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Poor carry lion’s share of tax burden

Wednesday, 12 March 2008

Marko Barosevic

Lower and middle-income earners in Australia are faced with an increasing share of the tax burden, according to an OECD report.

The Taxing Wages study shows that Howard government tax cuts were often skewed toward higher income levels. The OECD tracked the tax wedge – income tax as a proportion of labour costs – from 2000 to 2006.

It showed that the benefits of Australian tax reform were not spread evenly – with single and lower income earners picking up a rising share of the tax bill.

ACTU Secretary Jeff Lawrence will push for a $26 a week rise in the minimum wage at the Fair Pay Commission today. "The ACTU wage claim will barely meet the cost-of-living pressures, and is entirely justifiable," Lawrence told The Age newspaper.

However Australia was not alone among the 30 member bloc of developed nations. “Across OECD countries, tax changes have tended to favour low-wage earners. But in a few countries – Australia, Canada, Germany, Iceland, Korea, Luxembourg, Norway and the United States – tax reforms have mainly benefited higher-income groups,” the report highlights.

The Australian tax cuts were offset by rising inflation and wages that pushed income earners into higher marginal tax rates. Known as bracket creep, it is a feature of progressive tax systems such as Australia’s.

For example a single worker earning 67% to 100% of the average wage received tax cuts equivalent to 1.4% of income, but would see bracket creep eat away 4.5% of this income. Workers with income between 100% to 150% of the average would often fare best.

Single income earners were hit hardest as they were ineligible for generous family tax concessions.

Treasure Wayne Swan has seized on the report to justify $31 billion of tax cuts in the upcoming May budget. The Treasurer is adamant the cuts will proceed, despite calls to show fiscal discipline and rein in inflationary pressures in the economy.

“The report confirms the need for the Rudd Government's personal income tax cuts, due to take effect from 1 July this year, which will deliver the largest proportionate benefits to low- and middle- income earners,” argued Swan.