Melissa Tabanag

44179049
This assignment is my own work

Word count: 3665

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 SHOULD AUSTRALIA LOWER PERSONAL INCOME TAX RATES?

Introduction

Personal income tax is the compulsory contribution by people on the money they earn, as
against to a tax that the company, they work for, pay on its revenue or profits (Cambridge
Dictionary 2016). Wherever in the world you live or how much salary you acquire, there will
probably be a complaint in the back of your mind that you are paying too much tax from your
income. Australian treasurer Joe Hockey thinks that Australians pay too much income tax than
most nations worldwide (Fernyhough 2015). Australian Securities and Investments Commission
(2016) presents the tax percentages on different levels of income. Income tax rate starts at 19 per
cent or 19 cents for every dollar if your salary exceeds A$18,200 and is within 37,000. There are
other rates for other levels of income and the highest taxable income starts at A$180,001 and
over with and income tax of A$54,547 plus an additional 47 cents per dollar over A$180,000.
Compared to the other 34 countries included in the Organization for Economic Cooperation
and Development (OECD), Australias top marginal rate of 49 per cent is almost eight percentage
points above the average of 41.58 per cent when it comes to personal income tax. Moreover, it is
only third with Sweden having ranked first with 57 per cent and Denmark ranking second with
55.56 per cent. Additionally, Australians taxpayers should ask themselves why they think the tax
rate is really worse, is it the danger of the impact that affects their bank statements? Or is it how
income tax influences individual day to day decisions that makes it worse? Furthermore, it is the
individuals perspective that income tax takes a part of their hard earned money that makes
income tax seem so negative and bad (Allen 2016). Nevertheless, why should the government
consider lowering income tax? And not some other form of tax? First, personal income tax is
highest tax contributor to the Australian government. The Australian Taxation Office is expecting
to receive more than A$175 million in the form of personal income tax, that was 49% of the
composition of taxes in Australia in 2013-2014, and Re:Think (2015) has predicted that over the
next few years, the percentage of personal income tax contribution will increase. The continuing
increase in the personal income tax system is delivered by applying higher marginal rates of tax
at different income thresholds, which do not automatically keep pace with inflation or growth of
wages.

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 This essay strives to facilitate discussions of income tax remuneration focusing mainly on
Australians whether the rates applied are fair and just or needs to be reexamined and be amended
to a fairer and more just rate. Three different ethical perspectives, namely the Utilitarian
perspective, the Kantian perspective, and the Virtue ethics perspective, will also be presented in
an ethical framework to support the answer that will be made after details and arguments will be
weighed regarding whether or not Australias income tax be lowered.

The Utilitarian Perspective

This segment of the essay will tackle and examine how a utilitarian views this particular
issue on the income taxation. Utilitarianism aims for the greatest good for the greatest number of
people which is difficult to decide on when it comes to income taxation. First and foremost,
utilitarians should consider key stakeholders involved in this situation. The stakeholders include
the (a) personal income tax payers, which are the employees or people who have salaries that
reach or exceed the minimum bracket; (b) the tax collectors or the government, who budgets the
tax for certain purposes to be implemented; and the (c) people living in Australia, which the
government spends the budget on.
The utilitarian approach comes easy when it comes to income distribution but it is different
when it comes to the taxing of the income. A true utilitarian would only be concerned about total
satisfaction and not about the evenness of its distribution, but with taxation, specifically income
taxation, utilitarians are considering the distribution of resources. If an individual has an
adequate amount of resources, that will generate more satisfaction in total than if that equal
amount of resources is distributed to a number of different people. Taxation plus government
spending is an obvious way to achieve redistribution to ensure that everybody gets something
(Baron 2016). We can infer the utility function of an individual is based on the choices the
individual makes when considering prices and levels on income but from this certain perspective,
utility is not essentially measurable and difficult to compare with the people in the different
levels or statuses of life, also, there is also a belief that the higher tax rate on income, the lesser
incentives taxpayers will have. Are tax payers the greatest number of good? If so, do all tax
payers believe in the same solution? This is what makes the utilitarian view so difficult to

