Industry Comment

Association of Chartered Certified Accountants

Bracket creep, coupled with the GST, has hit low and middle income earners hard, and they are paying more tax than ever.

This has been demonstrated by a recent OECD report into the taxation on wages, and the Federal Government must address income tax as a matter of urgency, or risk permanent damage to the economy.

The OECD report reveals that the average Australian worker with a spouse and two children incurred a 1.2 percent increase in tax between 2000 and 2002, the fifth highest increase of any country in the world.

Compared with most other countries, Australia’s top marginal tax rate cuts in at a very low $60,000.

In the US, the top personal tax rate does not apply until income reaches the equivalent in US dollars of A$549,100.

In Hong Kong the figure is A$330,900 and in the UK it’s A$83,900.

Australia’s top personal tax rate is a high 48.5 percent, compared to 47.4 percent in the US, 15 percent in Hong Kong and 40 percent in the UK.

The average Australian wage is due to increase this year from $46,000 to $50,000, which means most workers will now fall into the second highest tax bracket, which starts at $50,000.

This has the potential to reduce economic activity as more money ends up in the hands of the government rather than in the economy.

The Coalition sold the GST to the Australian public on the basis that further income tax cuts would be introduced.

It is now time for the government to keep that promise.

To help pay for any reduction in income tax rates for middle and low income earners, the government should firstly examine whether there are inefficiencies in the way it collects tax and monitors compliance.

A thorough investigation into how efficient the government really is in collecting tax and identifying tax evaders, would no doubt uncover significant additional revenue.

Middle and low income earners should be the ones to benefit from any additional tax revenue identified through this process.

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