Saturday 24 January, 2014
The Australian Council of Social Service today released a new report on Australia's taxation system which examines how fair our tax is system currently.
Key findings:
The personal income system is relatively progressive:
Consumption and other indirect taxes are regressive usually ‘flat taxes’ with no tax-free threshold. They do not tax the portion of income that is saved, and high income earners save more
Overall, the average rate of the Goods and Services Tax paid declines with income, unlike income tax where it increases. ABS modelling shows:
Other ‘indirect’ taxes include business taxes like Payroll Tax, Stamp Duties, and Fuel Excise (this includes State as well as Federal taxes), which are largely passed on to consumers
These raise more revenue overall than the GST and together have a greater overall impact on household expenses. ABS modelling shows
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. In fact, the picture is much more nuanced, with a rate similar to that of a flat rate tax on incomes of around 25% (+ or – up to 4 %) on all income groups
The progressive effect of the personal income tax is substantially offset by the GST and other indirect taxes, so that:
The greater the role for personal income taxes in the overall tax mix, the greater the reduction in household income inequality from the tax system as a whole.
The Australian Council of Social Service today released a new report on Australia's taxation system which examines how fair our tax is system currently.
Key findings:
The personal income system is relatively progressive:
- Bottom 20% pays an average of 3% of their income
- Top 20% pays an average of 20% of their income
Consumption and other indirect taxes are regressive usually ‘flat taxes’ with no tax-free threshold. They do not tax the portion of income that is saved, and high income earners save more
Overall, the average rate of the Goods and Services Tax paid declines with income, unlike income tax where it increases. ABS modelling shows:
- The bottom 20% pays an average of $38pw in GST, or 7% of their income
- The top 20% pays an average of $103pw in GST, or 3% of their income
Other ‘indirect’ taxes include business taxes like Payroll Tax, Stamp Duties, and Fuel Excise (this includes State as well as Federal taxes), which are largely passed on to consumers
These raise more revenue overall than the GST and together have a greater overall impact on household expenses. ABS modelling shows
- The bottom 20% pays an average of $77pw or 14% of their income
- The top 20% pays an average of $183pw or 5% of their income
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. In fact, the picture is much more nuanced, with a rate similar to that of a flat rate tax on incomes of around 25% (+ or – up to 4 %) on all income groups
The progressive effect of the personal income tax is substantially offset by the GST and other indirect taxes, so that:
- The bottom 20% pays an average of $129pw or 24% of their income
- The top 20% pays an average of $1,006pw or 28% of their income
- The second 20% pays 21% of their income.
The greater the role for personal income taxes in the overall tax mix, the greater the reduction in household income inequality from the tax system as a whole.
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