Income tax rates in Australia

[sydboy007]

i was thinking that we currently have 5 income tax brackets that have relatively arbitrary income levels before they kick in.

Would it be better if we had a system that lined up each tax bracket to the income quintiles (20%)?

The advantages of this would be:

* better understanding of where you sit on the income ladder - a lot of people have no idea, especially those around the average wage who think that puts them in the middle of the pack when they're really up in the top 25-30%

* it would help to better align capacity to pay with the rate of taxation.

I'd like to see the scales adjusted every 3 years to account for the changes in income distribution.

* note - I'd actually like to see a smaller share of tax revenue from income and corporate taxes with a shift to taxing land / consumption / resources

 

[Smurf1976]

The income tax idea seems reasonable as long as the rates are set for any given financial year in advance. Eg on 1st July you are able to know with certainty what tax rates you'll be paying. So the system would always need to be a year or two behind unless some arbitrary inflation factor were applied in advance.

As for land taxes etc, that potentially has some unintended consequences depending on how it's applied. Eg a factory in Australia needs more land than a simple warehouse storing imported goods. But logically we wouldn't want to tax local production more than imports.

A large wind or solar farm takes up far more land than a fossil fuel power plant. But even those who don't believe there to be a problem with CO2 emissions generally wouldn't want to see wind or solar taxed more heavily than gas simply because it takes up a bit of otherwise unused land in the middle of nowhere.

A high rise building takes up far less land than a single level building with the same office space. But do we really want to start building skyscrapers in regional towns in order to have a smaller footprint when there's plenty of land anyway?

So land tax as a concept worries me to some extent due to the potential distortions it creates. Outside the cities, the fundamental value of land is close to zero and is really only worth what it can produce be it via agriculture, mining or whatever but it's not worth much just as land. t's not easy to sensibly tax something that just sits there and which has huge difference in value per unit of area depending on location. So how does one actually calculate the value on which to tax?

 

[sptrawler]

So land tax as a concept worries me to some extent due to the potential distortions it creates. Outside the cities, the fundamental value of land is close to zero and is really only worth what it can produce be it via agriculture, mining or whatever but it's not worth much just as land. t's not easy to sensibly tax something that just sits there and which has huge difference in value per unit of area depending on location. So how does one actually calculate the value on which to tax?

The government just adds a multiplication factor to the valuer generals valuation, then all they have to do is revalue to cpi.
That is unless they wish to revalue in line with actual postcode median price growth.lol
I wonder if the land tax would be reduced if there was a property correction. As if.
What about taxpayers who own property in a country town, that they can't even give away?

 

[sydboy007]

The income tax idea seems reasonable as long as the rates are set for any given financial year in advance. Eg on 1st July you are able to know with certainty what tax rates you'll be paying. So the system would always need to be a year or two behind unless some arbitrary inflation factor were applied in advance.

As for land taxes etc, that potentially has some unintended consequences depending on how it's applied. Eg a factory in Australia needs more land than a simple warehouse storing imported goods. But logically we wouldn't want to tax local production more than imports.

A large wind or solar farm takes up far more land than a fossil fuel power plant. But even those who don't believe there to be a problem with CO2 emissions generally wouldn't want to see wind or solar taxed more heavily than gas simply because it takes up a bit of otherwise unused land in the middle of nowhere.

A high rise building takes up far less land than a single level building with the same office space. But do we really want to start building skyscrapers in regional towns in order to have a smaller footprint when there's plenty of land anyway?

So land tax as a concept worries me to some extent due to the potential distortions it creates. Outside the cities, the fundamental value of land is close to zero and is really only worth what it can produce be it via agriculture, mining or whatever but it's not worth much just as land. t's not easy to sensibly tax something that just sits there and which has huge difference in value per unit of area depending on location. So how does one actually calculate the value on which to tax?