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manifest. Additionally, if utilitarianism implements a policy that some or most people dont agree
to, then perhaps it is not best to have that income tax redistribution be a public policy (Mankiw
2013).
According to Piketty and Saez (2012), the standard utilitarian approach assumes that
differences in marginal utility of consumption lowers when there is a decrease in income but on
the other hand generates a greater social welfare. Furthermore, if individual income taxpayers
were fully responsible for the difference in wages and salaries, then utilitarians in favor lowering
income tax rates would bear little or no weight at all since they are not the greater good. The
main argument against decreasing income tax is efficiency. Taxing the rich or the higher income
individuals means to fund programs to help the poor, a considered greater good but taxing the
same rate to lower wage individuals, which is the majority, would lessen their incentive which
then lowers utility for a major number of people. On top of that, these considerations are often
uncertain behavioral responses that affects public perceptions on fairness.
Nevertheless, Australia, in general, are paying the higher personal income tax rate to provide
a better Australia in the form of public services. Public services that benefit from the taxes
include Australias defense, education, health, social security and welfare, community amenities,
transportation, communication, and other general public services (Canstar Research 2013). After
knowing the public services being implemented though taxes, we should consider how these
services are more efficient than other countries and if the current income tax rate is too much or
fair enough. Stones (2013) research for the Centre for Policy Development indicates that
Australias public sector competes excellently in the international level and does a good job or
even better as the vaunted efficiency of the private sector. The OECD has analysed 34 countries
in 11 categories including income, housing, jobs, community, education, environment, taxes, and
a lot more and have ranked these countries according to the quality of lifestyle. Australia ranked
number one for two consecutive years on 2012 and 2013 and is considered to be the happiest
country in the world and this is also because Australia has extremely good services regarding
health, civic engagement, housing and more (Willet 2013).
Overall, with all the information given and stated previously, utilitarians would suggest on
not lowering the personal income tax rates and consider this to be a little sacrifice for the greatest
good for the greatest number of people and the proof is the great lifestyle and great public
services available in Australia.

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The Kantian Perspective

Immanuel Kant suggests that only duties, principles, and rules should control and determine
ones actions and that the consequences are beyond ones controls (DesJardins 2014). Kantian
ethics believe that taxation was justified when it increased human autonomy by providing
survival needs or property protection rights to individuals (Surprenant 2015). Besides that, the
Kantian perspective would support the recent income tax rate to be able to provide for the
preservation of the state, either by paying for essential services, being able to fund individuals
who are experiencing poverty to no fault of their own like orphans, or helping different
foundations or organizations to support these individuals and the community for it is the right
thing to do. We therefore come to a question on is the income tax rate enough already or is it
more than enough? Should the wealthy be the only ones paying income tax, or there be equal or
proportionate taxation on employees based on their salaries and wages? Surprenant (2015) states
that a Kantian would answer those questions practically which is that the wealthy or the upper
classmen have acquired a moral obligation to the commonwealth therefore it is their obligation to
pay their income taxes. The poor can also have the same obligation but they have nothing to
contribute.
The Kantian perspective on decreasing or increasing income tax rates is ambiguous
because it believes on doing what is right not considering consequences. Basically, it accepts the
income tax rate as it is as long as supports the formulas of the categorical imperative. If
increasing the tax income does not violate laws or rights, whether it is an unjust or unfair rate to
a number of people, Kant supports and accepts the rate. Additionally, the government, where the
tax goes to, must implement income tax rates with humanity and as what the second formulation
states to treat never only as a means to an end, but always at the same time as an end
(DesJardins 2014). Additionally, the formulation of autonomy can be confusing when it comes to
income tax and the increasing or decreasing of such since it is not universal and is different in
other nations. In addition, the nations should have to come into agreement to a universal income
tax rate for it to become acceptable. This topic is very complex to be perceived in a Kantian
perspective since the reason on changing level of tax rates rests with the government and may be
subjective to different individuals.

