Sunday, January 25, 2015

Joe Hockey is worried about bracket creep. Seriously?

So, I stumble out of bed on Sunday morning, fire up the computer and go online. I was semi-consciously doing the rounds of the news sites when I came upon this: Hockey: income tax burden to increase if Labor keeps blocking savings measures
We have been warning about bracket creep and we want to deliver tax cuts, but the Labor controlled Senate continues to block savings measures that would help pay for those tax cuts," Mr Hockey told Fairfax Media.
("Bracket creep" refers to the increase in average tax that occurs when incomes rise while tax rates and brackets stay the same.)

Seriously? Bracket creep is a problem when wage growth is barely ahead of inflation? (In the September 2014 quarter, wages grew at an annual rate of 2.6% while inflation was 2.3%.)

My usual "suppository of all wisdom" in these matters is the Australian Bureau of Statistics, specifically  6306.0 - Employee Earnings and Hours, Australia, May 2014. I constructed a pair of hypothetical employees/taxpayers who I'll call Ms Median and Mr Top Decile.

Ms Median's pay sits at the boundary where half of all employees earn less than her and half earn more, or $1339 per week as of the survey at that last link. Mr Top Decile, on the other hand, earns more than 90% of all employees, or $2548 per week. (If you think that's sexist, check the ABS's tables. Female average weekly cash earnings are 65.8% of males'.)

From there it only remained to break out the calculator and work out what would happen if their pays increased by 2% and 3% respectively.

According to the ABS's press release linked above, Ms Median's annual earnings are $69628 from which $15569 in tax would be deducted (including the 2% Medicare levy). So her average tax rate is 22.4%. Give her a sub-inflation-rate pay rise of 2% (because, ya know, times are tough) and her pay becomes $71021. Her tax deduction rises to $16049 for an average tax rate of 22.6%. Her tax has increased by $480, or 3.1%.

Mr Top Decile's annual earnings are $132496 from which $39620 in tax would be deducted. So his average tax rate is 29.9%. Give him a better-than-inflation pay rise of 3% (because, ya know, higher-income-earners are worth it, otherwise why would we pay them so much?) and his pay becomes $136471. His tax deduction rises to $41171 for an average tax rate of 30.2%. His tax has increased by $1551, or 3.9%.

Their average tax rates increased by 0.2% and 0.3% respectively. In the current low-inflation environment, to paraphrase Jay-Z, Mr Hockey has 99 problems but bracket creep ain't one.

So why bring it up? It's not as though we're over-taxed. As of 2010, we were the fifth-lowest-taxed country in the OECD.

As far as I can tell, it's just more of the same 'small gummint good, taxes bad' recycled American conservative rhetoric. Mr Hockey's quote above gives the game away. To paraphrase: 'if ya want tax cuts, cop less services'.

In other words, he and his colleagues are still trying to ram a failed ideology down our throats while appealing to our greed.

On the subject of greed, Black Flag said it best:
Gimmie gimmie gimmie
I need some more
Gimmie gimmie gimmie
Don't ask what for

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