Canberra

Productivity Commission

 

Peter McDonald
Taxpayers Australia
http://www.taxpayer.com.au/whats_new.asp

2002/03 Budget surplus built on bracket creep
http://www.taxpayer.com.au/download.asp?filename=budget3.pdf

The average Australian family is paying $8000pa more tax now in 2003 than in 1996. -- Mark Latham on Sunrise Show.

_____________________________________

Tax paid, based on an income of $31,125

Year Tax paid cumulative increase 

2001-2

5,717.50   

135.75

2002-3

6,067.60   

412.25

2003-4

6,430.90   

834.80

2004-5

6,897.70   

1,408.83

2005-6

7,198.60   

2,140.20

2006-7

7,604.20   

3,034.60

2007-8

8,025.10   

4,098.15

2008-9

8,461.90   

5,337.27

2009-10

8,914.90   

6,758.64

 

As salary increases rise with inflation we think it will protect the standard of living.

Australia has the highest top rate of tax payable of any major country.

Pay more tax and get to the highest rate quicker.

Australia 48.5, UK 40, NZ 39, US 38.6, Canada 29, Singapore 26, Hong King 17.

 

Part of the problem with our tax system is

People earning around  $45-46,000 before long they will be paying every extra dollar at a rich man's rate, which is a scandal.

Company tax is only around 30%

Part of the reason is Australia is a very small country in terms of population base.

Those who do pay tax we have to collect a very large amount from the small tax base. Government has to raise revenue from somewhere.

Peter McDonald, Taxpayers Australia

Tax threshold increasing by stealth

 

 
Salary

Tax  rate (%)

$0 - 6,000   

0

6,000 - 20,000   

17

20,000 - 50,000   

31.5

50,000 - 60,000   

43.5

60,000+   

48.5

Thresholds don't change and governments increase their income by stealth through bracket creep. River of gold for governments 
3% CPI, but through bracket creep they get 10-11%.
The last tax cuts we had were in 2000 which was a con. We got 12b tax cuts, but they took back  through GST
The government has already reaped back about 8-9b of that original 12b.
Tax system needs to be reformed, restructured

___________________________

Menzies increased taxation with the understanding that this increase will pay for a workers age pension.

----------------------------------------------------------

 

This is a transcript of The World Today broadcast at 12:10 AEST on local radio.



Bracket creep re-enters tax debate
The World Today
- Thursday, August  2, 2001  12:22
http://www.abc.net.au/worldtoday/s339582.htm

JOHN HIGHFIELD: Let's come back to Australia now and bracket creep, that nasty fiscal affliction where even modest wage earners are pushed into a higher tax bracket because of inflation is again under real scrutiny as the election-promises band wagon rolls into a higher gear today.

Debate over income tax cuts versus a GST roll back has put the focus squarely on the impact of this so-called bracket creep.

Finance correspondent Narelle Hooper looks at the arguments over creep-proofing our tax scales and whether we can afford it.

NARELLE HOOPER: How quickly last year's $12 billion in tax cuts have been forgotten and no wonder. Peter McDonald, the director of Taxpayers Australia, says they've been largely chewed up by bracket creep. The extra billion or so the Government rakes in from us each year as wages rise and taxpayers are forced through higher marginal tax thresholds.

PETER McDONALD: In the very first year after the introduction of GST it was estimated that the effect of bracket creep through income tax was somewhere between 2.5 billion and 3 billion extra tax dollars that were collected by the Government. The same would be true in the next year, so within two years the tax cuts that we got would have been 50 per cent clawed back.

NARELLE HOOPER: Now your research has also shown that there's a large bulk of the population galloping towards those higher tax brackets as well and this is partly the reason for the additional focus on cutting the higher rates.

PETER McDONALD: Well that's right. Just by extrapolating the normal movements in average weekly earnings, yes our figures show that over the next five or six years there'll be something like a twofold increase in the number of taxpayers who will be forced into the top marginal rate which we know is 48.5.

NARELLE HOOPER: So that will go from about 10 per cent of the population to nearly 20 per cent?

