The Government suddenly was in fresh discomfort, even though it is the Opposition which would put up income taxes, by eliminating Labor tax relief for low income earners. This was last year’s tripling of the tax-free threshold from $6000 to $18,000, saving about one million people from paying any tax.
Mr Swan might have mentioned that on-air.
Okay – this is getting ridiculous. I don’t want to criticise Malcolm Farr for repeating that silly line – the government has been pushing it all week.
It is trivially true that the government increased the tax-free threshold from $6,001 to $18,201 this financial year. But that does not mean that low-income earners will be paying a lot less tax. There is something called the Low-Income Tax Offset that previously raised the effective tax-free threshold for low-income earners to $16,000. Here is an outdated Wiki entry describing that:
The Low Income Tax Offset (LITO) is a tax rebate for individuals on lower incomes. From 1 July 2010 it provides individuals earning less than $30,000 with a tax rebate of $1,500. The full offset is reduced by 1.5c for every dollar of taxable income above $37,000, meaning incomes greater than $66,667 do not receive any benefit. The LITO creates an effective tax-free threshold of $16,000 for low income earners.
So what actually happened? Here is the government’s own explanation:
- The tax free threshold will be increased more than threefold, from $6,000 to $18,200, freeing up to one million low-income earners from needing to lodge a tax return from 2012-13.
- A higher statutory tax free threshold means better interactions with the transfer system and builds on the reforms the Government introduced in the Budget, which mean more cash in people’s take home pay from week to week and more immediate and direct returns to work.
- The LITO will be reduced from $1,500 to $445, with the benefit being reflected in the new tax free threshold.
- The combined effect of the higher statutory tax free threshold and the LITO is that the effective tax free threshold will rise to $20,542. This means that individuals can earn up to $20,542 from 2012-13 without paying any net income tax.
So the effective tax-free threshold increased from $16,000 to $20,542. To be fair that is not nothing – but it is not the tripling that the government is crowing about to anyone who will listen.
But don’t forget that the Gillard government also increased tax rates on low-income earners to claw back the increase in the threshold so that high-income earners (who actually pay the bulk of the net income tax) don’t get any benefit. This ‘punish the poor to screw the rich’ approach to government leads to all sorts of perverse behaviour. The picture below shows what the new tax scales are (I have truncated the 2015-16 scale):
This has been the pattern in the government argument over the economy in the last few weeks – statements that are trivially true, but misleading.