Income tax key driver towards surplus: PBO

Colin Brinsden, AAP Economics Correspondent
(Australian Associated Press)

 

The federal government’s promise to bring the budget back to surplus is predominantly on the back of an increase in personal income tax revenue, a new analysis has found.

The independent Parliamentary Budget Office found the average tax rate faced by individuals is estimated to increase by 2.3 percentage points between now and 2020/21 with middle-income earners bearing the largest burden at 3.2 percentage points.

“This reflects the impact of bracket creep, on account of both inflation and real income growth,” the PBO says in the report released on Wednesday.

“In addition … average tax rates are projected to increase due to policy changes, most notably the policy decision to increase the Medicare levy from 2019/20.”

Shadow treasurer Chris Bowen jumped on the report, saying it vindicates Labor’s opposition to the Medicare levy increase on low and middle-income earners.

Labor wants the levy to be more targeted towards the higher end of the income tax scale.

“Despite the Liberal Party’s low tax talk, the Turnbull government is only delivering tax cuts for big business while actually increasing income taxes for low and middle-income earners,” Mr Bowen said in a statement.

Business Council of Australia chief executive Jennifer Westacott told the National Press Club it has previously called for tax reform aimed at middle-income earners because of bracket creep.

But she says “to get wages to go up, which is a huge issue in the Australian community, you cannot do that unless you raise productivity.”

She insists tax relief for medium and large companies will drive higher wages, more job creation and stop Australia’s slide in being uncompetitive on the world stage.

The Turnbull government’s next phase of business tax cuts is still up for debate in parliament, with Labor remaining opposed to lowering the rate for all businesses to 25 per cent.

Ms Westacott, who recently returned from Washington, heralded Donald Trump’s plan to reduce the US rate from 35 per cent to 20 per cent.

“We are falling behind; it is not about companies and directors and boards, it is about workers and wages,” she said.

Her push comes as charity organisation Oxfam seized on tax office figures showing multinationals avoided paying an estimated $2.5 billion into the public coffers in the 2014/15 financial year – a figure it thinks is conservative.

“This is still $2.5 billion which could be used to pay for schools, hospitals and other essential public infrastructure,” the group’s economic policy adviser Joy Kyriacou said.

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