People Paying Less Tax Than Thought - ACOSS
27 January 2015 at 11:07 am
A new report by Australia’s peak welfare organisation has found that people are paying less tax than they think.
The Tax: Are we paying our fair share? report, released by the Australian Council of Social Service (ACOSS) examined how fair Australia’s tax system is currently.
It found that the lowest income earning household pays an average of three per cent of their income compared with 20 per cent for the highest earners.
Last week Federal Treasurer Joe Hockey told media that Australians were paying nearly half their income in tax, much higher than the figures shown in the ACOSS report.
However, the taxes with no tax-free threshold such as the consumption and other indirect taxes have been found to be regressive given that they do not tax the portion of income that is saved, and high income earners save more.
Other ‘indirect’ taxes such as Payroll Tax, Stamp Duties, and Fuel Excise, which are largely passed on to consumers, raise more revenue overall than the GST and together, were found to have a greater overall impact on household expenses.
“The combined effect of income and consumption taxes – including income tax, GST and other indirect taxes – when added together is not as progressive as often believed,” the report said.
ACOSS says the report is the first in a series addressing some of the key questions about the direction that tax reform in Australia should take.
“Australia has begun a new discussion about the case for tax reform in Australia and it appears there is broad agreement that there is a real case for reform,” ACOSS said.
“The main purposes of the tax system is to raise the revenue Governments need in an equitable way to provide services, benefits and infrastructure the community needs, including to strengthen business investment and growth.
“There are several important principles that should drive reform, one of which is the principle of equity of ‘fairness’. Fairness or equity should be a key measure against which any tax system is assessed.
“The Australian public has a keen sense of fairness, as demonstrated by the strong rejection of the recent Federal Budget, which failed the fairness test in a number of important respects,” the report said.
“This paper focusses on fairness of our current personal income and consumption tax systems, which are two parts of the system which impact on the broadest segment of the Australian community.
“If we are to get consensus on reform, it is important that we have a sound understanding of how the tax system operates now,” it says.
Download the full report here.
The report is completely flawed in it's calculation of tax rates, since it has distorted the denominator. ACOSS has bundled together income tax, GST & other taxes into the numerator – which is fair enough. But then they divide total taxes by a measure of gross income, which excludes many government benefits… Households in the lowest income quintile get 16% of their disposable income from private sources, 41% from government cash benefits, and 43% from government transfers for health/education/other social services. The average household in the lowest income quintile is getting over $46,000 of government handouts and services every year… These figures are sourced from page 28 of ABS 6537 "Government Benefits, Taxes and Household Income". Using a more meaningful denominator (disposable income after government transfers), gives the following tax burden by quintile: – lowest pay 10.0% average tax rate – second pay 14.4% – third pay 19.9% – fourth pay 25.4% – highest pay 32.7% in total taxes… which shows a steadily rising & progressive tax system This more closely aligns with the ATO's Taxation Statistics, which show that almost two-thirds of income tax is paid by less than 10% of the Australian population. ABS 6537 also provides the data showing that more than half of households are getting back more from the government than they pay in taxes…. The Australian government is already relying too much on a small number of people to pay the bills – income & consumption tax need to be broadened, and more savings found in taxpayer-funded expenses. Back in July-2012 the super contribution tax was doubled for high income earners (from 15% to 30%), at the same time as the tax free threshold was tripled (massively benefiting low to middle income earners). Since July-2014 the top marginal tax rate has been 49% after all levies are paid… Income inequality has been falling in Australia for half a dozen years (ABS 6523). Robin Hood has been working overtime in Australia for years!!!