Generalized Social Marginal Welfare Weights

Question: Discuss about the Generalized Social Marginal Welfare Weights. Answer: Introduction: During the year 2015, the Federal Government of Australia declared backpacker tax under new arrangements of taxation scheme. This taxation scheme will be imposed for working holiday makers (WHMs) who will be taxed at the rate of 15% on the income earned during the stay in Australia (Ato.gov.au. 2016). The objective behind the imposition of backpacker tax was to eliminate WHMs option to be referred as resident of Australia for the purpose of tax on personal income effectively from July 1 2016. It has been observed that the new taxation scheme would eliminate the tax- free threshold for WHMs while 32.2% marginal rate revenue would be earned on first dollar (Ato.gov.au. 2016). Accordingly, there are various favorable and unfavorable arguments on the introduction of backpacker tax as per the Australian Federal Government from the year 2016. Favorable argument: One of the significant benefits anticipated from the imposition of backpacker tax was generation of tax revenue amounted to $540 million approximately over the period of three years. It has been argued that the proposed scheme of taxation on the foreign visitors under the working holiday visa would assist in economic recovery with respect to the financial revenue (DeBacker, Heim Tran, 2015). Since, the number of visa applications has been increasing rapidly including rising cost of visa applications; imposition of backpacker tax would control the increase in cost of processing visa applications. Currently, Australian government evaluated budget deficit with respect to the financial value of Australia therefore, imposition of backpacker tax @15% would increase the revenue while removing the exempted threshold up to $18,200 (Kachurina et al., 2015). Further, increase of visa application fee to $440 from July 2016 would incorporate rise in revenue of the country. Th e business through WHMs would include the expenses and costs of around 30% in Australia and provides significant source of agricultural labor and tourism operators by improving knowledge and skills along with the revenue factors (Sharkey, 2016). In addition, inclusion of backpacker tax would result in developing the global competitiveness for the country with respect to the high- cost destination and rental accommodation for the travelers. Unfavorable arguments:Publicationof backpacker tax proposed various negative effects on the business organizations in Australia. Most importantly, the proposed taxation scheme affected the tourism industry as well as the agricultural sectors. It has been anticipated that the number of visitors in Australia would decline as a result of which the country will experience labor shortages in the sectors of tourism, agriculture and other primary business sectors (Singh, 2016). Due to the backpacker taxation scheme, cost of visa application will increase including the cost of other schemes of working holiday in other countries. It has been analyzed that the imposition of taxation scheme for backpackers would affect the employment through working holiday visa in Australian country while other countries would experience the increase in employment in similar industry (Bird, Edwards Shevlin, 2015). It has been observed that the introduction of backpacker tax would result in losing around one- third of total earnings while the rate of income tax would be high. Such high rate of taxes would affect and hamper the accessing of social services and other support services for meeting the remuneration requirements (Shah, 2015). In view of the decrease in visas for working holiday makers, the productivity and competitiveness of the Australian industry declined resulting in decrease of employment number by around 43%. It has been observed that the increase in regional revenue would take place if the government of Australia adopts other schemes including tourism or hospitality occupation with the visa extension facility. It has also been analyzed that the expansion of program of WHMs visa in other countries would assist the Australian Government to earn more revenue along with the inclusion of simple procedures for visa applications (Broocks Hannam, 2016). Analysis of good tax system features in backpacker tax Good taxation system refers to the tax allocation process for the taxpayers as per their capability to pay tax by fair and simple means of taxation system. The important features of the good taxation system include productivity adequacy, taxation elasticity, diversity, economic growth instrument, improvement in income distribution as well as economic stability. In order to develop the countrys economy, it is essential to maintain the characteristics of good taxation system (Ivanov, Idzhylova Webster, 2016). Productivity adequacy is one of the key features of good taxation system that requires yielding of adequate amount of production resources for the Australian Government to develop the activities and welfare. Taxation elasticity