PETER McDONALD: That's right. And consequently there'll be also massive movements of taxpayers in the lower thresholds as well, and that will just continue.

NARELLE HOOPER: But even with last year's changes in tax rates and higher tax thresholds Peter McDonald says we're still paying too much tax.

PETER McDONALD: The marginal tax rates that we do pay in Australia are incredibly high by world standards and they do cut in at very, very low income levels, again by world standards.

The problem with having a bracket creep reduction is that it's, you know, it's just a way that politicians can basically make heroes of themselves by giving back what they've been pinching for, you know, many, many years.

What we would like to see is an automatic indexation of the threshold so they never take it in the first place so that when there are tax cuts in the future they in effect become genuine tax cuts.

NARELLE HOOPER: But as John Edwards, chief economist at HSBC, explains handing back that tax revenue in political terms is a $1.6 billion tax splurge that would only be worth a few dollars a week to the broad belt of voters in the middle income range.

JOHN EDWARDS: Well it's a very, very rough estimate, but what we're assuming is that if you wanted to avoid bracket creep and average weekly earnings are going up around about 4 per cent a year then you'd need to raise the scales for the income tax by about that amount and if you did that across the scale then that costs about $1.6 billion.

NARELLE HOOPER: Now that's in addition to the discussion about lowering the tax rates, which would cost a whole lot more. What are your thumbs on that?

JOHN EDWARDS: Well that's right. There's a puzzle with lowering the tax rate. It costs, because the current tax scales have been optimised last year for their political impact, it's difficult to change them without very great cost.

For example, most people are declaring tax incomes between $20,000 and $50,000 and they all pay one marginal rate, that is 30 cents in the dollar. But if you want to take that 30 cents in the dollar, but if you want to take that 30 cents down to 28 cents which is not a very big change, that will cost $2.5 billion and for that the average taxpayer is not going to get very much of a gain. You know, it's going to be of the order of $8 a week, for example, down the bottom, which, you know, I guess you could rent a video, but...

NARELLE HOOPER: Can the budget afford it?

JOHN EDWARDS: Well over time there's going to be room to do it, but in the short term, no. Next year the projected surplus in an underlying sense is only $1 billion so practically none of these things could be afforded and the following year it's around about $4 billion and then it begins to increase, so ultimately it can be afforded if that's the way we want to go.

NARELLE HOOPER: But we'll be waiting a long time?

JOHN EDWARDS: We'll be waiting, that's right.

JOHN HIGHFIELD: John Edwards is the chief economist at HSBC. He was speaking with our finance correspondent, Narelle Hooper.

 

_______________________________________

Tax cuts in doubt as billion-dollar prop for budget exposed
By Matt Wade
December 11 2002
http://www.smh.com.au/articles/2002/12/10/1039379836146.html

The Government is using a billion-dollar income tax trap to keep the budget in the black, casting doubt on the Prime Minister's hopes of delivering tax cuts.

New figures show that the federal coffers would be headed for a series of deficits if not for extra money being collected through "bracket creep" - when people pay more tax as they are pushed into higher tax brackets.

Both John Howard and the Opposition Leader, Simon Crean, have foreshadowed tax cuts on the table for the election.

But the new estimates suggest they will simply be giving back to taxpayers this tax-trap money, estimated to be an extra $17 billion over the next three years.

Without this revenue - which economists say hits low and middle-income earners hardest - the $2.1 billion budget surplus forecast for this year would become a deficit.

The figures, based on official budget predictions and estimates of bracket creep by the independent forecaster Access Economics, show that surpluses forecast for 2004-5 and 2005-6 would also lapse into deficit if not for the tax bonanza.

The Opposition claims the value of the tax cuts introduced in July 2000 to compensate for the effects of the GST has been seriously eroded.

"This is a significant reason why many Australian families are under intense financial pressure," said Labor's shadow assistant treasurer, David Cox. "Peter Costello has his hand in every taxpayer's pocket."

