Australia uses a progressive tax system, which means that people who earn more money pay a higher percentage of their income in tax. This helps make the system fair, so that those who can afford to pay moredo so. In contrast, a proportional tax system is when everyone pays the same percentage of their income, no matter how much they earn. A regressive tax is the opposite of progressive: it takes a larger percentage of income from people who earn less, which can make it harder for low-income earners. Progressive taxes aim to reduce inequality by helping fund services like healthcare, education, and transport for everyone.
SkillBuilder discussion Interpreting and analysing data and information 1. Study the information in TABLE1 . What taxable income bracket do you think most people are in? 2. What happens to the rate of tax that you pay as you earnmore? 3. Given everything that you
TABLE1 The tax brackets used by the ATO
Resident tax rates 2024–25
Taxable income
Tax on this income
0–$18200
Nil
$18 201–$45 000 $45 001–$135 000 $135 001–$190 000 $190 001 and over
16c for each $1 over $18 200
$4288 plus 30c for each $1 over $45 000 $31 288 plus 37c for each $1 over $135 000 $51 638 plus 45c for each $1 over $190 000
Source: https://www.superguide.com.au/how-super-works/income-tax-rates-brackets
know so far, do you think that the tax system is fair?
21.4.2 The purpose of Australia’s system of taxation The main aim of the Australian government’s taxation policy is to improve the fairness of the distribution of income among individuals and households. The government has three main roles in imposing taxes on individuals, households and businesses — distribution, allocation and production. Distribution The distribution of income is a government goal. It tries to reduce the gap between the rich and the poor by taxing high-income earners more than low-income earners and redistributing some of that income. The government will then use this collected taxation to redistribute income to low-income earners or those without any income through transfer payments (welfare, such as the JobSeeker Payment).
Allocation and production
The system of taxation adopted by the government can also be used to allocate resources. In a way this means redistributing resources in society to make it more equitable for everyone. The government uses the income that it receives to spend on the provision of goods and services which are sometimes not produced by businesses. These services are available to all and are often free or provided at a very low cost. These services include public parks, street lighting, police and emergency services, defence and other such services.
FIGURE2 Taxes are used for resources such as emergency services.
The government can influence consumer behaviour through the tax system. Rebates, such as the Victorian government’s Solar Homes Program, reduce item costs to encourage purchases and can boost demand for energy-efficient products like solar panels. A rebate is a form of money back. Conversely, excise duties are taxes on items like tobacco and alcohol to discourage their use.
TOPIC21 Understanding tax and consumer literacy 611
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