Monday, 02 July 2018 08:35

Tax Cuts - what it means for you

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The 1st July 2018 brings in the first round of income tax cuts that have been ferociously debated in parliament.

 

The table below outlines the level of tax that is currently paid for a range of incomes and projects the value of future tax cuts.

Income Current Tax Paid Tax cut from 2018/2019 Tax cut from 2022/2023 Tax cut from 2024/2025

Tax Paid in 2025

 $20,000  Nil  $0  $0 $0 $0
$40,000 $4,547  $290  $455  $455 $4,092
 $60,000 $11,047  $530  $540  $540 $10,507
$80,000 $17,547 $530 $540 $540 $17,007
$100,000 $24,632 $515 $1,125 $1,125 $23,507
$150,000 $43,132 $135 $2,025 $3,375 $39,757
$200,000 $63,632 $135 $2,025 $7,225 $56,407

 

The person earning $40,000 will pay 6% less tax in 2018/2019 and then in 2022/2023 will pay 10% less tax than they currently do.  

A person earning $150,000 will pay 0.3% less tax in 2018/2019 and then in 2022/2023 will pay 4.6% less tax than they currently do.  So while the gross dollar value of tax saving is higher for the $150,000 income earner, they are actually receiving a lower percentage tax cut.  The contribution to the tax base of someone earning $150,000 is also 10 times the value of the $40,000 income earner.  We dispute the view that is held in some sections of the media that suggests those earning lower amounts of income are being discriminated.

It is like suggesting that a person with a $500,000 mortgage receives a higher benefit from a 1% interest rate cut than a person with a $100,000 mortgage.  They are both treated equally in terms of the cut, but the higher mortgage saves more due to simple mathematics.  In reverse the person with the higher mortgage pays more when rates rise.

So it is with income tax, those who earn more, contribute more to the tax base for the purposes of health, education etc.  So when tax rates are reduced it is also logical that the dollar value for those earning higher incomes is also higher.

 

Read 69 times Last modified on Monday, 02 July 2018 14:55
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