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Labor's false claims on tax.

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Senator the Hon Nick Minchin

Minister for Finance and Administration Deputy Leader of the Government in the Senate

Media Release

03/2006 14 January 2006

Labor’s false claims on tax

Today’s Australian makes a number of false claims about the overall tax burden and the effect of bracket creep on low and middle income earners, based on inaccurate information provided by the Labor Party.

The Government has cut income taxes every year from 2003-04 to 2006-07, in addition to the income tax cuts delivered as part of the New Tax System. As a result of those tax cuts, every taxpayer pays less tax today than they otherwise would have. Since 2000, the biggest percentage tax cuts have been delivered to low income earners.

The Labor figures, and the Australian article, claim that a taxpayer on $50,000 will pay $50 a week more in income tax over the next two years as a result of bracket creep. This is incorrect.

Bracket creep occurs when wage growth pushes a taxpayer into a higher income tax bracket. A taxpayer on $50,000 faces a tax rate of 30 cents in the dollar. They will not be subject to a higher rate of tax until their income exceeds $63,000 (in the current financial year) or $70,000 from 1 July 2006. A taxpayer on $50,000 would not face a higher marginal income tax rate in the next two years under Treasury’s nominal wage growth forecasts.

In fact, such a taxpayer has benefited greatly from the tax cuts delivered in last year’s Budget, which pushed the threshold for the 42 cent rate up to $70,000, ensuring that 80 per cent of taxpayers face a marginal tax rate of no more than 30 cents in the dollar.

The Australian’s claim that labourers, hairdressers, cleaners and clerks will pay $45 per week more due to bracket creep in coming years is also without foundation.

The Australian also claims that worker on less than $52,000 have received only $4 a week in tax cuts since 2001. This is also incorrect. For example. A taxpayer earning $49,000 has received $520 a year, or $10 a week in tax cuts since 2001, and $59 a week in tax cuts since 2000. Since 2001 taxpayers on or below $52,000 have benefited from the increased thresholds for the 30 cent and 42 cent tax rates delivered in the 2003-04 Budget and the reduction in the 17 per cent tax rate to 15 per cent in last year’s Budget.

The Australian also makes much of the fact that a taxpayer just under $125,000 will face bracket creep in the next two years. This is only because the threshold for the top tax rate has been increased from $62,500 in 2003 to $125,000 from 1 July 2006. Previously, such a taxpayer would have paid the top marginal rate on roughly half of their gross income, whereas following the Government’s tax cuts, they will only pay the top rate once their income exceeds $125,000.

Since 1996, the Government has more than handed back any gains to revenue from bracket creep. The tax cuts delivered since 1996 have delivered more tax relief than would have been the case if all thresholds were indexed to inflation over

that period.

The Government makes no apology for delivering substantial assistance to families with children. We strongly reject Labor’s policy, outlined in the 2004 election campaign, to reduce assistance to low, single income families with children.

However, this assistance has not come at the expense of single or childless wage and salary earners. The tax cuts delivered in recent years have benefited taxpayers at all points along the income scale, have more than compensated for bracket creep and have specifically focused on ensuring that workers on middle incomes are not subject to higher marginal tax rates when they work overtime or otherwise increase their earnings.

Media Contact: Michael Brennan 02 6277 7400


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This page was last updated 16 January, 2006