The Great Missed Reform

Henry Review of Recommended Taxes

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Table A1–1: Indicative personal income tax rates scale

This is what I see as the great missed reform of the Henry Tax Review that the government is yet to adopt.

Although the system would seem to tax Australians on quite low wages at the same rate as those on quite high incomes the review includes a graph to show that the very generous $25,000 tax-free threshold would have the effect of making the average tax rate progressive in a more simple way than at present.

Australians moving from unemployment to low wage jobs would find the zero tax rate attractive without the need for complicated rebates and offsets…Peter Martin (he beat me to the punch on this post; his picture is better too)

This is exactly the reason I am supportive of this reform.  There is still the possibility it will be adopted in Tuesday’s budget but I think that is unlikely as I believe we are scheduled for another rise in the Low Income Tax Offset (LITO) that has been announced in a previous budget.  The Henry Review does say

A tax scale of this kind could be implemented gradually, taking into account existing settings on marginal tax rates, offsets and the definition of income.

I say let’s get on with it.  I believe this suggested reform can be a real vote changer.

Taxable income ($) Rate (%)
0 – 25,000 0
25,001 – 180,000 35
180,001 + 45

This is good for progressive tax proponents with the sufficient tax free threshold, the only decent one ever recommended and progressive tax brackets.

It should also keep the flat taxers with the 35% rate happy.

A win all round.

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