I seem to be the only one, that I have seen anyway, in the Australian blogosphere who is excited about the 37c tax bracket going the way of the dodo in Labor’s tax policy announcement. Peter Martin even suggested it might be bad politics. Hopefully this policy becomes ‘common wisdom’ and the removal of the 37c tax bracket enacted no matter who the party in power is as it simplifies the tax system drastically and removes bracket creep for many income tax payers. Some graphs to visualise what a tax system without the 37c bracket would look like. The data for these graphs is from the 2003-2004 Tax Statistics which is the most up-to-date data publicly available from the ATO.
Note that the 30c tax bracket under Labor’s 2013 policy stretches from 37K to 180K. It becomes a long tail tax with the 15c bracket covering the head of the taxable income curve. The 40c bracket in raw numbers covers a very small minority of taxable individuals.
The 30c bracket under Labor’s 2013 policy is carrying the major burden of taxation. This is partly because they carry a large percentage of taxable income but also because the tax bracket is so wide. This is a good thing in my opinion as it stops bracket creep for a large number of income earners: nearly 4 million.
In terms of numbers of tax payers the majority are in the 15c and 30c brackets. It is interesting how little is raised directly from those purely in the 15c bracket; it is less than the yearly defence budget, however it is over 4.6 million income earners. If that tax bracket can be removed then it would simplify the tax system further such that 4.6 million Australians would not need to lodge an income tax form. I think that is a better solution than the tax office doing it automatically which is a policy I have seen proposed around the blogs.
The 37c tax bracket is mainly there for tax creep. It is good policy in my opinion to remove it and simplify the income tax brackets. I like that call.