This opinion article by Business Council chief executive Jennifer Westacott was published in the Daily Telegraph on Friday 28 June 2019.
A simpler, fairer tax system will not just benefit those suffering from bracket creep, but the whole economy.
Every now and then, you get a chance to fix something that should have been dealt with years ago.
Right now, our politicians have the opportunity to reform the personal income tax system so it actually operates in the interests of Australian workers.
At the moment when Australians earn a little extra, they end up having to pay a higher rate of tax.
This slug on aspiration and effort is called bracket creep.
The principle of paying more tax as you earn more is fair enough.
But do we really need five tax brackets and a complicated tax system that rigidly punishes people for just trying to get ahead?
How is that fair?
Right now, many workers are forced to ask themselves what’s the point of working extra hours or getting a new job if the additional pay they receive is gobbled up by tax.
When it comes to putting in effort, one of the most punishing tax brackets is the one that catches Australians earning between $90,001 to $180,000 a year.
Once a worker earns one extra dollar over $90,000 a year, their additional hard work means they pay a higher rate of tax. Their extra effort is penalised. They’re left to pay $20,797 in tax as well as 37 cents for every dollar they earn over $90,000.
Under the Morrison government’s three-stage tax package, this tax bracket would be scrapped. It would be replaced with a system where 94 per cent of Australians face a marginal tax rate of no more than 30 per cent.
This would remove the disincentives that actively discourage workers from entering the workforce, doing a few extra hours, getting a new job, or working in Australia.
Importantly, the changes mean the system will remain a progressive tax system — workers who earn the most, will still pay the most tax. That’s fair.
Someone earning $200,000 will still pay 10 times the amount of tax that someone earning $45,000 will pay.
Taxes affect all our decisions. For some people taxes influence whether they’ll enter the workforce, for others it is about whether they’ll work overtime, take on training, change jobs, buy or sell a house, and take out insurance.
Under the proposed changes to lower taxes and start to tackle bracket creep, Australians will have more choices. They’ll be able to decide how they spend or invest more of their own money.
It’s a sure-fire way to ensure Australians can get ahead and it will help give the economy some much needed fuel to get cracking.
Reforming the personal income tax system is one of the first steps we need to take to ensure the Australian economy can grow faster.
Right now, our politicians have the opportunity to make a commonsense decision to improve the tax system so it unambiguously rewards Australians for effort. Wouldn’t it be terrific if everyone was on the same page, and we seized this moment to fix the complexity of the tax system so Australians could get ahead? Surely that’s a no-brainer.
If the government’s tax package is passed by parliament, it will mean Australians have more money in their pockets.
It will also force governments to be more efficient about how they spend taxpayers’ dollars.
Ultimately, it means Australians and their families can do more.
Low and middle-income earners stand to immediately receive up to $1080 each. This is the equivalent of at least a 0.50 percentage point interest rate cut.
Australians work really hard for their money, why shouldn’t they keep more of it?
There’s no reason to keep holding Australian workers back.
There’s no reason to keep a handbrake on aspiration.
There’s no reason to retain a complex and incentive-sapping system of five tax brackets that stops workers getting ahead.
C’mon parliament, let’s get this one done.