Australian taxes are non-egalitarian¶
Our tax system is deliberately setup to subsidise wealthy investors to further wealth-accumulate at a discount without paying their fair share of taxes.
Checkout the modelling below to understand how this is the case.
import matplotlib.pyplot as plt
# CPI assumption for the past X years
CPI=1.02
def au_tax(income, cap_harvest=0, cgt_discount=False, cgt_index=0):
if cgt_discount:
val = income + 0.5 * cap_harvest
else:
val = income + cap_harvest
if cgt_index > 0 and cgt_discount == False:
val = income + (1 -((CPI ** cgt_index) - 1)) * cap_harvest
if val < 18200:
return 0
elif val < 45000:
val -= 18200
return 0.19 * val
elif val < 120000:
val -= 45000
return 0.325 * val + 5092
elif val < 180000:
val -= 120000
return 0.37 * val + 29467
else:
val -= 180000
return 0.45 * val + 51667
worker_tax = [ au_tax(x) for x in range(0, 1000000, 1000) ]
worker_income = [ x for x in range (0, 1000000, 1000) ]
investor_tax = [ au_tax(0, cap_harvest=x, cgt_discount=True) for x in range (0, 1000000, 1000)]
investor_income = [ x for x in range (0, 1000000, 1000) ]
line1, = plt.plot(worker_income, worker_tax)
line2, = plt.plot(investor_income, investor_tax)
line1.set_label('pleb')
line2.set_label('woke')
plt.legend()
plt.ylabel('tax dues')
_ = plt.xlabel('income')
worker_effective = [ au_tax(x)/x for x in range(1, 1000000, 1000) ]
investor_effective = [ au_tax(0, cap_harvest=x, cgt_discount=True)/x for x in range (1, 1000000, 1000)]
line1, = plt.plot(worker_income, worker_effective)
line2, = plt.plot(investor_income, investor_effective)
line1.set_label('pleb')
line2.set_label('woke')
plt.legend()
plt.ylabel('eff. tax rate')
_ = plt.xlabel('income')
As you can see above, if you are a 'pleb', you'd be paying substantially more in taxes compared to your wealth mate who is generating income from capital gains.
A ballpark figure, 300K annual income from purely capital gains proceedonly pays approx 15% in taxes. Just 15%. While our friend who works 9-5 has to pay a whopping 35% in effective tax rates instead.
Where is the justice in this!?
With Fairer CGT Indexation Rule¶
worker_tax = [ au_tax(x) for x in range(0, 1000000, 1000) ]
worker_income = [ x for x in range (0, 1000000, 1000) ]
investor_tax = [ au_tax(0, cap_harvest=x, cgt_discount=False, cgt_index=5) for x in range (0, 1000000, 1000)]
investor_income = [ x for x in range (0, 1000000, 1000) ]
# 5Y Cap Gains
line1, = plt.plot(worker_income, worker_tax)
line2, = plt.plot(investor_income, investor_tax)
line1.set_label('pleb')
line2.set_label('woke')
plt.legend()
plt.ylabel('tax dues')
_ = plt.xlabel('income')
The Australian tax system used to only allow tax deductions against capital gains based on CPI indexation so real-terms capital gains do not get eroded by inflation.
Supposedly, these rules still apply today, you will see that our 'woke' friend would be paying similar amount of taxes to our 'pleb' friends.
# 20Y Cap Gains
worker_tax = [ au_tax(x) for x in range(0, 1000000, 1000) ]
worker_income = [ x for x in range (0, 1000000, 1000) ]
investor_tax = [ au_tax(0, cap_harvest=x, cgt_discount=False, cgt_index=20) for x in range (0, 1000000, 1000)]
investor_income = [ x for x in range (0, 1000000, 1000) ]
line1, = plt.plot(worker_income, worker_tax)
line2, = plt.plot(investor_income, investor_tax)
line1.set_label('pleb')
line2.set_label('woke')
plt.legend()
plt.ylabel('tax dues')
_ = plt.xlabel('income')
Supposedly after 20 years, where inflation really starts to kick in, you see substantial discounts in tax dues for capital gains to mitigate the inflation erosion effects on real terms capital gains.
Australia should abolish the 50% CGT Discount