From 2024–25, the government has proposed just three marginal tax rates above the tax-free threshold: 19 per cent for those earning between $18,201 and $45,000; 30 per cent for incomes up to $200,000; and 45 per cent as the highest rate for incomes above $200,001.
While the government has already legislated to remove the 37 per cent tax bracket, the plan will see the current 32.5 per cent rate be pushed down to 30 per cent, and the top income threshold raised from $180,000 to $200,000.
Treasurer Josh Frydenberg said that the changes will mean 94 per cent of taxpayers will face a tax rate of 30 per cent or less.
Speaking to Accountants Daily, the Tax Institute’s senior tax counsel, Professor Robert Deutsch, said that, while at face value it would seem that someone on a $45,000 income would be paying the same rate of tax as a taxpayer on $200,000, it would in fact be about eight times less.
“If you look at the marginal rates and feed them into the calculation, on the Coalition’s projected tax rates, someone on $200,000 will pay almost eight times more in income tax than someone on $50,000.
“When someone on four times more income pays eight times more tax, you indeed have a progressive tax system.”
He added: “I quite like the simplicity of that and it makes it a bit more straightforward.
“What I do like about that is that it gives people a better incentive to earn more income up to that $200,000 level.
“Economists will argue whether that incentive is real or just perceived, but I think it is good thing that somebody earning $60,000 or $70,000 and gets a 10 per cent pay rise doesn’t slip into a higher tax bracket.”
BDO national tax director Lance Cunningham said that, while the plan looked good upfront, it would be a considerably long time before taxpayers would enjoy the flatter tax rates, especially in the current political and economic climate.
“It’s not until 2024, so it’s a bit on the never never — if you wait long enough, you might get something out of this,” Mr Cunningham said.
Jotham Lian is the news editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.