Tuesday, March 31, 2015

Media's tax misrepresentation scare

I really get annoyed at the way the media so often misrepresents income tax, running scary headlines and going on to suggest we're inevitably going to be worse off.

Example today in Sydney Morning Herald, tellingly by-lined by Political Reporter, not economics reporter.

The heading is Average earners to pay more.

The scares continue: The average Australian worker will find themselves bumped into the second-highest income tax bracket in just over a year's time.

The nasty news is set out in the 200-page tax discussion paper, Re:think, released by the Abbott government on Monday. And it is, in large part, thanks to "bracket creep" - where wage earners inadvertently pay higher tax due to wage inflation.

With average annual wages hovering at $75,000 as of 2013/14, the average Australian worker currently sits within the third-highest tax bracket...But according to the paper, by 2016/17, the average full-time employee will find themselves bumped into the second-highest tax bracket, earning about $80,000 and having to pay the tax office $17,547 plus 37 cents for every dollar over $80,000.

Bumped up, nasty news, bracket creep, it's all in there. Disguise the facts so they don't get in the way of a good scare story.

Fortunately later in the story some common sense creeps in: Australia Institute senior economist Matt Grudnoff says it would be "silly" to assume that they would be no change in tax arrangements over the coming decade. 

"There would be no time ever in our history where [the government] hasn't shifted the tax brackets for ten years," he said.

"It's not based in any kind of reality."

Mr Grudnoff said the Treasury report's finding appeared designed to scare people, "rather than make any sort of informed, interesting point". 

There's the deliberately misleading...wage earners inadvertently pay higher tax due to wage inflation. Wage inflation is jargon for higher wages. If it was honest it would say that as people earn more money they will pay more tax. No scare story there though. 

At the end of the scare nonsense is a chart of actual tax rates, which shows what we all should know. As we move through the various thresholds, we pay a higher rate of tax on money above that threshold, not on all the money.

So taking the para about average wage moving up from $75,000 to $80,000pa, the worker will earn a gross $5,000 more, pay $1,025 more tax and end up $3,375 better off.

And, as Mr Grudnoff pointed out, the brackets are sure to be moved up anyway.

The problem is all too often not the way things are, it's the way they're misleadingly reported.

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