Last week Mr Howard put tax cuts back on the agenda, despite the likelihood that defence, national security and drought relief will put extra pressure on the budget.

"We are still a Government that believes where you have a capacity to do so you should reduce taxes," he said. "If you've got a bit [of tax revenue] left over the automatic assumption shouldn't be, oh whacko, we'll spend it. The assumption rather should be that we should find some capacity to give it back to the people who own it, and that's the taxpayer."

But Mr Cox, who has calculated the effect of bracket creep on the budget, said Mr Howard could not return its full value without producing a deficit.

"These figures call into question the underlying strength of the Government's budget position. The Government will be under financial pressure which will make the PM's capacity to offer tax cuts even more difficult."

Mr Crean said yesterday Labor planned to return some bracket creep revenue to taxpayers if it won government. "We have got to use income tax policy and the impact of bracket creep to get fairness back in the system."

Labor has declined to detail its tax proposals until more budget information is available, although Mr Crean ruled out indexing tax scales to inflation.

The new figures show that, if not for the tax trap, no party would be able to offer tax cuts after the election.

The latest Treasury forecasts for the 2005-06 budget - likely to be a focus for any promised tax cuts - point to an underlying cash surplus of $5.4 billion. But if the estimated value of bracket creep is deducted, it would be in deficit by nearly $1 billion.

Despite bracket creep, the budget slumped to a $1.3 billion deficit last year for the first time since 1996-97, despite a guarantee by the Treasurer, Peter Costello, that it would remain in surplus. Mr Cox called on Mr Costello to release official estimates of the value of bracket creep over the next three years.


______________________________________________________________

History of income tax
http://www.law.unsw.edu.au/subjhome/laws2051/CKV-Chapter02.pdf

 

Income tax in US
US 16th amendment, collection of income tax, illegal
See http://www.16thamendment.com/intro.asp.

It also led to evidence the income tax amendment was never properly ratified by the required number of states and therefore, income taxes were unlawful.

_______________________________________________

Stamp duty

Stamp duty is another area where the public are being ripped off by stealth. As the prices of houses go up stamp duty gallops ahead. Once the amount was inconsequential but with the increase in housing, people are paying large amounts which affect their affordability.

 

http://www.abs.gov.au/Ausstats/abs@.nsf/0/
C687DA0556BCE081CA256F7200832EF8?Open

28.2 CONSUMER PRICE INDEX, All groups index numbers(a)(b)

Sydney

Melbourne

Brisbane

Adelaide

Perth

Hobart

Darwin

Canberra

Weighted average of eight capital cities

INDEX NUMBER(c)

1998-99

122.5

120.9

122.9

123.2

120.1

122.5

122.4

121.5

121.8

1999-2000

125.4

124.1

125.0

126.3

122.9

124.8

124.2

124.2

124.7

2000-01(d)

133.2

131.6

132.4

133.5

129.6

132.0

130.9

131.9

132.2

2001-02

137.2

135.3

136.3

137.2

133.1

134.7

133.7

135.2

136.0

2002-03

141.1

139.7

140.7

142.7

136.8

139.1

136.8

139.7

140.2

2003-04

144.1

142.8

144.8

147.0

139.6

142.6

138.7

143.4

143.5

CHANGE FROM PREVIOUS YEAR (%)

1998-99

1.7

0.9

1.1

1.3

1.8

1.0

0.9

0.9

1.2

1999-2000

2.4

2.6

1.7

2.5

2.3

1.9

1.5

2.2

2.4

2000-01(d)

6.2

6.0

5.9

5.7

5.5

5.8

5.4

6.2

6.0

2001-02

3.0

2.8

2.9

2.8

2.7

2.0

2.1

2.5

2.9

2002-03

2.8

3.3

3.2

4.0

2.8

3.3

2.3

3.3

3.1

2003-04

2.1

2.2

2.9

3.0

2.0

2.5

1.4

2.6

2.4

3.0 3.0 3.0 3.2 2.9 2.8 2.3 3.0 3.0

(a) Reference base year is 1989-90 = 100.0.