Yahoo Finance 'Buffett rule' would generate $2.5 billion in taxes from high-income earners
As the 2015 Budget looms, new calculations reveal that implementing a tax rate base for high-income earners would generate an extra $2.5 billion for the government.
With the Prime Minister looking for avenues to help reduce the budget deficit, a new report recommends curbing the extent to which high-earners can take advantage of tax loopholes that allows them to pay less income tax than they otherwise would.
In a report prepared for GetUp!, the Australia Institute calculated that the government could boost revenue by $2.5 billion each year if it introduced a tax rate floor for people earning over $300,000.
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According to the report, only 31,500 Australians – one per cent of the population – earn more than $300,000, yet they collectively claim over $2.5 billion tax deductions.
Based on the calculations by the National Centre for Social and Economic Modelling, those very high-income households would pay an extra $79,000 each year in tax.
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The proposal is named after billionaire investor Warren Buffett, who was unimpressed after discovering his secretary was paying a higher average rate of tax than the top earner in the company – him.
This would mean that no matter how good one’s advisor is at finding tax loopholes and incentives, a top earner would still be required to pay 35 per cent of their total income in tax, before making tax deductions.
Finance commentator Peter Switzer says it is important to make sure that such a rule wouldn’t affect aspirational, middle-income Australians.
“If it can be proved that it will increase the total tax collected as a percentage of GDP where it actually makes very high income people pay more tax, then society would call it fair,” Switzer told Yahoo7 Finance.
“However, if it increases the tax load unfairly on middle-income Australians, who don’t have much access to social welfare, then it could become a draconian tax rule.”
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The Australia Institute calculates that 90 per cent of those who would be affected by the tax rule are men, while 56 per cent are aged in their fifties.
The Australia Institute Senior Economist Matt Grudnoff says that while some very high-income earners are structuring their financial affairs to reduce the amount of income that they have to pay, other taxpayers are footing the bill.
“We have a situation where very high income earners are claiming massive deductions and paying zero tax, Grudnoff said.
“They’re taking the ATO, and the rest of us for mugs,” Grudnoff said.
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Switzer says that the adoption of the ‘Buffett rule’ in Australia is unlikely.
“That’s not to say that we shouldn’t have a discussion or conversation, as the Federal Government likes to call it nowadays, around how we can make this tax system fairer. The Buffett rule could be a start.”
Switzer also makes the distinction that in the United States, where Buffett’s tax rule was proposed, higher income groups pay a lot less tax than their counterparts here in Australia.
You can follow Ingrid Fuary-Wagner on Twitter at @ingridFW1