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 Before implementing an increase or decrease in any kind of tax, Australias parliament,
subject to the Constitution, must first propose and support their certain proposal on whether or
not it is more beneficial to implement an increase or decrease on the income tax rate. That being
said, we can imply that the government does not change the level of income tax rate just because
they want to and that imposing a change will have to go through a lot of deep thinking and
rigorous process for the proposal to be finally implemented (The Tax Institute 2010). However,
reducing the personal income tax rate will only result to the downfall of the revenue again, as
what happened during the Global Financial Crisis (GFC). The debt levy, additional tax for
taxpayers taxable income over $180,000, does nothing to solve the long term problem of
Australias tax system. By the year 2017 to 2018, the government is expected to rely more on the
personal income tax revenue that the other types of taxes (Jericho 2014). Furthermore, Plotter
(2015) believes that Australia has no tax revenue problem and that people should carefully
consider all the benefits and the changes that makes Australia a better country before thinking
that they are being stolen a part of their salaries that goes to nothing. In conclusion, a
deontologist would believe that it is our obligation to pay, if we qualify in the tax bracket, the
current income tax rate and suggest that Australia should not lower the rates because, going
through a lot of processes, the current income tax rate is justified therefore the government is not
treating the tax payers only as a means to an end, but considers them to be the same time as an
end.

The Virtue Ethics or Aristotelian Perspective

Aristotelian virtue ethics believes that one who lives in accordance with complete virtue and
is equipped with enough external goods, not just on a period of time but throughout their
lifetime, also, this perspective is character based rather than act or consequence focused.
(Stanford Encyclopedia of Philosophy 2014). A question which relates to virtue ethics and
income tax is whether or not there is virtue in paying more or less income tax. Moreover, before
considering whether or not Australia should consider lowering their income tax rates are
virtuous, we must also consider whether or not paying taxes is considered virtuous. If this
perspective concludes that paying taxes is not virtuous, the solution an Aristotelian ethicist would

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suggest would have to be to abolish taxes, including income taxes and maybe be replaced instead
with donations an individual considers to be a virtuous contribution.
There are two arguments to consider in paying taxes, the disagree argument and the agree
argument. The disagree argument believes that paying taxes is a mere act of following preset
rules and not using reason to promote the good and have a thriving, complete life. Additionally, it
believes that it also injures human as it provides discrimination against merit and hard work.
Lastly, the higher the tax rate, whether it may be income tax or not, the more likely it hinders
individual tax payers from donating other virtuous contributions therefore somewhat destroying
the common good.
On the other hand, the agree arguments provides more reasons on why taxes are considered a
virtuous activity. First, Taxation provides opportunities, through redistribution of wealth that in
turn, achieves Eudaimonia. Secondly, taxpayers are considered to be actively participating and
supporting the flourishing of the greater good making it a very virtuous activity. Thirdly, taxation
is not just adhering to rules but also behaving accordingly to what the society think is right and is
the common good. Fourthly, paying of taxes is evident in all economies therefore suggesting that
there is a human reasoning behind this concept that is agreed to virtuous. And Finally, the
concept of income taxes and all other taxes is honorable and promotes virtuous behavior (Prezi
2015).
The question Should Australia lower income tax rates? should be a question to the
government whether how much they are collecting is good enough and considered to be a
virtuous contribution or they are just stealing from other peoples hard earned income. The
answer may be subjective and no one person can ever defend whether or not the recent tax rates
help the common good flourish and have a satisfactory life.
Furthermore, several virtues are likely to be exercised if tax rates are moderate enough that
being high. One example is when income tax rates are moderate, an individual should use ones
talent to its full capacity. This means that financial incentives influence individuals to use their
talents and skills, but the high and the increase income tax rate diminishes those incentives by
lessening the money one takes home. Another virtue to be considered is charity, whether
monetary on non-monetary. The more take-home pay individuals have, the more possibility that
they will be able to do charitable works and donations. Lastly, the third virtue is independence. It
is better to earn than to depend on someone else to financially support you. Lowering the rates of

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personal income taxation would assist in making independence an achievable virtue (Baron
2012).

