{"id":15603,"date":"2019-07-01T21:34:01","date_gmt":"2019-07-01T11:34:01","guid":{"rendered":"https:\/\/www.socialpolicyconnections.com.au\/?p=15603"},"modified":"2019-08-06T11:26:31","modified_gmt":"2019-08-06T01:26:31","slug":"brian-lawrence-the-governments-tax-package-and-labors-response-the-perspective-of-a-cleaner","status":"publish","type":"post","link":"https:\/\/www.socialpolicyconnections.com.au\/?p=15603","title":{"rendered":"Brian Lawrence. The Government\u2019s tax package & Labor\u2019s response: the perspective of a cleaner."},"content":{"rendered":"\n

The Government\u2019s tax package is unfair to low paid workers. In response, the Labor Opposition announced that it will support Stage 1 of the package, within which is embedded much of that unfairness. How might we reduce the unfairness? <\/strong><\/p>\n\n\n\n

The current debate about the Government\u2019s tax package, introduced in its April 2019 Budget, includes issues about prudential budgetary management and fairness across the income levels affected by its various proposals. Fairness alone is sufficient grounds for its rejection.<\/p>\n\n\n\n

The\nunfairness of the package is most evident in the treatment of low paid workers,\nsuch as the cleaner of the lowest minimum award rate in the Cleaning\nServices Award<\/em>, who do not receive a Living Wage. Yet in a perplexing\ndecision the Labor Opposition has just announced that it will support that part\nof the package which includes provisions that prejudice the lowest paid\nworkers.<\/p>\n\n\n\n

A three-stage package in two parts<\/h3>\n\n\n\n

The proposed\ntax package is an extension of the three-stage tax changes out to 2024-25 that\nwere enacted following the May 2018 Budget, with effect in the 2018-19 tax\nyear. It is proposed that the further changes to the first stage would have\nretrospective effect for 2018-19.<\/p>\n\n\n\n

Both the\nenacted and the proposed changes would greatly advantage high income\nAustralians and effectively penalise the lowest paid Australian workers.<\/p>\n\n\n\n

The\ndistinction between the enacted tax cuts and the now proposed additions to the\nLow and Middle Income Tax Offset (LMITO), which was introduced in 2018, is not\nwell understood. It is sometime suggested that the increases now proposed for\nlow and middle income taxpayers are between $255 and $1,080 for workers on up\nto $90,000 a year. In fact, the additions proposed in the April 2019 Budget are\nbetween $55 and $550 a year. If enacted, the combined cuts will be $255 at\n$37,000 rising to $1,080 over the range 48,000 to $90,000, before reducing\ntowards zero.<\/p>\n\n\n\n

The impact on the cleaner<\/h3>\n\n\n\n

From the\nperspective of the cleaner on the lowest award rate in the Cleaning Services\nAward<\/em> both the 2018 changes and the changes now proposed are unfair. The\nlowest award rate for a cleaner throughout 2018-19 has been $768.10 a week or\n$40,079 over the year. The National Minimum Wage has been $719.20 a week or\n$37,528 over the year.<\/p>\n\n\n\n

Cleaners\nand other workers on these wage rates, along with those who are not able to\nobtain full time and regular work, are the working poor in Australia.<\/p>\n\n\n\n

These low\npaid full-time workers are also in the transition zone where their total Stage\n1 2018-19 tax cuts can be as little as $200 for the year, or $255 if the\nfurther increases are enacted. At the lowest rate for the cleaner, the tax cut\nwill be $292 or $486 if the further increases are enacted.<\/p>\n\n\n\n

The\nGovernment\u2019s online Tax relief estimator<\/em> shows the tax payable at each\ndollar level of income over the three stages of the package when compared to\nthe 2017-18 tax scale.<\/p>\n\n\n\n

At the\ncleaner\u2019s 2018-19 wage rate, the tax cut would be $486 in 2018-19, rising to\n$588 in 2022-23 (Stage 2), with nothing more at Stage 3 in 2024-25. These\nfigures and all that follow take into account the Medicare levy.<\/p>\n\n\n\n

For the\ntaxpayer on $200,000 a year, the combination of enacted and proposed changes\nwill deliver a tax cut of $135 in 2018-19, rising to $2,565 by 2022-23, which\nwill rise to $11,640 in 2024-25.<\/p>\n\n\n\n

