Australian workers earning over $80,000 set to feel debt tax pain

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1 NEWS Australian workers earning over $80,000 set to feel debt tax pain TERRY MCCRANN, LIAM QUINN AND AAP HERALD SUN APRIL 29, :51PM Play video Terry McCrann explains Tony Abbott's deficit level facing high income earners PRIME Minister Tony Abbott won t confirm whether Australians earning $80,000 or more will be hit with a debt tax of at least $800 a year, but says a temporary levy wouldn t be a broken promise. Mr Abbott would only say the Government was looking at a range of options to sort out the debt mess when asked on radio this morning to confirm the new tax. Treasurer Joe Hockey s sharing the pain deficit levy will be tiered so that higher income earners will pay significantly more than other taxpayers. Readers have had their say in our comments section throughout the day, with a divided response to the levy plan. Some readers believe the reported change could put Mr Abbott on the path to being a oneterm PM, while others consider this the cost of cleaning up the mess left behind by the Lodge s previous tenants.

2 Geoff said: A great way to become one term wonders. Another commenter replied: You can put any spin on it you want but the fact remains Labor took us from a positive position and put us into a very deep negative. Heather agreed, and took the criticism a step further: As usual, we are reaping what Labor sowed. As happens EVERY time, Libs have to clean up the mess Labor created. Then Labor s voters have the cheek to complain. Meanwhile, one reader had something of a foot in both camps, but suggested a bigger issue was at play. John said: I m all for rich people coughing up a bit more dough so we can get out of Labor s debt, but Abbott broke a promise. Another one. How many more broken promises until we re fed up?! Earn over $80,000? You will be hit with a debt tax of at least $800 a year.\ Meanwhile, other commenters suggested the government could look at increasing taxes for other members of our economy. Daniel said: How about a tax or levy on obscene bank profits? If Tony tells them that it s only temporary I m sure they wouldn t mind. The new tax to be imposed in Treasurer s first Budget on May 13, will be a levy on taxable income similar to the Medicare surcharge. It will only apply to workers on incomes of $80,000 and above and the rates will increase in line with tax brackets. Taxpayers in the 37c tax bracket on incomes of $80,000 to $180,000 are likely to pay an extra 1 per cent.

3 Those earning above $180,000 are likely to pay an extra 2 per cent. Like the Gillard government s flood levy, the debt tax will also be temporary, applying only while the Budget is in deficit. Under the new levy: *A taxpayer on $80,000 will pay an extra $800 a year around $15 a week. *Someone earning $150,000 will pay an extra $1500 a year ($29 a week). *A worker on $200,000 will be slugged an extra $4000 a year or $77 a week. *A taxpayer earning $400,000 will pay a thumping $8000 extra tax, or $154 more a week. Mr Abbott pointed out Australia faced $123 billion in deficit and $667 billion in debt. $25,000 per man, woman and child, he told 3AW radio today. It cannot be ignored. Debts at that level, they control you. Mr Abbott denied a temporary levy would break his pre-election promise not to introduce any new taxes. I think if there was a permanent increase in taxation that would certainly be inconsistent with the sort of things that were said before the election, he said. Mr Abbott flagged widespread cuts to government spending in a speech to the Sydney Institute think tank last night, with health and welfare given particular mention. However, he remains committed to his paid parental leave scheme which some Liberal colleagues want him to scale back because of the tough fiscal environment. The $5.5 billion a year scheme would offer working women their regular wage for six months, capped at a total payment of $75,000, after giving birth and would be funded by a 1.5 per cent levy on big business. It s not a welfare entitlement it is a workplace entitlement, Mr Abbott said, when asked if he would rethink the policy. That s a fundamental principle, and this government is absolutely committed to it. Mr Abbott conceded the Budget would hit all Australians in some way and everyone do his or her bit. I suspect that on Budget night if you are looking to something to complain about you will certainly be able to find something to be unhappy with, he said. Opposition Leader Bill Shorten said the debt levy would be break an election promise made by Mr Abbott.

4 Not one single person voted for Tony Abbott at the election expecting an increase in their income tax but that s exactly what they are getting after the election, he said. Australian Greens leader Christine Milne doesn t support a debt or deficit levy. The government had itself increased the deficit by abandoning the carbon tax and depriving the budget of billions in revenue, she argued. The Herald Sun understands the Budget will reveal for the first time that the deficit inherited from the Rudd government was going to still be a thumping $30 billion in the year. But with the tough steps taken to cut spending and now this tax levy, Mr Hockey will predict the deficit will be largely eliminated by that year. This means the levy should apply only for four years. The legislation will have a sunset clause terminating it after the year. The deficit levy shows that the Government is deadly serious about two things: fixing the deficit as quickly as possible and sharing the pain of doing so. The release on Thursday of the Government s Audit Commission report will show the size and seriousness of the Budget deficit position. The Budget will show that to do nothing would mean deficits adding to at least $160 billion over the next five years (including the current year) coming on top of the $190 billion of deficits in the first five years of the Rudd-Gillard governments. The Government has signalled a number of belt-tightening measures on the spending side of the Budget. They include savage cuts to the public service and the $6 GP co-payment. The deficit levy is designed to ensure that the cost of fixing the deficit does not fall only on people in need of Budget assistance and that a major contribution will be made by those earning taxable incomes, with the highest earners making the biggest contributions. But economists and business leaders have questioned whether a debt levy would help fix our economic woes. The Business Council of Australia chief executive Jennifer Westacott said: Raising Australia s already high dependence on personal income tax will place an increased burden on workers and could weigh down an already sluggish economy. If we are serious about lifting our productivity and competitiveness, we should be lowering taxes, not increasing them. Temporary tax increases are no substitute for the reforms that are needed to bring spending back under control and put the Budget on to a more sustainable footing. We re spending more than we are earning and, if not corrected, this will only get worse as the population ages and the cost of health and aged care services becomes unaffordable.

5 Australian Chamber of Commerce and Industry chief operating officer John Osborn opposed the levy. The Government promised no surprises and no new taxes and a debt levy would be an unwelcome surprise, he told ABC Radio today. But Australian Council of Social Service boss Cassandra Goldie supported it. She said Australia was one of the lowest taxing countries in the OECD and needed to strengthen its tax base. The levy would need to be done sensibly, it would need to be carefully targeted, Dr Goldie told ABC radio. A levy is probably in the right direction. Former Treasurer Peter Costello cut the top marginal tax rate from 47c to 45c in On top of this, the vast majority of taxpayers pay the Medicare levy of 1.5 per cent of their taxable income. And the Gillard government upped the Medicare levy by an additional 0.5 per cent to cover some of the costs of a National Disability Insurance Scheme. Bank of America Merrill Lynch chief economist Saul Eslake said upping the top tax rate even further would be a short term fix that would encourage tax evasion. Raising tax rates has adverse effects on workforce participation, saving and importantly compliance with the tax system that is, they increase the return to tax avoidance activities and hence encourage more people to engage in them.