The ATO have released the latest taxation statistics – for 2008-09. This is the first year of the GFC. As with previous years I have calculated the tax share of net income tax paid for the top 25 percent of taxpayer, the middle 50 percent of taxpayers and the bottom 25 percent. This year the shares are unchanged being the same as the previous year.
I’ll be posting more of the stats I normally calculate over the next couple of days.
Looking at those figures I don’t know why we bother taxing the income of the bottom 25%.
TerjeP
6 Apr 11 at 9:15 pm
assuming the spending levels don’t change what would you want top do, Terje, hit the higher rates with it or do what Europe and the US have been doing, which is to borrow it until there’s a debt crisis?
It can be only of those two things.
JC
6 Apr 11 at 9:20 pm
Taxing the bottom 25% is more instructional than anything else… the aim is to keep that group vaugely in touch with the real world. The hope (foreorn?) is that they slightly understand that taxpayers fund the whole show… and the transfers they receive.
Siltstone
6 Apr 11 at 9:51 pm
I agree with Terje — bothering 25% of people to collect 2% of tax doesn’t seem like a great use of time or resoures to me (how much does it cost to get the 2%?). I also wonder how much the next 25% accounts for.
conrad
6 Apr 11 at 9:52 pm
It’s a bit hard to tell exactly from Sinclairs chart but it looks like the bottom 25% contribute 3% of personal income tax. Personal income tax is 42% of federal tax revenue for the year in question*. So we are talking about something like 1.26% of tax revenue. It could be paid for by a one off six month freeze in federal government spending growth. No spending cut required just a short growth freeze.
However if you don’t want to permit me to alter the trajectory on spending (why on earth not?) then I’d suggest that we fund it by defering the proposed cut in the corporate tax rate.
* http://www.budget.gov.au/2010-11/content/bp1/html/bp1_bst5-07.htm
TerjeP
6 Apr 11 at 9:53 pm
Fine Conrad,
Would also advocate a commensurate spending?
JC
6 Apr 11 at 9:54 pm
So we just do it to annoy them?
TerjeP
6 Apr 11 at 9:55 pm
I’m not against the idea Terje, but how do you do it?
Sleetmute
6 Apr 11 at 9:56 pm
Sinclair – are these figures for households or for individuals. Also what are the respective income thresholds for the quartiles?
TerjeP
6 Apr 11 at 9:56 pm
Not to annoy them, to prompt them to ask “what happens to the tax I pay?”
Siltstone
6 Apr 11 at 9:57 pm
Individuals.
Will have to look them up.
Sinclair Davidson
6 Apr 11 at 9:58 pm
No because you end up with the situation in the US where now more than 50% don’t any income tax burdening the higher levels.
No not all. But you cut that first or at the same time.
JC
6 Apr 11 at 9:58 pm
Why bother taxing the bottom 75% at all? We should just tax the rich into oblivion. Out of fairness, solidarity and social justice of course.
Big Dumb Fu
6 Apr 11 at 9:59 pm
Siltstone – I’d rather they knew that their contribution was zip. At the moment they can imagine that their contribution is significant. If they paid no income tax I actually think they would be more reflective about income tax in a positive way. In any case I don’t think the point of tax policy should be to make people think about tax policy.
TerjeP
6 Apr 11 at 9:59 pm
Why shouldn’t they be annoyed? It’s not enough that their poor, they’ve also get to be lazy?
For my money, the best advance would be outlawing all tax deductions and slashing the rates. 95% of returns could then be done on one page by someone who graduated from an Australian high school.
We could also fire 95% of the ATO workers and make 95% of Australia’s accountants redundant. Bi-winning.
Infidel Tiger
6 Apr 11 at 9:59 pm
That depends on spending.
TerjeP
6 Apr 11 at 10:01 pm
I agree.
That depends on spending.
TerjeP
6 Apr 11 at 10:01 pm
Lol… but cutting the bottom 25% to zero? Not so much.
JC
6 Apr 11 at 10:03 pm
JC – I really don’t think that for this sort of cut the sequence matters overly. The amount involved is very small. If you cut this tier of income tax and you have a commitement over the cycle to balanced budgets then it will come out in the wash as revenue grows (off the back of GDP growth). And in fact trimming taxes first can give you more political leverage for subsequent spending discipline.
TerjeP
6 Apr 11 at 10:04 pm
I repeat, how do you do it. Especially without creating a massive EMTR at the 25th income percentile.
