There has been much speculation and discussion regarding the changes, and a particular bone of contention has been whether GST (Goods and Services Tax) is a regressive tax. Many Australians have sought clarity on what this means and Wikipedia’s definition is perhaps the best, as it describes regressive tax as “a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases”. Seems straight-forward enough, until you consider that GST potentially taxes less wealthy taxpayers to a greater extent, especially when one looks at the actual income versus consumer proportions. Herein lies the problem with a consumption tax. Widely seen as a ‘flat’ or regressive tax, it disadvantages people earning less, because it does not make provision for balancing out the gap between the proportion of tax payable in relation to income earned. So even though wealthier people will pay more consumer tax (because they will likely spend more), it will have a marginal impact on their disposable income.
In an effort to address this issue, Australia’s GST system makes provision for several exemptions that include essentials like fresh food and health services to name but a few. Taxpayers Australia’s tax technical manager, Andy Nguyen, explained that these exemptions for food, health and education are an effort by the Australian GST System to accommodate low income taxpayers. However, it is not without its challenges, especially when trying to ascertain which products and services should be included in this bracket.
As regressive taxation comes under fire, there has naturally been much debate surrounding alternatives. Progressive tax is seen as a viable solution by many, because in essence it means that the tax rate is increased incrementally to avoid over-burdening lower income taxpayers, and to collect more tax from those who earn more. Personal income tax is a good example of progressive tax, because it is designed to categorize incomes into tax brackets, and for taxation to be progressively higher in proportion to income. However, this system is not without its problems either. Existing brackets are: (before Medicare) zero to $18,200, no tax; up to $37,000, 19%; then to $80,000, 32.5%; to $180,000, 37%; and above that, 47%. Again, looks simple enough – until you factor in CPI. Rising CPI inevitably impacts salaries and the result is that many taxpayers suddenly find themselves in a ‘bracket creep’ situation, where their salary has edged over into the next bracket and they suddenly find themselves subject to a higher rate of taxation.
Nguyen says the government has taken cognisance of this, and statistics show that this accounts for a staggering 70% of the tax funds government collects. For this reason, GST is being considered as a way of compensating for the imbalance. As the debate rages on, this is a subject that directly affects every Australian taxpayer. There is support for both tax options, and it stands to reason that your personal argument may be influenced by your own financial situation, however one thing everyone agrees on is this: the Australian tax system needs to fair, and finding a way of ensuring this without complexity is not going to be easy.
