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| Returning to surplus relies on shifting tax burden to individuals, says economist | Returning to surplus relies on shifting tax burden to individuals, says economist |
| (about 3 hours later) | |
| The Turnbull government’s plan to return the budget to surplus is relying on the unrealistic assumption that the economy will grow so strongly it will generate tax revenue at record rates, a former treasury official has warned. | |
| Chris Richardson says the planned return to surplus is built on the assumption 44% of the estimated increase in national income over the next four years will be collected in federal taxes – which is a record-high share, he says. | |
| “I don’t think voters realise how large this tax increase will be,” Richardson told Guardian Australia. | “I don’t think voters realise how large this tax increase will be,” Richardson told Guardian Australia. |
| “It means two out of every five dollars of extra income generated by families and businesses between now and 2020-21, worth around $50bn, will go into Canberra’s coffers.” | “It means two out of every five dollars of extra income generated by families and businesses between now and 2020-21, worth around $50bn, will go into Canberra’s coffers.” |
| Richardson’s warning can be found in Deloitte Access Economics’s latest Budget Monitor, released on Monday. | Richardson’s warning can be found in Deloitte Access Economics’s latest Budget Monitor, released on Monday. |
| It comes after the Parliamentary Budget Office (PBO) revealed last month the Turnbull government’s plan to return the budget to surplus was heavily reliant on personal tax increases across every income bracket, with the largest tax increase to hit middle-income earners. | It comes after the Parliamentary Budget Office (PBO) revealed last month the Turnbull government’s plan to return the budget to surplus was heavily reliant on personal tax increases across every income bracket, with the largest tax increase to hit middle-income earners. |
| The PBO released a paper revealing for the first time how the government’s projected budget surplus in 2020-21 was relying on large increases in average personal income tax rates. | The PBO released a paper revealing for the first time how the government’s projected budget surplus in 2020-21 was relying on large increases in average personal income tax rates. |
| The tax hikes reflect a seismic shift in the taxation burden from businesses to individuals. The personal tax increases are necessary to compensate for the government’s controversial $65.4bn company tax cuts. | The tax hikes reflect a seismic shift in the taxation burden from businesses to individuals. The personal tax increases are necessary to compensate for the government’s controversial $65.4bn company tax cuts. |
| According to the PBO, the average tax rate on individual Australians is estimated to increase by 2.3 percentage points between 2017-18 and 2021-22. | According to the PBO, the average tax rate on individual Australians is estimated to increase by 2.3 percentage points between 2017-18 and 2021-22. |
| But there are large differences between income quintiles. Taxpayers in the first income quintile (the lowest 20% of income earners) will see their average tax rate increase by 0.2 percentage points over the next five years. | But there are large differences between income quintiles. Taxpayers in the first income quintile (the lowest 20% of income earners) will see their average tax rate increase by 0.2 percentage points over the next five years. |
| Middle income earners (with an average taxable income of $46,000) will experience the highest average tax increases of any income quintile, jumping 3.2 percentage points, from 14.9% to 18.2% over the next five years. | Middle income earners (with an average taxable income of $46,000) will experience the highest average tax increases of any income quintile, jumping 3.2 percentage points, from 14.9% to 18.2% over the next five years. |
| Taxpayers in the fifth quintile (the highest 20% of income earners) will see their average tax rate increase by 1.9 percentage points. | Taxpayers in the fifth quintile (the highest 20% of income earners) will see their average tax rate increase by 1.9 percentage points. |
| The PBO report showed the government was relying heavily on “bracket creep” to bring the budget back to surplus. Bracket creep is the phenomenon whereby taxpayers shift into higher tax brackets when their nominal incomes grow, due to inflation and/or real wages growth. | The PBO report showed the government was relying heavily on “bracket creep” to bring the budget back to surplus. Bracket creep is the phenomenon whereby taxpayers shift into higher tax brackets when their nominal incomes grow, due to inflation and/or real wages growth. |
| Richardson said the government would soon release its update on the state of the May budget, but the figures in that update would need to be interpreted carefully. | Richardson said the government would soon release its update on the state of the May budget, but the figures in that update would need to be interpreted carefully. |
| He said Treasury’s official forecasts were a “bit more optimistic” than his, and “rather more optimistic” on the ability of the tax system to generate extra tax dollars. | He said Treasury’s official forecasts were a “bit more optimistic” than his, and “rather more optimistic” on the ability of the tax system to generate extra tax dollars. |
| “Current conditions are the best for raising revenue that we’ve seen for years and, despite that, the tax take has only just managed to grow alongside national income – no faster, and with the recent spurt in national income growth already slowing once more,” he said. | “Current conditions are the best for raising revenue that we’ve seen for years and, despite that, the tax take has only just managed to grow alongside national income – no faster, and with the recent spurt in national income growth already slowing once more,” he said. |
| “There’s baked-in optimism [in the forecasts] that worries us. The official forecasts have revenues lifting from 23.5% of national income today to 26% in 2020-21. That difference– 2.5% of national income – says the tax system will generate $50bn more in four years than it does today. | “There’s baked-in optimism [in the forecasts] that worries us. The official forecasts have revenues lifting from 23.5% of national income today to 26% in 2020-21. That difference– 2.5% of national income – says the tax system will generate $50bn more in four years than it does today. |
| “Umm, pull the other one,” he said. | “Umm, pull the other one,” he said. |