A government backbencher has floated the idea of reducing personal income tax brackets from five to three.
Liberal MP Dan Tehan said Australia faces a choice between the status quo or continuing economic reform to reduce marginal rates impacting on average weekly earnings by reducing direct taxation in favour of indirect taxation.
“The problem is that for average and lower income workers they are already slowly bleeding,” he writes in Fairfax Media on Friday.
Five tax brackets exist now: zero, 19 cents, 32.5 cents, 37 cents and 45 cents in the dollar.
Mr Tehan pointed to the Henry Review which identified potential gains in shifting to three brackets with most income earners in a single bracket of 35 per cent, a higher tax bracket for those earning over $180,000 and a tax-free bracket for those earning under $25,000.
“Only tax reform that includes all options allows us to address the major flaws in our tax system, particularly bracket creep,” the MP said.
Unless people were earning more than $180,000, bracket creep would mean inflation and wage rises would slowly push Australians into higher tax brackets.
Workers earning the average annual wage of $80,000 would see every dollar earned over that amount taxed at 37 cents.
“With no changes, in seven years these average earners might be earning 30 per cent more in wages but end up paying 50 per cent more in tax,” he said.
Shadow Treasurer Chris Bowen said Mr Tehan’s was one of a “cacophony” of ideas being floated by Liberal MPs.
“Liberal MPs are all over the shop when it comes to tax,” he told ABC radio.
Mr Bowen said Mr Tehan has not said how his proposal would be funded.
“Of course the obvious way to pay for it is increasing the GST and you know where (Labor) stands on that.”
Finance Minister Mathias Cormann said it was the government’s intention to provide tax cuts.
“Obviously our commitment always is when we pursue policy change like that we need to do the hard yards to identify how we would pay for it,” he told Sky News.
Greens leader Richard Di Natale said Mr Tehan’s idea would simply exacerbate income inequality.
“We have huge concerns about a proposal that would effectively cause an increase in the gap between the super-rich and ordinary people,” he told AAP.