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Introducing a ‘Buffett Rule’ in Australia would limit the incentive for very high income earners to use excessive tax deductions and would increase government revenue by $2.5 billion per year, according to the Australia Institute.
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Economic think tank calls for 'Buffett Rule'
10 April 2015
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The findings are outlined in a report from the institute, entitled Closing the tax loopholes: A Buffett rule for Australia, which includes modelling by NATSEM (National Centre for Social and Economic Modelling) of a 35 per cent average tax rate floor for those earning above $300,000 per annum.
Matt Grudnoff, The Australia Institute’s senior economist, said the current tax system has created a situation in which very high income earners are claiming massive deductions and paying no tax.
“They’re taking the ATO, and the rest of us for mugs,” he said.
“Many on extremely high incomes are not just reducing their tax bill, they’re managing to pay nothing at all.”
However, Mr Grudnoff said a solution proposed by US billionaire Warren Buffett could help to rectify the situation, with NATSEM modelling showing that if implemented in Australia, a Buffett Rule could recoup $2.5 bilion in revenue for the government.
Mr Grudnoff explained that a Buffett Rule creates a tax rate floor which allows legitimate deductions to be claimed, but also means deductions on earnings over a certain level can’t reduce high income earners’ average tax rate below a specified minimum.
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“Modelling we commissioned from NATSEM looked at setting a 35 per cent average tax rate as a floor for people earning over $300,000. This rate is below the average rate for progressive taxation up to that income,” he said.
Mr Grudnoff said the Buffett Rule is not a new tax, "but rather a way to close the loopholes and fix the system so it works in the way it was intended".
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