Australia's Poor Are Our Most Highly Taxed

Catholic Welfare Australia’s Executive Director, Frank Quinlan, said Treasurer Peter Costello’s tax inquiry provides an opportunity to examine the inequities and disincentives in Australia’s tax system, especially in light of new research released today which shows that the richest one percent of the population has almost doubled its share of national wealth since 1980.

Releasing Catholic Welfare Australia’s letter to the Treasurer’s inquiry, Mr Quinlan said there is scope for the inquiry to lead to small, but significant changes ahead of this year’s budget.

“But a more comprehensive investigation of Australia’s complex and outdated tax system should be released in the lead up to the 2007 election,” Mr Quinlan said.

“People moving from Government benefits into the workforce are hit with obscene effective marginal tax rates.

“The inquiry should include an international comparison of marginal tax rates for people on benefits.

“Under the new Welfare to Work legislation single parents and people with a disability who combine part-time work with benefits face effective marginal tax rates of up to 73 cents in the dollar.

“Effective marginal tax rates for people on Newstart were slightly reduced but, at up to 75 cents in the dollar, are still significantly higher than the top marginal tax rate of 47 cents.

“The high marginal tax rates for these people undermine the principle aim of the legislation, which is to increase participation in the paid workforce.

“The inquiry should investigate ways to reduce effective marginal tax rates and increase household incomes for low income earners moving from welfare to work.

“The UK’s Working Tax Credit, which has led to more jobs and increased earnings for single parents, might be a good starting point.

“Australia is one of only seven OECD countries where the tax free threshold fell in real terms between 1985 and 2003.

“If it had been indexed in line with inflation over the past 20 years, the tax free threshold would now stand at around $14,000 instead of the current $6,000.

“The 30 per cent marginal tax rate kicks in before tax payers reach the minimum wage. “The inquiry should also investigate taxes on savings, such as superannuation contributions, and the inequity that exists between high and low income households.

“In the six years to July 2006, the tax paid by someone on the minimum wage will have increased from 12 per cent to 13.27 per cent but over the same period, the tax paid by someone earning five times that amount will have fallen by 2.79 per cent,” Mr Quinlan said.

Catholic Welfare Australia provides social services to over one million people in Australia each year.

15 March 2006

CONTACT: Judith Tokley 0408 824 306 / 02 6285 1366