The way I'd like the income taxes done would be to set the rate in the 3rd qtr of the financial year based on the tax returns from the prior 3 years. Use the trend of the income deciles to determine the new tax brackets and then tweak the actual tax rates. Possibly we could decide what each quintile should contribute eg from lowest to highest tax bracket their shares could be 10 / 12 / 18 / 25 / 35 for arguments sake. By ensuring the less well off are paying a lower share of the tax burden it should be easier to remove or reduce a lot of the tax churn that goes on as well.

Considering the majority of the population lives within a 50KM slice of land along the coast I'd say it would be easy to tax farm land minimally, if at all. I'd see it more as tax it if we're building on it, or zoned for resi / commerical use, since I'd like to see some of the increase in value from public infrastructure go back into consolidated revenue, which helps to make public infrastructure semi self funding. Currently all the new "wealth" generated from public infrastructure is pretty much kept by the landowners who benefit most from it. It shouldn't be too difficult to have a progressive land tax system, and it would definitely help to make the very wealthy pay a bit more tax since they're able to shelter quite a bit within the current tax free status of the family home. There's a relatively strong correlation between wealth and the value of land someone owns. It would be easy enough to provide CPI interest rate loans to the poor who purchased a long time ago and find they have a valuable property. It might also help to force the land bankers to actually bring the land to market instead of drip feeding supply to maintain high prices.

 

[sptrawler]

Considering the majority of the population lives within a 50KM slice of land along the coast I'd say it would be easy to tax farm land minimally, if at all. I'd see it more as tax it if we're building on it, or zoned for resi / commerical use, since I'd like to see some of the increase in value from public infrastructure go back into consolidated revenue, which helps to make public infrastructure semi self funding. Currently all the new "wealth" generated from public infrastructure is pretty much kept by the landowners who benefit most from it. It shouldn't be too difficult to have a progressive land tax system, and it would definitely help to make the very wealthy pay a bit more tax since they're able to shelter quite a bit within the current tax free status of the family home. There's a relatively strong correlation between wealth and the value of land someone owns. It would be easy enough to provide CPI interest rate loans to the poor who purchased a long time ago and find they have a valuable property. It might also help to force the land bankers to actually bring the land to market instead of drip feeding supply to maintain high prices.

Take for example Kalgoorlie, 7 years ago houses ranged in price from $400k - $1m.
Now with the slump in gold price, they range from unsellable to $500k.
Would your land tax model be dynamic enough to compensate for rapid movements, if not how would the people compensate?
Not only are they out of work, but they have to pay land tax on a house that is basically worthless.

 

[sydboy007]

Take for example Kalgoorlie, 7 years ago houses ranged in price from $400k - $1m.
Now with the slump in gold price, they range from unsellable to $500k.
Would your land tax model be dynamic enough to compensate for rapid movements, if not how would the people compensate?
Not only are they out of work, but they have to pay land tax on a house that is basically worthless.

A progressive land tax would get around the issue. Quite easy to have a tax rate of say 0.1% for property below $300K. The state Govts know what the value of pretty much all land is, from the census we know income levels for suburbs, so it's not too hard to actually set a progressive tax scale taking both into consideration. We'd just have to decide how much income and corporate tax we'd like to replace via land tax, and considering it's a far more efficient tax we'd likely see a drop in taxation levels providing the same amount of revenue.

If we're moving along from the age of entitlement then why is it the tax payer's problem if someone has bought at the top and now is trying to sell at the bottom? One of the hard lessons in life to realise prices don't always go up.

 

[sptrawler]

A progressive land tax would get around the issue. Quite easy to have a tax rate of say 0.1% for property below $300K. The state Govts know what the value of pretty much all land is, from the census we know income levels for suburbs, so it's not too hard to actually set a progressive tax scale taking both into consideration. We'd just have to decide how much income and corporate tax we'd like to replace via land tax, and considering it's a far more efficient tax we'd likely see a drop in taxation levels providing the same amount of revenue.

If we're moving along from the age of entitlement then why is it the tax payer's problem if someone has bought at the top and now is trying to sell at the bottom? One of the hard lessons in life to realise prices don't always go up.

