Bracket creep to ensure that a million a year pay higher tax rates

[graemeh]

but as usual the media make it sound like the entire wages of an employee are taxed at a higher rate...

No, the politicians are smarter than that, it's death by a 1000 paper cuts

[Rolf]

A further 460,000 workers will see their tax rate double as wages growth pushes them from the 15c-in-the-dollar tax bracket into the 30c bracket.

No, this is simply sensationalism as usual.
While I'm very much for lower taxes I'm always surprised at how these kinds of articles are written. They are effectively saying that a worker will have to pay double the tax! But there is not a single 'tax rate', the income is split into the various brackets and the only effect of rising wages and static brackets is that a larger portion of wages will be taxed at the rate of the next bracket - but as usual the media make it sound like the entire wages of an employee are taxed at a higher rate...

[graemeh]

It needs to happen though. If the brackets change every year then it won't be that complicated as everybody will have their systems set up to cope with it.

The other option is a flat tax rate. I think this is a better option because it is simple and you can't avoid it.

The current system of tax brackets are just a scam because of inflation.

[ChrisD]

I shudder to think of the complexity of a tax system where brackets are indexed to inflation. Tax is a hot enough political topic that it's always part of policy agenda.

[muppet]

Bracket creep to ensure that a million a year pay higher tax rates

• Sue Dunlevy
• From: Herald Sun
• August 03, 2010 12:00AM
• MORE than one million Australians will have their pay rises eaten up by tax bracket creep over the next three years because neither side of politics is offering a tax cut. Workers earning $34,000 a year will see their tax rate double from 15c in the dollar to 30c over the next three years as politicians focus on paying off the nation's debt.

And a worker on $73,000 a year will be pushed from the 30c tax bracket to 37c by 2013.
It's called bracket creep and it happens when the tax scales are not indexed to take account of growth in wages.
The age pension and other welfare payments are indexed twice a year but the tax system is not automatically adjusted for inflation or wages growth.
A series of election tax cuts over the past decade has largely protected Australian workers from bracket creep.
On July 1 workers received the last of the scheduled $34 billion tax cuts promised by both major parties at the the 2007 election campaign.
An analysis prepared for the Herald Sun by the Melbourne Institute shows that without tax cuts over the next two years, wage rises will push 735,000 workers into a higher tax bracket.
By the next election in three years' time, 1.14 million Australians will be in a higher tax bracket.
More than half will be pushed out of the 30c bracket into the second-highest bracket where they will pay 37c in the dollar.
A further 460,000 workers will see their tax rate double as wages growth pushes them from the 15c-in-the-dollar tax bracket into the 30c bracket.
"I was surprised by these numbers and it's hard to believe that no one is going to change the tax thresholds," said Nicolas Herault, who conducted the analysis.
The modelling assumes wage rises averaging just 4 per cent when, in fact, wages have been rising by up to 6 per cent in the past five years.
To prevent bracket creep, the threshold for the 15c tax bracket would have to rise from $37,000 per year to $41,619 by 2013.
The threshold for the 30c bracket would have to rise from $80,000 to $89,989.
The Chartered Practising Accountants Association of Australia says a tax reform plan that would solve bracket creep is on the table but neither side of politics will adopt it.
The Henry Tax Review, commissioned by former prime minister Kevin Rudd, called for a major simplification of the tax system that would see the current $6000 tax-free threshold lifted to $25,000.
Anyone earning over $25,000 would pay a flat tax rate of 35c and there would be only one other tax rate, of 45c, applying to earnings over $180,000.
CPA general manager Paul Drum said 97 per cent of taxpayers would pay just 35c or less under this system.
"There's less brackets so there's less chance for bracket creep," he said.

http://www.heraldsun.com.au/news/special-reports/bracket-creep-to-ensure-that-a-million-a-year-pay-higher-tax-rates/story-fn5ko0pw-1225900281312