Last week I attempted to show the effect of the low income tax offset (LITO) by creating an amended income tax table. Unfortunately I made a mess of the numbers by mixing the tax table for 2008-09 with the LITO numbers for 2007-08. I have fixed my errors and the revised table is shown below.
As indicated last week this only incorporates the effects of LITO and not the various other rebate schemes such as the Seniour Australians Tax Offset (SATO) or Family Tax Benefits (FTB-A and FTB-B).
For PAYG tax payers only half of the LITO rebate flows directly into their paypacket. The rest comes by the way of a refund after submitting a tax return at the end of the year. This would seem to be a mechanism for making people feel somewhat optimistic in relation to submitting a tax return. Perhaps a way to train young taxpayers to play the game.
I can’t help feeling that the point of all these rebate schemes is to make the tax system more obscure and to help people feel like they are special because there is a rebate scheme for their particular circumstances. If you’re old they give you a rebate (SATO), if you’re young they give you a rebate (LITO) and if you’re in between young and old and raising a family they give you a rebate (FTB).
Australian Libertarian Society (old site) 
“I can’t help feeling that the point of all these rebate schemes is to make the tax system more obscure and to help people feel like they are special because there is a rebate scheme for their particular circumstances.”
I don’t get anything! Does that mean I’m not special?
I can’t help feeling that the point of all these rebate schemes is to make the tax system more obscure and to help people feel like they are special because there is a rebate scheme for their particular circumstances.
The government has gone rebate crazy.
The transition to retirement provisions governing superannuation funds allow the payment of an allocated pension to people between 55 and 60. Tax is paid on the pension at a flat rate of 15%.
When the recipient lodges a tax return, the tax is refunded as a rebate.
It probably takes an extra couple of thousand public servants to administer that bit of idiocy.
Terje is the title meant to read “LITO 2009-09”?
I think your targeting of rebates by age, etc, is wrong. The LITO is generally available. If you are a bit older you can get both LITO and MAWTO (mature age workers tax offset); older still you can get LITO and MAWTO and SATO.
There’s nothing to stop FTB popping up in addition to these as well (or the dependent spouse tax offset for couples without kids).
I should have added that another reason for doing things via the LITO is that to fully incorporate it into the tax scale would make it obvious that the tax rates are not progressive.
Ben – fixed now.
Spog – the non-progressive part of the table is in red text. And yes I agree that it wouldn’t play well which is half my motivation for trying to make it a little more transparent.
LITO
SATO
MAWTO
FTB-A
FTB-B
With all these rebates one might think they were trying to whiteant the income tax system by stealth. Not an entirely bad thing but not as good as clear and transparent tax cuts.
You might want to include the Medicare Levy also just to make things even more messy.
The Medicare Levy isn’t a rebate but it sure adds to the mess. One would almost think that they set out to create a mess.
Of course, the main reason that we have a LITO is that even though the government apparently thinks that you don’t have enough income to pay tax until you earn $11,000 it doesn’t want to give all of us a tax-free income threshold of $11,000. So it is much cheaper to raise the tax-free threshold if you do it this way.
The really bizarre thing is that once the scheduled increases to the LITO are fully phased in by 2010-11, when it will be worth $1,500 and the effective tax-free threshold will be $16,000, the LITO will not be fully phased out until someone earns $67,500. So, in other words, someone earning $65,000 (or even $67,499) will be defined administratively as ‘low income’.
There’s a more creditable reason they’ve gone for the LITO rather than just raise the tax threshold. Raising the tax threshold causes some very weird interactions with the SATO that would actually result in quite a lot of low-income retirees paying more tax.
Which just shows the sort of mess they’ve made over the years with things like the SATO.
The Medicare Levy adds another regressive element. It is 1.5% of total income, but you don’t have to pay it until you’re over $16740 or something. Once you hit $16740 its something like 10c in the dollar til you reach 1.5% of total income, at $19,694.
As a side note, can anyone say 30/30?
The LDP should just market it as a $30000 tax free threshold, with a $9000 refundable LITO that phases out at $30000.
For some reason, people understand that more. Maybe its the negative numbers that put people off.
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Government websites and many websites of financial planners and accountants states that the Medicare levy thresholds are set in such ways that senior australians (those eligible for SATO) pays no Medicare levy when no personal income tax is payable. But if a senior Australian is also eligible for MAWTO, then he or she may pay the Medicare levy (reduced) even if due to MAWTO, LITO and SATO no personal tax is paid. Correct me if I am wrong.
Hi, So does the LITO reduce the your taxable income figure or reduce the actual amount of tax you pay by $1200?
It reduces the actual amount you pay by $1200. Actually… that’s now up to $1350 (as of 01/07/09).
But that only applies in full to people earning less than $30,000 per year. It then gets “phased out” by 4%… which means higher marginal tax rates of 4% on people earning between $30,000 and $63,750.