is an important feature that states the growth of countrys economy with the increase in national income of the country. It is essential to maintain the appropriate tax revenue share along with the appropriate national income proportion to develop the count ry and financial requirements of the government (Tang, 2016). Similarly, good taxation system involves diversity principle with respect to various sources of tax collection from the assessees that controls high rate of tax as well as eliminates tax evasion process. If there is single source of taxation system the burden of tax liability as well as tax rate would be high that would affect the governmental revenue. Additionally, a good taxation system should be considered as an instrument for growth of countrys economy. Capital formation rate, financial value and adequate resources depends on the growth of countrys economy therefore, a good taxation system must consider appropriate taxation rates and sources. It is essential to consider the mobilization of sources of economy, management of saving ratio and other factors should be considered while processing the taxation procedure (James, Sawyer Wallschutzky, 2015). Accordingly, different taxation scheme should be formed in such a way that incorporates the characteristics of good taxation system. Backpacker tax has been the proposed taxation scheme introduced by the Federal Government involves several criticisms. According to the current taxation system, backpackers in Australia are taxed as per the same taxation system available to the residents of Australia i.e. they are exempted from paying taxes up to the amount of AU$ 18,200. Therefore, Australian Taxation Office introduced 15% tax on the income earned by backpackers as per the marginal rate of 32% on each of the dollar earned by them (Egger et al., 2015). Considering the characteristics of good taxation system, it can be said that the backpacker tax exhibits certain features with respect to simplicity, diversity, elasticity and an instrument for the growth of economy. It has been observed through the recent budget report, the financial value of the country experienced deficit balance therefore, introduction of backpacker tax would generate revenue to the country with around $540 million. Hence, instrument for economic g rowth is one of the features of the good taxation system in incorporated in the backpacker tax (Kleven, Kreiner Saez, 2016). The scheme of backpacker tax also includes the feature of elasticity since it is expected to increase the national income of Australia as a result of increase in the governmental revenue. However, the tourism sector, agricultural sector and some other sectors expected to be affected in terms of employment rates, remuneration payments, yet it has been noted that the new source of taxation falls under the diversity feature of good taxation system. As the backpacker tax at the rate of 15% expects to generate increase in government revenue, it can be said that it is considered as an instrument to improve the income distribution (Alexeev, Good Krutilla, 2016). It has been anticipated that the introduction of backpacker tax by the federal government would assist in eliminating the countrys economic inequalities. Accordingly, it can be said that the backpacker tax contains several features of good tax system though the scheme lacks the principle on ensuring Australias economic stability in accordance with the economic fluctuations. Reasons for proposing changes in tax treatment of holiday makers The budget papers during the year 2015 announced several changes in the tax treatment of holiday- makers in Australia in order to differentiate the tax status of Australian residents and non- residents. The Liberal/ National coalition government proposed the changes to eliminate the tax- free threshold for the foreign travelers along with the reduction on tax evasion practice. Since the current budget reflects deficit financial balance, the coalition government considered the changes to increase the tax evasion incentives while decrease in the number of working holiday makers (WHMs) to improve the Australian economic benefit (Sheridan Lee, 2015). It has been observed that the introduction of backpacker tax as well as introduction of proposed changes in the taxation for holiday- makers would affect various business sectors in the country. However, the proposed changes in tax treatment would increase the economic revenue and national income in consideration with the foreign employment (Jorgenson, Gollop Fraumeni, 2016). Further, the government of Australia proposed the changes in taxation system in order to boost the investment returns. It has been anticipated that the structural change in tax treatment for holiday- makers would encourage the investors to invest higher funds, appointing employees at increased rate as well as acquisition of new equipments to improve the business production system. The proposed change in the tax treatment by the Liberal coalition government would result in generation of higher wages through