The tax rate tango

written by Robert Deutsch CTA *

The coming Federal Budget is likely to reveal some further tax initiatives that might assist the Coalition in its quest for re-election. One mooted change is a reduction in personal tax rates. I wonder if the Government might at the same time also consider some simplification around any new rates?

To that end, I put forward the following proposal:

What would all this achieve? Well, for a start, we would move from 5 to 4 brackets with more logical rounded bracket numbers and rates.

As the accompanying table shows, the crossover point would be $173,500. Tax would come down modestly for everyone on incomes up to $173,500 and go up slightly for everyone on incomes above that figure.

Of course, the Medicare levy would remain as an add-on.

I would suggest foreign residents should be taxed at 25% from dollar one rather than 35% (or as currently 32.5%). This reduction would at least make up for the recent disgraceful wholesale removal of the private residence exemption for non-residents.

The downside – the top rate would cut in lower down at $150,000 instead of $180,000. But, because of the more generous lower brackets, the cost to higher-rate taxpayers would be ameliorated.

It will need to be costed. This is something I have neither the resources nor the talent to do myself, but Treasury could do it in 15 minutes.

Some members have interpreted my favourable views on cutting the corporate tax rate as endorsing the idea behind trickle-down economics. I don't agree – it has nothing to do with trickle-down economics! Nonetheless, I thought this cartoon would have some appeal.

* Robert Deutsch is The Tax Institute’s Senior Tax Counsel. This article was first published in the 20 April 2018 issue of the Institute’s member-only TaxVine newsletter.


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