The\nhigher paid taxpayer will have almost five times the annual taxable income of\nthe cleaner, but receive almost 20 times the tax cuts of the cleaner.<\/p>\n\n\n\n

It is\nimportant to understand that the estimates of tax payable and tax cuts each\nincome level are static and do not estimate the tax payable and the tax cuts as\nincomes grow over the years. We have to make an estimate of increases in\ntaxable income out to 2024-25 to estimate the total impact of the changes.<\/p>\n\n\n\n

Bracket creep<\/h3>\n\n\n\n

The\nprospective benefits from the tax package have to take into account future\nincreases in income and bracket creep. Bracket creep occurs when a greater\nproportion of a person\u2019s income falls into a higher tax bracket. It can happen\neven without the taxpayer moving into a higher tax bracket.<\/p>\n\n\n\n

Compared\nto 2017-18, by 2024-25 the cleaner will pay a greater percentage of his or her\nincome in tax while high income earners will pay a lower percentage of their income\nin tax.<\/p>\n\n\n\n

This can\nbe illustrated by assuming the incomes of both cohorts increase by 20% over the\nseven years and using the Tax relief estimator<\/em> to find the tax payable\non that income in 2024-25. The cleaner\u2019s taxable income would increase to\n$46,468 a year and the overall tax rate would increase from 11.6% to 13.3%. By\ncontrast, the taxpayer on earnings rising to $200,000 (from $166,667) will see\nhis or her overall tax rate fall from 31.6% to 27.8% over the seven years. At\nthis time both would be in the same marginal tax bracket: $41,001 to $200,000\nwith the marginal tax rate of 30% (down from 32.5% under the enacted changes).<\/p>\n\n\n\n

We can\ncalculate the cleaner\u2019s loss in 2024-25 by applying the overall tax rate for\n2017-18 to the expected income and tax rate in 2014-25. The 1.7% increase in\ntax payable by the cleaner equates to a loss on account of bracket creep of\n$790 in 2024-25. The 3.8% cut in the tax paid by the high income earner in\n2024-25 equates to an annual gain of $7,600, despite suffering bracket creep.<\/p>\n\n\n\n

Bracket\ncreep will be greater for those at the lower end of a tax bracket because a\nhigher percentage of their income will be falling within a higher tax bracket.\nThe wider the tax bracket, the greater will be the differential impact. These\ncomparisons highlight the inherent unfairness of a single tax bracket\n(legislated in 2018) covering workers who are not paid a Living Wage and those\nwho have an income that is more than four times greater.<\/p>\n\n\n\n

The importance of tax cuts to low-paid workers<\/h3>\n\n\n\n

Since the\ncomprehensive income tax changes of 2000-01 that accompanied the introduction\nof the GST, low paid minimum wage-dependent workers have relied on targeted tax\ncuts to partially offset the decline in the relative value of their wage rates.\nIn the period November 2000 to November 2018 Average Weekly Ordinary Time\nEarnings increased by 100.9% (from $798.80 to $1,604.90 per week) while from\n2000-01 to 2018-9 the cleaner\u2019s rate increased by 74.8%. Most of the loss was\nsuffered in the first decade.<\/p>\n\n\n\n

Following\nthe last Labor Budget in May 2012, in 2012-13 the average tax rate for a\ncleaner was 9.0%, which should be notionally increased to 9.5% to take into\naccount the increase in the Medicare levy in July 2014. Bracket creep lifted\nthat figure to 11.6% by 2017-18, a loss that should be added to the loss from\n2017-18 to 2024-25.<\/p>\n\n\n\n

Over the\ntwelve years from 2012-13 the cleaner will see his or her tax liability rise\nfrom 9.5% to 13.3% if there is a 20% increase in the minimum wage rate between\n2017-18 and 2024-25. It would equate to a loss of $1,745 in 2024-25 compared to\nthe tax rate in 2012-13.<\/p>\n\n\n\n

These\nchanges will continue to impact on minimum wage setting. Minimum wages will\ncontinue to have more work to do and\/or minimum wage increases will continue to\nbe less effective in maintaining and improving living standards. Locking in\nincreases and tax rates to 2024-25 precludes any meaningful tax\/wage trade-off\nin the medium term.<\/p>\n\n\n\n