increase in economic activity to boost the national income by around 40% over the period of two decades (Saez Stantcheva, 2016). Additionally, the projected changes in the tax treatment expected to increase the productivity, resource allocation and income for small business organizations in Australia. It has been anticipated that the growth in employment through new taxation schemes would increase by around 5% as compared to the year 2014 (Heng, Niblock Harrison, 2015). Therefore , proposed changes in the tax treatment of holiday- makers in Australia have been considered in accordance with several economical factors. Tax treatment of Jais income According to the regulations of Australian Taxation Office, if an individual visits Australia for the purpose of travelling and working in various locations, then the individual would be considered as foreign resident (Ato.gov.au. 2016). In the present case, Jai was a Malaysian citizen visited Australia on working holiday visa during the year 2014 and worked as a fruit picker in Tasmania. Considering the principles on Residential Status in Australia, Jai would not be referred as an Australian resident since he visited the country on working holiday visa as well as his permanent establishment was not in Australia. Further, as per the recent budget announcement, federal government of Australia introduced the new taxation scheme called backpacker tax for working holiday- makers. The regulations on backpacker tax states that individuals who visit Australia based on the visa 417 or 462 would be considered as backpackers and their income during the period of stay would not be taxed as per the tax- rates of Australian residents. It states that even if the individual stays in Australia for more than six months, the primary purpose of stay is holidaying and temporary working during their stay. Accordingly, the new taxation system would be affected from January 1 2017 on the income generated by the backpackers and taxable at the rate of 15% until the amount of $37,000 during the income year (Ato.gov.au. 2016). According to the current taxation system for Australian resident, individuals are exempted from the tax liability up to the income amounted to $18,200 therefore, the new taxation scheme on foreign travelers has been introduced to eliminate the tax- free threshold (Ato.gov.au. 2016). In the present case, Jai visited Australia based on 12-month visa for working holiday while his primary purpose was to holiday as well as temporary work as a fruit picker. Moreover, after his 12 months stay in Australia during the year 2014- 2015 Jai decided to come back in the financial year 2017 based on working holiday visa. This behavior of Jai reflects the temporary visit in Australia and do not qualify for the Australian resident for tax purposes during the relevant year. Moreover, the present situation mentions that the income earned Jai from fruit picking during the year 2014-15 amounted to $17,500, which is excluding the amount of living and travelling expenses during his stay. In addition, Jai planned to return to Australia and expects the same amount of income during the year 2017. Therefore, Jai would be referred as foreign resident in Australia for the purpose of taxation system during the year 2014-15 and income generated from fruit picking in Tasmania would be assessed for taxable income as per the tax rates of the year 2015-16. The following tax rate for 2015-16 would be applicable on the income by Jai for the period of his stay in Australia. Amount of taxable income Tax rate on the income earned 0- $80,000 32.5 cents for each dollar $80,001- $180,000 $26,000 plus 37 cents for each dollar exceeding $80,000 $180,001 and above $63,000 plus 45 cents for each dollar above $180,000 (Source: Ato.gov.au. 2016) Therefore, income of Jai amounted to $17,500 would be taxable as per the tax rates for 2015-2016 at the rate of 32.5% since the amount falls in the first slab i.e. income up to $80,000. Hence, the amount of tax payable for the period of his stay is equal to 32.5% of $17,500 i.e. $5,687.50. On the contrary, during the year 2017, if Jai returns to Australia then he will be assessed as per the new taxation scheme i.e. backpacker tax and the provision on working holiday- makers would be applicable. As per Jais expectations, if the income is earned based on the previous years income then 15% tax up to income $37,000 would be applicable. Therefore, the expected amount of tax payable for the financial year 2017 would be amounted to 15% on $17,500 i.e. $2,625. Reference List Alexeev, A., Good, D. H., Krutilla, K. (2016). Environmental taxation and the double dividend in decentralized jurisdictions.Ecological Economics,122, 90-100. Ato.gov.au. (2016). Ato.gov.au. Retrieved 16 December 2016, from https://www.ato.gov.au Bird, A., Edwards, A., Shevlin, T. J. (2015). Does the US System of Taxation on Multinationals Advantage Foreign Acquirers?.Rotman School of Management Working Paper, (2550819). Broocks, A. K., Hannam, K. (2016). 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