- Joined
- 30 June 2008
- Posts
- 15,357
- Reactions
- 7,232
Very concerning story about changes in HECS repayments which have just come into effect
Long story short hundreds of thousands of graduates will be losing a ton more money soon - in fact a pay rise could result in taking home less money !
Not a good sign for boosting the economy.
Tax
Do you understand the Hecs changes? Read this and be afraid for the entire economy
Naaman Zhou
Now you can get a pay rise but end up paying more than you got. It’s simple but pernicious maths
Not enough people understand the maths behind Hecs. If we did, we would all shudder.
Not just on behalf of students, but for the whole economy.
On Monday the Hecs repayment threshold income was slashed to just $45,881 – the largest percentage drop in 23 years, the second-largest since Hecs began.
Hecs debt repayment changes: why more people will be forced to pay off student loans
Read more
It came in a week when the Reserve Bank told the country to, essentially, please spend more. The government has now passed huge income tax cuts aiming at achieving the same thing – to put more money in wallets and to get people to use it.
The catch? For hundreds of thousands of workers the benefit of that tax cut will be wiped out by the Hecs change. Completely. We’re back to the beginning.
There are two parts to the problem. The first is simple – lowering the threshold removes the point of the tax cut for everyone the new threshold touches.
The old threshold was $52,000. The government’s tax change has added $550 to an already legislated tax cut of $530. So for a salary of $50,000, you would have received $530 but paid no Hecs. Now you get $1,080 and pay $500. That’s your benefit gone.
The second part is that the Reserve Bank wants you to have a pay rise. The problem is that Hecs eats voraciously into it.
People seem to forget that Hecs has a different bracket structure to tax. Bracket creep under Hecs is brutal – it makes income tax brackets look weak. You can get a pay rise but end up repaying more than you received.
It affects your take-home pay, at a low income, when you – and the economy – need it the most
It’s simple but pernicious maths. Hecs applies a flat percentage to the whole of your earnings. As you earn more, that flat rate goes up. It’s not like income tax – where only the increase is hit with a higher rate.
Say you are on $51,000 a year. You’ll now be paying 1% to Hecs, which is $510 a year.
Then you get a $2,000 raise. That puts you to $53,000. You are now paying 2% Hecs, but it’s applied to your whole $53,000 earnings, not just the raise.
So you’re now paying $1,060 to Hecs. That’s $550 more, out of a $2,000 raise – and that’s not even counting the extra tax. That’s $650 more.
You’re left with only $800 of your $2,000 raise.
The bracket creep-fearers and the high-income earners who say “What’s the point of making more if just means more tax” would faint if that happened to them.
In a more extreme case, if you earned $52,500 a year and got a $500 raise, you’d go from paying $525 in Hecs to $1,060. You’re actually now $35 worse off.
https://www.theguardian.com/comment...ead-this-and-be-afraid-for-the-entire-economy
Long story short hundreds of thousands of graduates will be losing a ton more money soon - in fact a pay rise could result in taking home less money !
Not a good sign for boosting the economy.
Tax
Do you understand the Hecs changes? Read this and be afraid for the entire economy
Naaman Zhou
Now you can get a pay rise but end up paying more than you got. It’s simple but pernicious maths
Not enough people understand the maths behind Hecs. If we did, we would all shudder.
Not just on behalf of students, but for the whole economy.
On Monday the Hecs repayment threshold income was slashed to just $45,881 – the largest percentage drop in 23 years, the second-largest since Hecs began.
Hecs debt repayment changes: why more people will be forced to pay off student loans
Read more
It came in a week when the Reserve Bank told the country to, essentially, please spend more. The government has now passed huge income tax cuts aiming at achieving the same thing – to put more money in wallets and to get people to use it.
The catch? For hundreds of thousands of workers the benefit of that tax cut will be wiped out by the Hecs change. Completely. We’re back to the beginning.
There are two parts to the problem. The first is simple – lowering the threshold removes the point of the tax cut for everyone the new threshold touches.
The old threshold was $52,000. The government’s tax change has added $550 to an already legislated tax cut of $530. So for a salary of $50,000, you would have received $530 but paid no Hecs. Now you get $1,080 and pay $500. That’s your benefit gone.
The second part is that the Reserve Bank wants you to have a pay rise. The problem is that Hecs eats voraciously into it.
People seem to forget that Hecs has a different bracket structure to tax. Bracket creep under Hecs is brutal – it makes income tax brackets look weak. You can get a pay rise but end up repaying more than you received.
It affects your take-home pay, at a low income, when you – and the economy – need it the most
It’s simple but pernicious maths. Hecs applies a flat percentage to the whole of your earnings. As you earn more, that flat rate goes up. It’s not like income tax – where only the increase is hit with a higher rate.
Say you are on $51,000 a year. You’ll now be paying 1% to Hecs, which is $510 a year.
Then you get a $2,000 raise. That puts you to $53,000. You are now paying 2% Hecs, but it’s applied to your whole $53,000 earnings, not just the raise.
So you’re now paying $1,060 to Hecs. That’s $550 more, out of a $2,000 raise – and that’s not even counting the extra tax. That’s $650 more.
You’re left with only $800 of your $2,000 raise.
The bracket creep-fearers and the high-income earners who say “What’s the point of making more if just means more tax” would faint if that happened to them.
In a more extreme case, if you earned $52,500 a year and got a $500 raise, you’d go from paying $525 in Hecs to $1,060. You’re actually now $35 worse off.
https://www.theguardian.com/comment...ead-this-and-be-afraid-for-the-entire-economy
