Some background info about the reasons behind the original stage 3 tax changes as claimed by Alan Kohler. Apparently an incentive for the self employed to not set up company and trust structures to minimise tax. That's the beauty of being self employed. So many opportunities to minimise tax compared to wage and salary earners.
She has never spoken publicly about her thinking, but I understand she thought the personal income tax scales, especially the 37 per cent rate, provided too much incentive for tax avoidance, by shifting income to corporate structures and paying company tax instead of income tax.
She apparently thought that was especially a problem with tradies, who have become adept at setting up company and trust structures.
And doing that is worthwhile: In 2018 the tax rate for companies with less than $25 million in turnover (i.e. tradies) was 26 per cent and now it’s 25 per cent below $50 million turnover. For bigger firms it was, and still is, 30 per cent.
It’s true that when you take cash out of the company to pay for groceries or the mortgage you have to pay personal income tax, but a lot of spending, and savings, can be kept within the company.
Mrakovcic apparently knew she was never going to get an increase in the company tax rate past the Coalition, so she proposed cutting the personal income tax rate for most people to 30 per cent, the same as the company tax rate for big firms, and closer to the 26 per cent that corporatised tradies paid.
As you can imagine, that seed fell on fertile soil in the Coalition and sprouted like mushrooms in May: Scott Morrison was only too happy to spruik that 85 per cent of wage earners would pay just 30 per cent tax after 2024-25.
Without wealth and inheritance taxes or a proper land tax or resources tax regime, Australia’s really rich people remain untouched, laughing at the rest of us arguing about small change.
