Budget 2011: Fiscal drag is coming back

Budget 2011: Fiscal drag is coming back

May 19 (BusinessDesk) – After several years without it, thanks to personal tax cuts, the tax collector’s best friend and taxpayer’s bogey – fiscal drag – is set to re-emerge in the next couple of years, the Budget says.

Fiscal drag is the term used to describe the way people on rising incomes end up paying increasingly more tax when the thresholds at which higher tax rates kick in remain unadjusted for inflation. The result is a creeping increase in the tax take.

”PAYE growth will again be negative in the June 2012 year as income tax changes only took effect on 1 October 2010,” the Budget documents say.

However, from 2013 to 2015, “fiscal drag is anticipated to add an average of around $400 million per annum to PAYE, which would see PAYE rise as a proportion of gross domestic product from an estimated 10.1% in 2012 to 10.7% in 2015.”

Meanwhile, the Treasury expects corporate taxpayers will have losses available from recent weak economic conditions to offset against future profits until well into 2013, when their use is expected to peak.

(BusinessDesk)

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