Extension

Ethical Issue on Tax Evasion and Tax Avoidance

Some taxpayers have nothing to complain about their personal income tax rates, but some other
taxpayers complain. There are two types of taxpayer behavior that can be questioned on whether
or not they are ethical. One type is tax evasion, and the second type if tax avoidance. Tax evasion
is when there is a misappropriation of facts, declaring a lower income than the actual (Baron
2012). Having higher tax rates influence people to evade or avoid tax which is considered to be
an ethical issue. It is difficult to ethically justify tax evasion. Baron (2012) states that one way to
do so would be to argue that the state, in imposing taxation, engaged in theft, and that one way to
prevent the theft is to lie to the state, just as one could lie to the thief. This argument would be
plausible if a regime was imposed, rather than one democratically chosen in free elections.
Moreover, unlike tax evasion, tax avoidance does not falsify or lie and instead involves
structuring transactions, financial in nature, to ensure that less tax is payable than one expects to
pay. Quoting Baron (2012):
A utilitarian, concerned with aggregate welfare, might be quite relaxed about tax
avoidance. After all, when tax is avoided, wealth is not destroyed: it is merely kept in the
private sector instead of being transferred to the public sector. The main utilitarian
concern would probably be that it would result in an unintended distribution of the tax
burden, as some of the burden would be shifted from the rich onto people on modest
incomes who cannot afford clever tax lawyers. That would reduce their satisfaction more
than it would increase the satisfaction of the better-off people who have reduced their tax
burdens. But that loss to the poor might not happen. For example, where shares in
companies are held by pension funds, the pensions of ordinary people can be boosted
when those companies avoid tax. A virtue ethicist would be likely to view tax avoidance
with disfavour. It is, after all, hardly virtuous to exploit rules knowing that one is

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 exploiting them in unintended ways to redistribute the disadvantage away from oneself. A
deontologist would not positively favour tax avoidance, but might not condemn it either.
Deontologists can easily argue for a duty to obey the law: yet obeying the law is
something the tax avoider takes care to do, in his own special way.
From the quotation mentioned above, the increasing of income tax rates may lead to some other
ethical issues. This implies that if one believes that the increasing or decreasing of the personal
income tax rate is not an ethical issue, there are still outcomes that can be questioned on whether
or not it is ethical.

Conclusion and Recommendation

There are a number of purposes for tax, whether it has a high or low rate, and it is most of the
time clear what the different ethicists opinion on taxation. For one, the provision of law and
order and the more extensive public services in Australia such as the healthcare division and
education. Utilitarianism would approve the increase or the current personal income tax rate for
these aspects because it allows more goods and services to be produced, and they also consent to
more non-materialistic desires to be satisfied. Additionally, virtue ethicists will approve of
taxation when, and only when, these services improve peoples opportunities to use their skills
and lead flourishing lives, also because extending assistance to the less fortunate is a virtue,
charity. Moreover, deontologists or Kantians may recognize this as a duty to care for the poor.
A more controversial topic is the propaganda of equality. To summarize, utilitarians suggest that
Australia should not lower personal income tax or change its level because the greatest number
of people residing in Australia is already experiencing the greatest good with the current income
tax rates. The benefits include a much better healthcare, education, transportation,
communication, and more facilities than most countries. Additionally, Kantians believe that
recent income tax rates are justified and imposed by the government. They also consider it a duty
which provides the preservation of state and also assists in decreasing poverty through the
available public services therefore, Australia should keep the current income tax rate and not
lower it. Lastly, from the virtue ethicists view, the Australian government should not only lower
the rate, but abolish it. Even though it can help flourish peoples lives, the income tax payable
can injure the taxpayer as it deducts merit or provides discrimination against ones merit and

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hard work. A virtue ethicist would suggest that, in order to be virtuous, helping the less fortunate
in Australia must not be a forced obligation but should rather be a voluntary act, or charity,
resulting to abolishing tax and make individuals freely decide to donate financially or non-
financially. Nevertheless, the overall recommendation is to keep the current tax rate and not
lower it. No is the answer. Australia is doing perfectly fine with current income tax rate and one
can see it through Australias lifestyle and commonwealth.

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