NCPA - National Center for Policy Analysis


May 15, 2006

Australia's latest budget sure was comprehensive. It touched on income tax rates, health care, defense, infrastructure spending and pension savings, to name a few. Treasurer Peter Costello made changes in all of these areas. The trouble is, he did so too timidly, says the Wall Street Journal.

Australians are saddled with some of the highest individual income tax rates in the world:

  • Those who make more than A$95,001 ($73,516) -- the top tax bracket -- pay a whopping 47 percent on their earnings.
  • The next tax bracket, which cuts in at A$63,001 ($48,753), charges 42 percent.
  • And don't forget the 10 percent goods and services tax, which everyone pays.
  • No wonder the top 25 percent of Australian income earners contributed roughly 64 percent of the country's total net tax in 2002-03, the latest data available.

Costello addressed this burden, but just barely, says the Journal.

  • He cut both top rates by 2 percentage points, bringing them to a neat 45 percent and 40 percent, and raised the income thresholds a bit -- but without indexing them to inflation.
  • There wasn't much to do with the lower tax brackets -- the bottom quartile pays only about 3 percent of Australia's taxes, anyway. (That didn't stop Australia's liberals pronouncing it a "budget for the rich.")
  • The treasurer also tinkered with family tax benefit eligibility, gave a one-off payment to self-funded retirees, and pushed some money toward so-called "aged care givers."

But not a word was said about significant income tax cuts or simplification to the code itself, which is sorely needed, says the Journal. It's been estimated that more than 80 percent of Australians use accountants to do their taxes. The 2005 "TaxPack" ran to 140 pages. And that excludes the Supplement, which is another 70 pages.

Source: Editorial, "Australia's Timid Budget," Wall Street Journal, May 11, 2006.

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