01 October 2012


A few days ago I put up a somewhat rambling post covering several topics, but mainly focused on the concept of the net income tax threshold.  I had prepared a few charts for it that I didn't end up using as they didn't quite fit the theme of the post, at least not without wandering off in yet another direction  But waste not, as they say, so I thought I'd pop them up separately with only a few words of explanation.

They are of the same type as Charts 1 to 3 in the earlier post, showing the interaction between transfer payments and income tax (and medicare levy) liability.  However, the charts in today's post show this information as at the election of the 40th Parliament (the second-last Howard government) as well as at 20 September this year (part-way through Parliament 43).  This makes visible the change over that period in three numbers of interest: the maximum transfer package (at zero private income); the income at which a liability for income tax starts; and the net income tax threshold.

As before, all the charts are adjusted for changes in the CPI so that the 2001 results can be directly compared to today's figures.  So without further ado...

Chart 1

A rather substantial increase (more than eight times) in the point at which income tax starts!  The net taxpayer point has also increased, but not as dramatically.  On the transfer side there's been a small increase in real terms due to the household compensation package (for carbon pricing effects), although this will decrease a little as the CPI impact of the carbon pricing flows through.  Noticeable too is the gentler rate of reduction in the transfer payments (Newstart allowance) that came into effect in July 2006.

Now for a single parent with 2 children:

Chart 2

First up, the scale in this one is not the same as in the NSA chart so don't be tempted to compare them, at least not without paying attention to the X and Y axis.  There's a lot more going on here and I needed to adjust the scale to fit it in.

On the transfer side it's interesting that the zero private income package of assistance (ie, maximum rates of transfers) is higher in real terms than in 2001.  That's despite the fact that the income support in 2001 is parenting payment but is NSA on the September 2012 trace.  It's because the  NSA and parenting payment rates were much closer together back then, and the growth in family payments.

However, despite the higher starting value for the tranfers, they still fall below the 2001 package in the important $12,000 to $35,000 (approximate) range.  That reflects the tighter income test on current NSA compared to the 2001 parenting payment.  At incomes above roughly $35,000 the current system is more generous until income reaches $150,000, when the 2012 transfers cut out, sudden-death style.  This reflects the change in eligibility for Family Tax Benefit Part B - back in 2001 it was a bit of a Buzz Lightyear, extending to infinity and beyond.

On the tax side, there has been an increase in the private income at which income tax becomes payable, but not as signficant as in the Newstart case.  Again, this is partly tied up with the difference in income support payments in 2001 and 2012.  Parenting payment in 2001 came with an additional tax break (and still does), not available to Newstart recipients.

The net income tax threshold has been pushed out from (very roughly) $45,000 to around $60,000.

Next, single income couples.

Chart 3

This one looks a little boring compared to the single parent (but once again, keep in mind changes to the axis scaling).  For the transfers (two lots of partnered rate NSA), we can see, like single NSA, there's been a small (carbon-pricing related) increase in the maximum rate, and also the effect of 2006's gentler income testing.

Tax-wise there's a large increase in the private income at which income tax becomes payable.  The change in the net income tax threshold is less than in the previous cases, not least because some of the gains from tax cuts have been lost for this group due to the removal of the spouse tax offset.

Finally, a group not shown at all in the earlier post - single age pensioners.

Chart 4

It's all happening here.   A thumping increase in the maximum rate package, and despite the increase in taxable income this produces, a significant increase in the net income tax threshold.  The actual private income start point for income tax liability has also risen, albeit not as dramatically.

Clearly, (and with apologies to El Guapo) we like these guys.

So there we have it, a serving of leftovers, with more words than I intended.  Perhaps I can do something fresh next time.

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