Oh I agree completely, thinking property is an investment rather than a place to house your gear and save you rent, is stupid.IMO

I can just see some really weird skews, on how it would be implemented. I think I posted previously that changing a tax input can have major ripple effects.

 

[sydboy007]

Oh I agree completely, thinking property is an investment rather than a place to house your gear and save you rent, is stupid.IMO

I can just see some really weird skews, on how it would be implemented. I think I posted previously that changing a tax input can have major ripple effects.

If by ripples you mean winners and losers, for sure, but our current system isn't working particularly well. Not when the ultra wealthy are happy to spends 10s of millions to minimise their tax.

We reward speculation over hard work. There's too many tax expenditures bleeding the budget. The problem is those benefiting most from the current system generally have the wealth and ability to really push back hard at any moves to make the tax system fairer and more efficient. Just look at the wailing in the streets over the proposed changes to the statutory method for car FBT.

tax land / consumption / resources and we could pretty much get rid of just about all other forms of taxes except for the sin taxes. Might end up with a massive unemployment level amongst accountants and lawyers specialising in tax minimisation though.

 

[sptrawler]

If by ripples you mean winners and losers, for sure, but our current system isn't working particularly well. Not when the ultra wealthy are happy to spends 10s of millions to minimise their tax.

We reward speculation over hard work. There's too many tax expenditures bleeding the budget. The problem is those benefiting most from the current system generally have the wealth and ability to really push back hard at any moves to make the tax system fairer and more efficient. Just look at the wailing in the streets over the proposed changes to the statutory method for car FBT.

tax land / consumption / resources and we could pretty much get rid of just about all other forms of taxes except for the sin taxes. Might end up with a massive unemployment level amongst accountants and lawyers specialising in tax minimisation though.

Unfortunately you might have massive unemployment in areas related to the housing construction and suppliers sector. I think that this is the only sector keeping Australia out of a massive recession, so can't see anything happening on that front for awhile.
However I also think this is only stalling the inevitable.

I see the basic wage has gone up another $1000/annum, that has to help small business prices.
I'm not saying wage earners, on the basic wage don't need help, they do.
But it is all tied back to increasing housing costs, requiring increasing rents, requiring increasing wages. Ad infinitum , till it goes belly up.

Unless there is a land tax model, that is proven, I doubt we will invent one.
Much easier to remove negative gearing and make the principal residence loan interest a tax deduction upto a certain level.

 

[Wysiwyg]

Unless there is a land tax model, that is proven, I doubt we will invent one.

Don't you pay rates? Category 1 is "Land used or approved for development, predominantly as low density residential land, etc."

 

[sptrawler]

Don't you pay rates? Category 1 is "Land used or approved for development, predominantly as low density residential land, etc."

Yes, but tying that to consolidated revenue requirements, would be problamatic.IMO

Land values go up and down as has been shown in the rest of the world. Consolidated revenue tends to have an ever increasing trajectory.

Syd is implying it could reduce replace, income tax etc. The problem is income tax is dynamic, it is collected every week from every pay packet, easy money.

 

[skyQuake]

Not Australia, but this article raises some similar issues:

Location value tax:
http://www.ft.com/intl/cms/s/2/392c33a6-211f-11e3-8aff-00144feab7de.html#axzz33ujjGVyT

 

[Smurf1976]

I can see that it would work for individuals owning residential property. That seems reasonably straightforward.

But how would it apply to, say, a mine, railway, dam / reservoir, gas pipeline or something like that? In those cases the infrastructure has high value, that is not directly related to the area of land occupied, whilst the land "as is" is pretty much worthless other than for what's under or on top of it.

Or is the idea to not apply the tax to such things, and only apply it to residential and general commercial property?

