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It's official: Treasurer Joe Hockey doesn't understand what progressive taxation is

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Well, the numbers are in folks, and it would appear the Treasurer of our country doesn't understand what progressive taxation is.

As I wrote yesterday, Joe Hockey got himself into logical, factual and political trouble when he claimed that an increase in the fuel excise was a progressive measure as the poor spend less of their income on petrol than do the rich:

“...Now, I’ll give you one example: the change to fuel excise. The people that actually pay the most are higher-income people, with an increase in fuel excise...

"...the poorest people either don’t have cars or actually don’t drive very far in many cases. But they [Labor and the Greens] are opposing what is meant to be, according to the Treasury, a progressive tax.
It was pointed out by a number of people that as a proportion of income, it is actually the poor that pay the most for petrol.

Joe then doubled down and had Treasury release this statement which shows that the wealthy spend more in absolute dollars than the poor. That is irrelevant to the question at hand.

The reason that is irrelevant is this: Joe was attacking Labor and the Greens for "opposing what is meant to be, according to the Treasury, a progressive tax." That means what is at issue is not whether the rich pay more in an absolute sense, but rather whether the rate of tax paid increases with income. Since the fuel excise tax does not, it is not a progressive tax.

To quickly demonstrate, we can compare Australia's income tax system with our GST. In our income tax system, every dollar over $80,000 is taxed at 37%, whereas every dollar between $18,000 and $37,000 is taxed at 19%. So a person who earns $37,000 per year pays 9.7% of their income in tax, while a person who earns $80,000 pays 21.9% of their income in tax. The person who earns $80,000 also pays more tax in absolute terms - $17,520 versus $3,589 - but that is irrelevant.

Under the GST, every dollar of eligible consumption is taxed at 10%. So a person who spends $15,000 in a year would pay $1,500 in GST - 10% of their consumption - while a person who spends $60,000 would pay $6,000, which is more than $1,500 but is still 10% of their consumption. Worse, since the poor tend to spend more of their consumption than the rich, poorer people will tend to pay more GST relative to their income than do the rich. This is known as a regressive tax.

Even if Joe doesn't like progressive taxation (and he doesn't seem to), it would at least help if he understood what it is... know thy enemy and all that... otherwise we'll keep looking like a goose when he claims that regressive changes are in fact progressive tax policy.

Oh and he's the Treasurer so like maybe he should know for that reason, too.

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