Sleetmute
6 Apr 11 at 10:07 pm
TerjeP, I make my comments based on observations of people who move from a zero income tax situation to positive income tax situation (no matter how large). In my experience, it comes a a big surprise to them and they focuss more on how money moves from individuals to governement and vice versa (which is a good thing).
Siltstone
6 Apr 11 at 10:07 pm
I agree with Terje, although that leaves the question of Medicare. (Do Sinclair’s figures include or exclude that?)
If at the same time something like school education vouchers were introduced to replace “free” schooling, the government could argue the tax cut paid for any additional costs incurred by parents.
DavidLeyonhjelm
6 Apr 11 at 10:07 pm
The income tax contribution by this tier is less than what is raised from tobacco taxes. It is a nuisance hounding a quarter of the population for so little revenue.
TerjeP
6 Apr 11 at 10:08 pm
That’s a good argument for removing tobacco tax then.
Infidel Tiger
6 Apr 11 at 10:09 pm
Terje
Once you get over 50% of people not paying taxes, you end up with a constituency ripe to be used by the left to rape and pillage the group that is less than 50%. That’s the plight of the US right now.
You can’t ever rely on things like agreements to balance the budget in perpetuity because the leftwing party will break the agreement or force the wavering conservatives to break it.
We’ve seen no evidence that trimming taxes allows for fiscal discipline either here or in the US.
JC
6 Apr 11 at 10:10 pm
Increase the tax free threshold.
It will decrease EMTRs.
TerjeP
6 Apr 11 at 10:11 pm
David L
The problem is not taxes.. It’s spending which is the root of the evil.
JC
6 Apr 11 at 10:11 pm
So you’re against the cut in the corporate tax rate that both major parties are supporting. And the cut this coming July in the 38% tax bracket?
TerjeP
6 Apr 11 at 10:12 pm
Get rid of income tax altogether. Decrease gov spending and raise the little gov actually needs via a consumption tax.
Big Dumb Fu
6 Apr 11 at 10:14 pm
TerjeP, dont confuse income tax with corporate tax. I’m with JC, the proportion of individuals paying income tax affects the attitude to government spending.
Siltstone
6 Apr 11 at 10:15 pm
Yes but where to start?
TerjeP
6 Apr 11 at 10:16 pm
I don’t and I haven’t.
TerjeP
6 Apr 11 at 10:16 pm
Terje, if you increase the tax-free threshold, you will be reducing tax to *all* taxpayers, not just the bottom 25%. That will be much more costly to the budget than losing 3% of income tax revenue.
Sleetmute
6 Apr 11 at 10:17 pm
Cutting spending is where it starts. Up to half of the departments could go in one fell swoop. Next entitlements, next privatising health and education, allowing the private sector to run these and fund only those that genuinely require help accessing the service rather than trying to run the whole operation.
Big Dumb Fu
6 Apr 11 at 10:18 pm
In terms of how they are going about it? For sure.
labor’s so-called cut in the corp rate is being financed by an almighty hike in a resources tax. The money coming from RRST to support the corp tax cut by that measly amount is minuscule in comparison to what they want to thieve.
The libs is total bullshit. On the one hand they are raising a “levy” which they laughingly describe as not being a tax to fund another nanny state program for woman that want to stay at home with their kids for 6 months, and the cut is equal to the hike. In other words it’s bullshit.
JC
6 Apr 11 at 10:19 pm
I can’t believe that anyone aware of that figure can say that the top 25% are not paying their fair share.
dover_beach
6 Apr 11 at 10:23 pm
Fu
What would you need as government depts.
1. Treasury and finance.
2. foreign affairs.
3. military
4 social welfare… tiny.
5. legal/AG.
that’s about it.
JC
6 Apr 11 at 10:31 pm
Yes you are technically right. There would have to be an increase in other rates and hence higher EMTRs for some people as you indicated. Still I think the tax free threshold should be increased as much as possible and I think it is still probably achievable without a bit impact on EMTRs. Obviously for many people EMTRs would fall.
TerjeP
6 Apr 11 at 10:37 pm
So it’s just pushing people into higher brackets than before… at least those that pay all the tax. Is that a smart move?
JC
6 Apr 11 at 10:38 pm
If I was an independent sitting in parliament there is no way I would vote against the proposed tax cuts on the basis that it was the wrong way to go about it.
