Why Australia's tax system needs an overhaul

OPINION: These were the words of Treasurer Joe Hockey in advance of an address he was to give to the Tax Institute and the Chartered Accountants of Australia and New Zealand last Monday week:

"Bracket creep is a 'stealth tax' that is slowly choking Australia's workers and 'if people are left in those higher tax brackets, this can lead to negative financial and economic outcomes for individuals and the nation... the incentive for hard work is blunted - and inflation means that without a real wage rise, people pay a higher and higher average tax rate each year'.

Bracket creep is a lazy way for government to "raise extra money without drawing the attention of the public".

A strong argument for change sure to become one of the mantras of the Coalition in the next election as they make the case for smaller government and an increased GST.

The response of the audience after Hockey's speech? It was long on rhetoric, short on an action plan. Surprising that!

So just how does Australia rate, income tax-wise?

Not including our 2% Medicare levy that tops it off, Australia's top tax rate is 47%.

Compare that with 33% in NZ, 20% in Singapore and 15% in Hong Kong and you'll soon see why commentators are saying that unless there is vast and speedy improvement Australia is looking at a serious brain drain.

Income tax thresholds have not been adjusted since 2008, which is the government's cynical imprimatur for bracket creep as inflation has compounded since at around 3% per year.

And not forgetting that Hockey's government was responsible for lifting the top tax rate by 2 percentage points to 47% on coming to government.

The reality is now that within two years the average tax payer in Australia will pay a marginal tax rate of 39%, not 33, not 20, not 15.

To put our tax system in perspective, a recent study by the Institute of Public Affairs had this to say:

"The government's annual income tax revenue, adjusted for inflation, has grown by 1332% since 1960, twice as fast as household income over the same period.

Since 1960, the share of household income snatched by the ATO has climbed from 6% to 13% while the share spent on food has fallen 6.4%, rent 3% and clothing 2%."

I mentioned a brain drain earlier. There's nothing surer.

Young professionals studying for their qualifications and serving time as interns will become citizens of the world.

The reward that awaits them here in Australia is a 47% tax rate, a 2% Medicare Levy, a 1.5% Medicare surcharge and a HECS bill of tens of thousands of dollars repayable through the tax system.

They'll be lucky to take home more than 35% of their hard-earned if they stay here!

All to support an increasingly dysfunctional government system which threatens over time to turn Australia into a third world country, where the personal endeavour of our achievers is rewarded by involuntarily inviting swarming scavengers in to sup.



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