Middle & higher income taxpayers<\/h3>\n\n\n\n

A\ntaxpayer on Average Weekly Ordinary Time Earnings over the period 2000-01 to\n2017-18 saw tax increase from 22.8% to 24.2%. By 2024-25 (also assuming an\nincrease of 20% over the last seven years) the percentage will fall to 23.4%,\nslightly more than 2000-01. By contrast, a taxpayer on double Average Weekly\nOrdinary Time Earnings saw a reduction from 33.4% to 31.4% over the first 17\nyears, with a further reduction to 27.7% in 2024-25 if he or she also has a 20%\nincrease in income. The contrast between middle income and high income\ntaxpayers is marked, but it is the subject of little public comment.<\/p>\n\n\n\n

Conclusion<\/h3>\n\n\n\n

The cleaner, like other low-paid workers who are not paid a Living Wage, would get crumbs out of the proposed increases under the 2019 Budget, which would soon be lost through bracket creep. For the cleaner, the proposed change in the LMITO would only add $192 a year, or less than $4.00 per week, to the 2018 tax cuts. For the worker on $37,000 a year or less, the proposed increase is a mere $55 a year. A fairer Stage 1, although less than adequate in the context of all three stages, would be to have the full LMITO paid at $37,000 a year, which is just under the National Minimum Wage rate for 2018-19, with a long taper below that rate, and consequential changes when LITMO is abolished in 2022-23.<\/p>\n\n\n\n

The Labor\nOpposition has announced that it will support the Stage 1 proposals, seek the\nbringing forward of Stage 2 and oppose Stage 3. It is unclear whether it has\noverlooked the lowest paid workers in the country or feels that, politically,\nit must take the whole Stage 1 proposal despite its flaws. Its reference point\nfor the tax treatment of low paid working Australians should be the policy and\noutcome of the last Labor Budget in May 2012. Its current position would lock\nin disadvantage for the low paid.<\/p>\n\n\n\n

If the\nOpposition is not pressing the interests of the lowest paid, the Government\nwill not make any changes. The Government says it will not split the package,\nbut is likely to consider some amendments that will ensure sufficient votes in\nthe Senate for all three stages. The position of the lowest paid is an issue\nthat the cross bench senators might take up in their negotiations with the\nGovernment.<\/p>\n\n\n\n

Brian Lawrence LLB. MEc appeared in the Fair Work Commission\u2019s Annual Wage Review 2018-19 on behalf of the Australian Catholic Bishops’ Conference. He has prepared submissions and appeared on behalf of agencies of the Catholic Church in annual wage reviews since 2003. Published 28 June 2019.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

The Government\u2019s tax package is unfair to low paid workers. In response, the Labor Opposition announced that it will support Stage 1 of the…<\/p>\n","protected":false},"author":2,"featured_media":15655,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"sfsi_plus_gutenberg_text_before_share":"","sfsi_plus_gutenberg_show_text_before_share":"","sfsi_plus_gutenberg_icon_type":"","sfsi_plus_gutenberg_icon_alignemt":"","sfsi_plus_gutenburg_max_per_row":""},"categories":[44,36,55],"tags":[341,340,339,338],"_links":{"self":[{"href":"https:\/\/www.socialpolicyconnections.com.au\/index.php?rest_route=\/wp\/v2\/posts\/15603"}],"collection":[{"href":"https:\/\/www.socialpolicyconnections.com.au\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.socialpolicyconnections.com.au\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.socialpolicyconnections.com.au\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.socialpolicyconnections.com.au\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=15603"}],"version-history":[{"count":4,"href":"https:\/\/www.socialpolicyconnections.com.au\/index.php?rest_route=\/wp\/v2\/posts\/15603\/revisions"}],"predecessor-version":[{"id":15679,"href":"https:\/\/www.socialpolicyconnections.com.au\/index.php?rest_route=\/wp\/v2\/posts\/15603\/revisions\/15679"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.socialpolicyconnections.com.au\/index.php?rest_route=\/wp\/v2\/media\/15655"}],"wp:attachment":[{"href":"https:\/\/www.socialpolicyconnections.com.au\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=15603"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.socialpolicyconnections.com.au\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=15603"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.socialpolicyconnections.com.au\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=15603"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}