Each year the government releases a budget that outlines our income tax system (among other things), and each year they hide the truth. Instead of simply reporting the marginal tax rates, the government reports three different sets of numbers (basic rates, medicare levy, LITO) and then leaves the reader none-the-wiser about how they interact to produce the actual income tax rates. The first time I publicly complained about this silliness was back in 2009.
In 2011 the government announced a series of changes to the income tax system as compensation for the impending carbon tax. At the time, I ran the numbers to show how they would change the actual tax rates.
Now that the 2012/13 Budget is out, it’s time to run the numbers again to strip away the magic and report the honest marginal tax rates faced by Australian workers. These numbers are quite similar to the numbers I reported last year, except for an increase in the threshold for the Medicare Levy. Last year I had pointed out that the Medicare Levy was going to kick in at a lower income than ordinary income tax starting in 2012-13… and it’s good to see that somebody in Treasury has noticed this problem and fixed it.