One of the stupidest decisions of the Abbott/Hockey government in the 2014 budget was the decision to impose a Temporary Budget Repair Levy, taking the top marginal income tax rate from 45 to 47 per cent; 49 per cent with the Medicare Levy. This took us back to where we were in 1988.
Abbott and Hockey were deluded enough to think this measure would make everyone describe the budget as FAIR, which of course it did not. But it didn’t stop Labor waving this measure through. (What’s the bet that Labor policy will be to keep it?)
Here’s my guess: there will be some distorting new taxes added to superannuation (because that’s fair)in the budget but then to appease some supporters, the Coalition will note that the Temporary Budget Repair Levy will be removed from 1 July 2017. The classic pea and thimble act.
And can I remind you of the latest figures on the distribution of income tax revenue (thanks: Noel Whittaker):
2.5 million 20% pay no tax
3.1 million 24% in the $18,200 to $37000 bracket = 2.7% of total tax
4.8 million 37% in the $37,000 – $80,000 bracket = 30% of total
2 million 16% in the $80,000 – $180,000 bracket = 39% of total
340,000 2.7% in the top bracket = 28% of total
Here is the piece from The Age
The Turnbull government is being called on to retain the temporary budget repair levy on high-income earners, which is due to expire next July, after conceding this week that tax cuts for individuals may be unaffordable in this budget due to lack of funds.
The temporary 2 per cent loading on the top tax bracket is scheduled to be removed in July 2017, giving high-income earners on more than $180,000 an effective tax cut.
Treasurer Scott Morrison pointed this week to the removal of the repair levy next year as an example of a future tax cut on the horizon – a comment designed to placate high-income earners who have been conditioned to expect tax cuts in this budget.
Prime Minister Malcolm Turnbull is under pressure to make the 2 per cent loading on high-income earners permanent. Photo: Andrew Meares
But now the Greens are calling on the Turnbull government to make that 2 per cent loading permanent, and also to introduce a new 50 per cent tax bracket specifically for ultra-high income Australians earning more than a million dollars a year.
Modelling by the Parliamentary Budget Office, obtained by Fairfax Media, and commissioned by the Greens, shows such an initiative would affect a small minority of taxpayers, and raise $4 billion over the next four years.
According to the modelling, which has been signed by Parliamentary Budget Officer Phil Bowen, if the temporary budget repair levy was made permanent it would affect only the top 1.3 per cent of taxpayers, 382,000 people.
If a new marginal tax rate of 50 per cent was introduced for people who earn more than $1 million a year, it would affect just 0.08 per cent of taxpayers, or 9850 people.
According to the document, those two tax changes would raise $4.1 billion for the government over the next four years, and potentially $24 billion by 2025-26.
Greens leader Richard Di Natale said the Turnbull government needed to seriously consider the proposal, given the pressures of disappearing revenue.
“Today, the Greens are putting these costings on the table and calling on the government to recognise that making the deficit levy permanent makes good economic sense,” he said.
“The alternative is to continue dismantling our social safety net and slashing funds for schools and hospitals, which is a recipe for a more unfair society.”
The temporary budget repair levy was introduced by the Abbott government in its 2014-15 budget and was designed to remain in place for only three years, to be removed in July 2017.
It increased the rate at which high-income earners are taxed for each $1 over $180,000, from 45 cents to 47 cents.
If the government allows the repair levy to expire next year on schedule it will find it harder to promise further income tax cuts because it would effectively be offering high earners two cuts.
It would also be hard to justify because the federal budget will still be in substantial deficit. When the deficit repair levy was introduced, the budget was facing a deficit of 2.8 billion in 2017-18. The forecast has since blown out to $23 billion.
On Tuesday, Treasurer Scott Morrison appeared to rule out the possibility of income tax cuts in this year’s budget, saying with little funds at his disposal, if he had to choose between personal and company income tax cuts, he would choose company tax cuts because they would boost economic growth.
The backdown on personal tax cuts came as his chief departmental advisor on tax, Treasury revenue group chief Rob Heferen, stepped down from the job to take a post in the industry department, where he will work on energy resources in northern Australia.