Associate Professor Dale Boccabella
The income tax changes related to the Carbon Tax partly implement recommendations from the Henry Review. That is to be welcomed, however there are some alterations to the tax scheme that have received little publicity.
The government’s carbon tax reform is designed to deliver tax cuts to those below $80,000 of taxable income. This is achieved through raising the tax free threshold, and also increasing marginal tax rates above the new threshold (15% to 19% and 30% to 32.5%) along with the lowering of the low income tax offset.
The increase in the tax free threshold, on its own, would go some way towards implementing the Henry Review indicative recommendation of raising the threshold to $25,000 and then having a flat 35% rate all the way up to $180,000 of taxable income.
However, the increase to the marginal rates that accompanied the threshold increase ensures the Henry Review ‘indicative’ recommendation is not fully implemented.
This is the first time in decades that marginal tax rates have been increased. The 15% rate goes up to 19%, while the 30% rate goes up to 32.5%. The low income tax offset will be reduced, and the tax-free threshold will rise to $18,200 from 1 July 2012 and $19,400 from July 2015.
Indeed, the combination of a higher threshold along with increases in two marginal rate bands ensures that those with taxable income above $80,000 are in the same position as they were in before the carbon tax changes. Accordingly any assertion that tax rates have gone up (which implies some pay more) is calculated to mislead.
The federal government estimates that around an extra one million people will not have to lodge a tax return, both due to the raising of the tax-free threshold, and because the deductions claimed for work-related expenses are proposed to rise from $300 to $500 in 2012 and $1,000 from July 2013.
However the one million figure is inaccurate, and an over-estimation. While this change is welcome, and it makes life easier for those with very simple tax affairs, a lot of people have a small number of shares because of the round of de-mutualisation and de-nationalisations over the decades. Even if they have only a tiny amount of shares, they still have to lodge a tax return.
Dale Boccabella is an Associate Professor of Taxation Law at the Australian School of Business, University of New South Wales.