Income Distribution and Taxation

Question 1

What four functions does Australian taxation play in our economy

Answer 1

Raising revenue
redistribution of income from wealthy to poor
decisions in how resources are allocated
regulates economic fluctuations associated with business cycle

Question 2

direct taxation

Answer 2

collected directly from tax payers income, impact and incidence is on the same person

Question 3

indirect taxation

Answer 3

collected through taxpayers expenditure, impact and incidence fall on different people.

Question 4

progressive taxes

Answer 4

claim an increasing proportion of income as income increases.
direct relationship
burden of progressive tax falls on those who earn higher levels of income

Question 5

regressive taxes

Answer 5

places a greater burden on lower income earners.
takes a decreasing proportion of income as income increases
inverse relationship

Question 6

proportional tax

Answer 6

takes a constant proportion of income, no matter what level has been earned.

Question 7

specific tax

Answer 7

charged on the volume of sales

Question 8

ad valorem

Answer 8

levied as a percentage of price

Question 9

four basic criteria to determine a good taxation system

Answer 9

equity, economy, certainty, convenient

equity

• features both horizontal and vertical equity,
• those that can pay more will pay more
• earn the same amount = pay same amount

simple

• process of collection should be convenient to tax payers and collectors
• taxpayers should be able to understand how much to pay

efficient

• benefits outweigh the cost
• minimise excess burden

convenience

Question 10

personal income tax:

Answer 10

levied on all wage and salary income, at rates which specify how much of the last dollar will be paid in tax
income and incidence fall on the same person
direct tax

Question 11

company tax:

Answer 11

proportional tax
impact falls on individual company
incidence falls on consumers

Question 12

FBT:

Answer 12

Fringe benefits Tax

levied on the value of non cash benefits given to employees as part of their salary package
Notions that people should pay tax according to their ability to pay, and those on the same income level should pay the same amount of tax

Question 13

GST:

Answer 13

Goods and services tax
broad-based tax levied at 10 per cent of the price of most goods and services sold in Australia
Replaced the WST in 2000
Impact of the GST falls on the seller of the goods and services, incidence falls on consumer
Regressive
Tax decreases as income rises

Question 14

Excise Duties:

Answer 14

imposed at a flat rate on domestically produced goods such as alcohol, cigarettes
raises a great deal of revenue for the government
levied on price inelastic goods

Question 15

Capital Gains Tax:

Answer 15

progressive tax
levied on profits from the sale of assets held for a period longer than 12 months
Does not apply to personal items such as houses and items purchased before 1985

Question 16

Stamp Duty:

Answer 16

Regressive tax

applies to transfers of properties and assets

Question 17

Tax Reform

Answer 17

A Capital gains tax
a Fringe benefits tax
GST which introduces more certainty
A move to self assessment of tax liability
PAYG system

Question 18

Formula for Gini Co-efficient

Answer 18

A/ A+B

Question 19

Wealth

Answer 19

Difference between a households assets and its liabilities

current value of assets a household has accumulated over time

Question 20

Gini-coffecient measures

Answer 20

Degree of income inequality in an economy

Question 21

Why is there income inequality in Australia

Answer 21

differences in education, training and exp.
occupational conditions e.g geographical location
personal aptitude
opportunity e.g family background
involuntary factors e.g sickness or disability