TerjeP
6 Apr 11 at 10:39 pm
Without the actually thresholds and numbers it is hard to say.
TerjeP
6 Apr 11 at 10:40 pm
Please. they will form part of an omnibus bill that will include the RRST or the childcare levy.
Stop being so silly. The tax burden would going up, not down with labor and no change with the Libs except there will be a huge new program with theirs (libs)
JC
6 Apr 11 at 10:44 pm
That’s about it jc. I could be convinced of more but it would have to be some compelling shit.
big dumb fu
6 Apr 11 at 10:49 pm
JC – the government has indicated that the cut in the corporate tax rate will be on a separate bill to the new taxes. This is why the Liberals are saying they will support it.
TerjeP
6 Apr 11 at 10:56 pm
Terje
SwanDive and Duck bum have repeatedly said the tax cut in contingent on getting the resources taxes up and going.
JC
6 Apr 11 at 11:01 pm
Negative income tax still seems like best option. Not even that expensive if EMTRs are low enough and it’s combined with lowering or abolishing the minimum wage to incentivise work.
Mitch
6 Apr 11 at 11:03 pm
Sinclair: Brilliant!
Tim Curtin
6 Apr 11 at 11:19 pm
It is not what they have been saying over the last week.
http://www.heraldsun.com.au/business/corporate-tax-cut-in-abbotts-hands/story-e6frfh4f-1226030331500
TerjeP
6 Apr 11 at 11:38 pm
It’s a trick. Does the tax extinguish if the resources tax doesn’t got through? I don’t know for sure but I’d be betting there would be a condition to it as Swandive knows he can’t get the tax cut through the next senate as the Greens oppose the tax cut but support the resources hike.
JC
6 Apr 11 at 11:43 pm
Clearly it is tactical. However I don’t think it is a trick.
TerjeP
6 Apr 11 at 11:49 pm
Perhaps, I have no way of telling and wouldn’t accept it at face value because of the dishonesty of this government.
JC
6 Apr 11 at 11:51 pm
Actually, what Terge is suggesting is similar part of the Henry tax review. One of the recommendations was to move the Tax free threshold to around 25k, which according to the 08/09 tax stats, about the 17th percentile, and raise the rate to 35 cents in the dollar so that those earning between 25k and around 180k all pay 35 cents in the dollar on everything above 30k (plus medicare levy), but then again, Swan has dismissed that out of hand and it would increase the tax burden on income earners earning between 70k and 90k.
Tator
6 Apr 11 at 11:58 pm
Actually Tator that would have been a decent idea to be honest, as it would have removed a great deal of churn in that threshold and would have helped prevent further churn as people could then use the argument that the lower thresh. was tax free.
Nearly all of the Henry review was good except for the RRST and even that could have been figured better depending on where the corporate income tax level was going to cut in at.
JC
7 Apr 11 at 12:06 am
You’ll need police and a fire service.
Immigration.
Civil Aviation.
Health.
Education.
Abu Chowdah
7 Apr 11 at 12:18 am
You only need small regulatory bodies to provide policy framework for some of those things. Certainly not sprawling departments with 1000 public servant or more like we have now. I think all those could be grouped under a lean regulatory department, aside from the police and fire services which would be part of security, internal and external.
As for immigration, how big would this need to be? With no welfare, entitlements, minimum wage etc, what restrictions to immigration would be required, that would require a department?
Like I said I am happy to be convinced of more required functions, but the case needs to be compelling. I can’t see why a government needs to own and operate either schools or hospitals when there is a functioning private market along side the public option. It is akin to them opening a McGov burgers in a food court next to private options.
Big Dumb Fu
7 Apr 11 at 5:29 am
Cops and fireman are pubes. You’ll need 20000 of them for NSW.
And you need warm bodies at airports and sea ports. Customs etc.
I agree you can downsize, but the real issue is the ratio of wombat to combat. You need to trim the former and boost the latter.
Abu Chowdah
7 Apr 11 at 6:42 am
If you reduce the laws, you’ll reduce the need for policing them, but basically I agree with you. And the wombat to combat ratio sums it up nicely.
Big Dumb Fu
7 Apr 11 at 7:00 am
JC: The Henry Review was good, Swan stuffed it up beyond recognition.
FUBAR from the land of Fubaria.
.
7 Apr 11 at 7:04 am
JC:”No because you end up with the situation in the US where now more than 50% don’t any income tax burdening the higher levels.”
