Right now, the government white paper on tax – titled Re:think – won’t impact you at all. As a white paper, it is merely designed as a discussion starter on a series of tax-related topics that the government wishes to highlight. So what exactly are the key points that the government would like to address?
Overall tax levels
The purpose of taxation is to provide the revenue that the government spends maintaining the country; therefore, you would expect that annual government spending would be roughly equivalent to tax revenue. In the early part of this decade, that was the case; however, when the GFC hit in 2008, spending took a sharp upturn and tax revenue took a sharp downturn and there is now approximately $60-70 million annually between spending and revenue. Australia presently has an overall tax burden of 27% of GDP, which is low compared to other developed countries, so you can expect that the government might be looking at tax increases during the discussion process.
While overall tax in Australia is relatively low, personal and company income tax make up a disproportionately high (almost 60%) portion of tax revenue, with personal income tax accounting for close to 40% of tax revenue and company tax accounting for almost 20%. The implication here is that the government would be looking to generate greater tax revenue without increasing the burden on income tax.
So if the government isn’t (openly) planning on increasing income tax, where will the extra tax revenue come from? Re:think highlights the low level that our GST currently sits at (10%) and suggests that it is around half the level of other countries that have a goods and services tax (for example, the United Kingdom’s Value Added Tax – or VAT – is currently 20%). This seems to indicate that the government may be looking at increasing GST to be more inline with global levels.
Because tax brackets are fixed, lower income earners will ‘creep’ into higher tax brackets as their income increases in line with inflation. The result of this creep is that low and middle income-earners will move into higher tax brackets and shoulder more of the overall income tax burden.
Bear in mind that Re:think is only a discussion paper, but it would appear that the government would like to discuss increasing tax through – among other things – higher GST, without increasing current income tax levels. In fact, it would be nice to think that they might even consider lowering income tax for lower income individuals by increasing the various tax thresholds!
By Jennifer Lowe
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