6 Average Effective Tax Rates
Previous sections have concentrated on the growth of tax revenue over the fifty-year projection period, but it is instructive to measure the variation in the effective aggregate tax rate over time. Figures 16 and 17 display the time profiles of aggregate tax rates for females and males respectively. When income tax thresholds are subject to full wage indexation, the aggregate tax rate is virtually constant over the period. The absence of any indexation, as in the base case shown by the solid line, implies a substantial increase in the aggregate rate by approximately ten percentage points. This increase is considerably modified by the sawtooth pattern produced by periodic indexation. Without indexation, the aggregate tax rate profile begins to flatten as a large proportion of individuals move into the top income tax bracket over time. Figure 18 shows the aggregate tax rate for total revenue from income tax and GST, and for males and females combined. The effects of ageing and labour force participation changes alone, for both taxes combined, is shown in Figure 19. This shows that ‘pure population ageing’ has very little effect on the aggregate rate, while the increased labour force participation reduces the aggregate rate slightly. Although ageing alone implies less revenue, aggregate income is also lower, so that the overall effective tax rate is very slightly higher in the ‘pure ageing’ case compared with the base model.
- Figure 16: Effective Aggregate Income Tax Rate: Females
- Figure 17: Effective Aggregate Income Tax Rate: Males
- Figure 18: Effective Aggregate Tax Rate for Males and Females Combined: GST plus Income Tax
- Figure 19: Ageing and Labour Force Participation Effects on Effective Aggregate Tax Rate