 

[skyQuake]

My reading of the article suggests that its just a tax on land, not improvements upon it. It would promote the most effective use of land and value added improvements.
Govt owned utilities might be exempt (like railways) or pay a lesser fee.. or be forced underground

 

[sydboy007]

Unless there is a land tax model, that is proven, I doubt we will invent one.
Much easier to remove negative gearing and make the principal residence loan interest a tax deduction upto a certain level.

Texas have a very successful model of land tax combined with a right to develop and a form of bonds for new housing "estates" to help fund infrastructure which are then paid off via a levy charged to home owners.

It's helped Texas have roughly the same level of immigration as Australia in a land mass smaller than NSW without the price bubble. land taxes are nothing new and have been around for centuries. Most Australian states have them but only for commercial and rental properties.

Yes, but tying that to consolidated revenue requirements, would be problamatic.IMO

Land values go up and down as has been shown in the rest of the world. Consolidated revenue tends to have an ever increasing trajectory.

Syd is implying it could reduce replace, income tax etc. The problem is income tax is dynamic, it is collected every week from every pay packet, easy money.

The same could apply for a land tax. Nothing to stop the ATO from having a chart similar to income tax that cuts down the land tax bill down to weekly amounts. Only slight difficulty would be in apportioning shares for multiple owners and would need to account for contractors and those outside the PAYG tax system.

I can see that it would work for individuals owning residential property. That seems reasonably straightforward.

But how would it apply to, say, a mine, railway, dam / reservoir, gas pipeline or something like that? In those cases the infrastructure has high value, that is not directly related to the area of land occupied, whilst the land "as is" is pretty much worthless other than for what's under or on top of it.

Or is the idea to not apply the tax to such things, and only apply it to residential and general commercial property?

Pretty much all land taxes are based on the unimproved land value, like the current rating system for council rates. I'd say once you get out of urbanised areas the complexities of a land tax system would be too high, but since the majority of businesses are within urban centres it should be possible to use it in exchange for cutting corporate taxes, though I'd say the miners would probably be stuck at a higher rate of taxation since they'd not be providing offsetting land tax revenue, though a better targeted resource tax could be used. Farming land would be another land use that is exempt.

 

[banco]

Texas have a very successful model of land tax combined with a right to develop and a form of bonds for new housing "estates" to help fund infrastructure which are then paid off via a levy charged to home owners.

It's helped Texas have roughly the same level of immigration as Australia in a land mass smaller than NSW without the price bubble. land taxes are nothing new and have been around for centuries. Most Australian states have them but only for commercial and rental properties.

.

Trade off for Texas though is that architecturally it's a very ugly place.

 

[sydboy007]

Trade off for Texas though is that architecturally it's a very ugly place.

Not exactly sure what you mean by this?

I can only comment about Sydney, but there's few visually pleasing buildings in the CBD.

 

[McLovin]

Not exactly sure what you mean by this?

I can only comment about Sydney, but there's few visually pleasing buildings in the CBD.

Ahh but most of the inner suburbs would have been bulldozed to make way for lots of spanking new McMansions. I've spent a fair bit of time in Texas and most of it is damn ugly; strip malls and cheap housing. You can't have unfettered development without some unintended consequences. Back in the 1960's they wanted to tear down the QVB and build a carpark.

Go to Dallas or Houston and it feels like it was built in the last ten years.

 

[SirRumpole]

Analysis of the gov's tax changes.

Considering that they are built on extremely optimistic assumptions of economic growth, can they be
sustained ?

I reckon future governments of either persuasion will be forced to claw back revenue with the sort of 'reforms' Labor was proposing at the last election.

https://www.abc.net.au/news/2019-07-04/tax-cuts-and-spending-cuts/11273454

 

[HelloU]

as a throw away statement i am pretty much in favor of a government collecting less in income taxes ..... cos this is the only way that the "goodness" of spending that money can be judged. I saw something the other day that said the average yearly non-taxable allowance money paid to every politician is $54K. (this does not need receipts as proof of expenditure) ...... happy to pay less income tax so that we can see where that type of tax expenditure sits on the "goodness" scale for govt delivered services as the money runs out.