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Monday Rambling – A budget is coming

According to ATO data modelled by Deloitte Access Economics…

This is just for personal income tax, and it is Access updating the ATO data from 2018.

Just because it makes people angry, let me say that is you earn more than $180,000 you are in the top 3.4% of Australians (now for the excuses).

But back to my argument – of the $210 billion raised in personal income taxes each year, the top 1% pay $37.8 billion and the top 5% pay $73.5 billion.

We are currently running a structural deficit of $40 billion a year. So how do we fix the deficit by taxing the rich? 

  • We could double the tax on the 1%, but that would mean we would need to have a tax rate over 100% applying from somewhere around $250,000.
  • We could increase the tax on the top 5% – those earning more than around $165,000 –  so we would need a tax rate kicking in at around this income bracket of about 80%.

The obvious conclusion is you can’t fix the deficit with tinkering with the top tax rates. 

You really would need to “go Denmark” with your individual tax system – Denmark has a top tax rate of 55.9%, kicking in at 1.3 times average income (which would be at $85,000 in Australia) and has a 25% GST.

So when in next week’s budget there is the extension of the Low and Middle Income Tax Offset and the bringing forward of the 2024 tax bracket changes ($40,000 to $200,000 at 30%), let’s not pretend that we are throwing away an opportunity to fix our future deficits by “taxing the 1%” more. 

After thought – if 97%+ of Australians have a highest marginal rate of 30%, and the tax rate on a company is either 25% (from 1 July 2021 for Base Rate Entities) or 30%, does that mean much of the benefit that Div 7A was supposed to stop is gone?

How about a concession from Div 7A if the shareholder earns less than $200k (including the loan) and the company is not a base rate entity? I think I like this idea…

By Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.

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