Multiple Choice question! (1 Viewer)

[Blocy]

Hey guys, I got this MC for my half yearly test and my grade is really stumped on what the correct answer is:

Which of the following is a form of regressive tax?
- Company tax
- Income tax
- GST
- Superannuation tax

Could you econocrats have a go?

 

[OzKo]

Company tax and Income tax are progressive.
GST is a flat tax.
Superannuation tax is regressive.

Edit: I'm wrong.

 

[Blocy]

Oh really?

Because I always thought that both GST and superannuation tax were flat;
"The concessional taxation of superannuation is regressive, because the flat tax rate of 15 percent provides a greater saving to individuals who pay 45 per cent marginal income tax rates than those who pay 15, 30 or 40 per cent marginal income tax rates."

But they were counted as regressive as it meant that lower-income earners paid more tax proportional to their income, as opposed to the higher-income earners.

 

[OzKo]

You make a good point though.

If the tax rate is at 15%, then it is similar to the GST but in theoretical terms (at face value), we regard that as a flat tax as we aren't looking at welfare changes but strictly the actual percentage rate.

You can't have it both ways. Have you or any other students queried the teacher about it?

 

[Blocy]

I see, we asked our teacher's right after the exam today, but they said that we would fine out when we got our results... which is in about 3 weeks time ):

Thanks for your help though, I guess it could go either way.

 

[corzacollymore]

Its GST
"Critics have argued that the GST is a regressive tax, which has a more pronounced effect on lower income earners, meaning that the tax consumes a higher proportion of their income, compared to those earning large incomes"

 

[OzKo]

Its GST
"Critics have argued that the GST is a regressive tax, which has a more pronounced effect on lower income earners, meaning that the tax consumes a higher proportion of their income, compared to those earning large incomes"

It may be regressive in terms of welfare, but in terms of the syllabus, GST is a flat tax as it's percentage rate is equal in all cases.

 

[deswa1]

GST is regressive. The definition of a regressive tax is one that the more you earn, the less tax you pay as a proportion of your income. As lower income earners consumer more of their income, they are affected more by GST and hence pay more GST as a component of their income. This is contrasted to income tax, where the more you earn, the higher your marginal tax rate and company tax where no matter your profits, you pay 30% tax.

 

[seremify007]

I read the question and thought the answer is regressive- because whilst it remains flat/fixed relative to the item which the value added tax is calculated with reference to (e.g. a $10 item will cost $11 with tax), then even as you have a higher income level, you're still going to be paying the same $1 in GST. And as your income rises, that $1 in GST falls as a percentage of your income.

 

[OzKo]

Was I misled during the HSC in believing that the syllabus does NOT use welfare as a measure of characteristing taxes?

 

[Donald_Duck]

GST is regressive u newbs. God , you are doing like commerce at uni and you dont even know that.

 

[powlmao]

Company tax and Income tax are progressive.
GST is a flat tax.
Superannuation tax is regressive.

Edit: I'm wrong.

It's gst

I this question in year 11 and my teacher said
It was GST

 

[OzKo]

Just so you guys know, ATO regard the GST as a proportional tax.

It's a poorly worded question.

 

[deswa1]

For the first one, it depends on how QANTAS expanded its market share (i.e. if they increased the number of Australian's they transported overseas or if they increased their services from other countries to Australia). If for example, they increased the number of foreigners that they transported, this would be an inflow to Australia's current account and the answer would be B.

For the second one, the answer is C. An increase in dividends payed is an increase in outflows on net income on the current account, worsening the CAD. Your answer of D is incorrect as an increase in overseas students studying in Australia is a services credit, which would improve the current account.

For the third one, the answer is D as the other three are causes of an appreciation. Still, I think this is a stupid question as the AUD hasn't really depreciated at all recently.

 

[powlmao]

For the first one, it depends on how QANTAS expanded its market share (i.e. if they increased the number of Australian's they transported overseas or if they increased their services from other countries to Australia). If for example, they increased the number of foreigners that they transported, this would be an inflow to Australia's current account and the answer would be B.

For the second one, the answer is C. An increase in dividends payed is an increase in outflows on net income on the current account, worsening the CAD. Your answer of D is incorrect as an increase in overseas students studying in Australia is a services credit, which would improve the current account.

For the third one, the answer is D as the other three are causes of an appreciation. Still, I think this is a stupid question as the AUD hasn't really depreciated at all recently.

I agree with your answers.

However I feel the questions are poorly worded and are of poor standard

 

[gnrlies]

I just did my test aswell and I'm wondering if i got these a few right.

QANTAS increases its market share in the world airline industry with a record profit. How would this be recorded in Australia’s Balance Of Payments?
a. As a debit on the Australian current account
b. As a credit on the Australian current account
c. As a credit on the Australian capital and financial account
d. As a debit on the Australian capital and financial account

I went with A. And apparently the trial papers solution say the same.
Which of the following factors could cause an increase in the size of the Current Account Deficit?
a. A decrease in capital inflow into Australia
b. A decrease in the official cash rate in Australia
c. An increase in the dividends paid to foreign investors
d. An increase in the number of overseas students studying in Australia

D. Trial solutions say so aswell.


Which of the following could have caused the recent depreciation in the value of the
Australian dollar?

a. An increase in the Australian interest rates due to the threat of inflation
b. An increase in Australian exports due to China’s rapid growth
c. A decrease in commodity imports as Australia’s growth slows
d. A decrease in foreign investment in Australia due to the European debt crisis

D. Again, trial papers say so aswell.

Deswa1 gives a great answer on the GST and why it is regressive (not absolutely so, but more than likely).

Qantas question is a dud, but I suspect they are suggesting that it will increase exports and is therefore a credit on the current account.

Dividend payments are a net income transfer out of Australia therefore increasing CAD as Deswa1 said.

Lower foreign investment weakens demand for aud therefore leads to a depreciation. So D.

 

[powlmao]

I'll quicklyshow how GST is regressive

In this case only GST exists as a tax ( makes it easier)


Two people buy a television, the total GST on it is $100

Person A earns 10k a year

Person B earns 100k a year

Percentage of tax paid per person is as follows

Person A : ($100/$10000) = 1/10= 10%

Person B : ($100/$100000)= 1/100= 1%


You see are the mariginal rate of tax drops. Therefore it is regressive

 

[Blocy]

Thanks for the responses!

The answer was GST.