Shouldn’t you be happy about that? In HK I think the figure is over 70%. I don’t see the problem with 25% at all (especially because there is already GST etc.). If that means some very trivial amount is absorbed by some other group (or saved via not spending), that’s a good trade-off, especially because of money saved due to collection. I still don’t even know if it costs more to collect the 2% than you get back.
conrad
7 Apr 11 at 7:08 am
We ought to get rid of the most inefficient taxes, slash rates and increase thresholds, until all we are left with is a 10% GST we merely extend to all goods with no zero rating.
.
7 Apr 11 at 7:15 am
Aren’t the income tax scales in the US less onerous for high income earners than the income tax scales in Australia?
TerjeP
7 Apr 11 at 7:52 am
This analysis neglects the extent to which the rich CLAW BACK THEIR TAXES through uplifts in asset values caused by developments built with other people’s labour, other people’s capital and, worst of all, other people’s taxes. By way of illustration I quote from Don Riley’s introduction to Fred Harrison’s book Wheels of Fortune:
[Unquote.]
In his own book, Taken for a ride, Riley concluded that infrastructure should be financed out of uplifts in land values — and that this would be good for property owners, because the self-funding mechanism would lead to more infrastructure, hence more uplifts in land values, albeit without burdening taxpayers who don’t share in the benefit.
Gavin R. Putland
7 Apr 11 at 9:00 am
Gav – so should people with poor infrastructure be compensated?
.
7 Apr 11 at 9:35 am
Henry George invented this idea.
http://en.wikipedia.org/wiki/Georgism
Georgist philosophy is usually associated with the idea of a single tax on the value of land. Georgists argue that a tax on land value is efficient, fair and equitable, and will generate sufficient revenue so that other taxes, which are less fair and efficient, can be reduced or eliminated.
Standard economic theory suggests that a land value tax would be extremely efficient – unlike other taxes, it does not reduce economic productivity.[1] The 1976 Nobel Memorial Prize winner Milton Friedman, agreed that Henry George’s land tax is potentially beneficial because unlike other taxes, land value tax does not depress economic activity by imposing an excess burden (or “deadweight loss”) on the economy. A replacement of other more distortionary taxes with a land value tax would thus improve economic welfare.[4] Additionally, a land value tax would be a tax of wealth, and so would tend to reduce income inequality.
RodClarke
7 Apr 11 at 10:47 am
Rod
We did Henry here a few years back.
JC
7 Apr 11 at 11:01 am
That’s actually fairly attractive isn’t it?
If it doesn’t tax upward mobility, I’m more for it.
.
7 Apr 11 at 11:07 am
The top 25% earn more than $67,503 and the bottom 25% less than $30,543.
Sinclair Davidson
7 Apr 11 at 11:11 am
What are the standard criticisms of Georgist thought? Sinc, I know you have a history here.
dover_beach
7 Apr 11 at 11:32 am
Thanks Sinclair. I think the notion of making the first $30k of income free of income tax makes a lot of sense. It should be paid for by freezing federal government spending growth for a few years.
TerjeP
7 Apr 11 at 12:08 pm
I think the notion of making the first $30k of income free of income tax makes a lot of sense. It should be paid for by freezing federal government spending growth for a few years.
The Coalition ought to consider this very seriously.
dover_beach
7 Apr 11 at 12:11 pm
It would also be interesting to know the cost of abolishing the top 45% bracket for income above $180k. I doubt it brings in much income simply because most people are below this income threshold.
TerjeP
7 Apr 11 at 12:26 pm
Dover – here.
Sinclair Davidson
7 Apr 11 at 12:49 pm
Terge,
Dropping the 45% top bracket to 30%:
$5,696,702,355 or in short terms, $5.7 billion (4.9% of income tax revenue) would be the drop in revenue according to 08/09 tax stats compared to the
$3.1 billion (2.7%) that the bottom 25% contribute in total.
Tator
7 Apr 11 at 2:10 pm
ATO Tax Stats 2008-09:
“762,442 companies lodged returns, a 1.3% decrease from 2007–08
companies reported total income of $2,272 billion, a 0.4% increase from 2007–08.”
That’s double the size of Australia’s GDP!
Capitalist Piggy
7 Apr 11 at 2:44 pm
Dot: If public revenue comes from land values, those with poor infrastructure, hence low land values, make low contributions to the cost of government. Therein lies the “compensation”.
Gavin R. Putland
11 Apr 11 at 4:58 pm