The government is tearing a hole in your pocket at an alarming rate. The Reserve Bank of Australia announced that income tax growth will nearly double this year, meaning you will be left with less as more rolls down to the government.
According to the RBA, the government will no longer be collecting 0.24¢ out of every dollar, but rather 0.42¢. Such an announcement also comes with the predictable finding from the Bank that there is current a weak growth in spending.
This is significant as consumer spending makes up around 60 per cent of Australia’s economic activity. Such a squeeze on your monies goes a long way to explain why the economy has been slowing for the past two quarters, which has led to a per capita recession. Indeed, RBA governor Philip Lowe has noted that the situation could worsen if there was a reduction in total housing net worth, which is estimated to reduce spending by 0.75 per cent in the short term and 1.5 per cent in the long term.
Luci Ellis, the Assistant Governor of the RBA, has explained that the increase in personal tax can be explained by more than a simple tax bracket creep. She continued to note that Australians are paying the highest tax rate since the early 2000s.
Looking further its clear to see where Ellis is coming from; household income has only grown by 3.5 per cent, while tax payments are expected to increase by eight per cent, meaning although you might be placing more money into your pocket every year, the government is also taking more and leaving you with less.
Ellis has linked the expected growth in increase of tax payments to the ATO’s shutdown of specific tax deductions. She has stated that for the past six years growth in tax paid has exceeded income growth by an above average margin when income itself has slowed, and noted this rise is expected to be at 40 per cent faster than income, meaning the situation is unlikely to change any time soon.
Such news about the expected growth of government tax revenue will ensure for interesting times ahead, as the Federal Government has already reserved $9.2 billion for additional tax relief for the next four years.
Hopefully such an increase of tax growth is lowered with tomorrow’s Budget; otherwise the current government might unravel at its seams, losing its traditional voter base.
Louis Williams is a Research Associate at the Australian Taxpayers Alliance.
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