Dollars And Sense
Opponents of the Government’s proposed income tax cuts either misunderstand how taxation works or are selectively omitting key facts. By James Mathias.
“The concept of a consumer-led rebound is fantasy,” said Alison Pennington earlier this month when speaking against the Government’s mooted plans to bring forward stages two and three of its proposed personal tax cuts first laid out in the 2018-19 budget.
“A massive public-led investment program is the only option, with a crisis this deep and severe,” she went on to say.
It shouldn’t surprise you that Ms Pennington is a senior economist for the Australia Institute, who claim that 91 per cent of the benefit of these tax cuts go to the richest 20 per cent of Australians whilst the lowest 50 per cent get just three per cent of the benefit.
Not surprisingly, these views have also been echoed by the Australian Council for Social Services (ACOSS), who this week joined forces with the Australia Institute to launch a campaign against any further tax cuts, instead arguing for increases to welfare as a way to bring Australia out of recession.
First announced in 2018, the Government embarked on a simplified personal tax structure that meant 94 per cent of all taxpayers paid no more than 30 cents in the dollar on their earnings and that by its eventual rollout, 13.3 million taxpayers will pay less in tax.
Importantly, part of these reforms was to raise the threshold of the 19 cents tax rate from its current $37,000 threshold up to $45,000, which is where the new 30 per cent rate would kick in.
In a media release following last year’s budget titled ‘The Government’s tax cuts: Who gains? What do they cost?’ ACOSS (heavily reliant on figures from the Australia Institute) denounced the changes as also favouring the rich, which is interesting because in the same submission, they quote that the median taxable income for taxpayers is $45,000. Given this, they failed to mention that under the Government’s plan the ‘median’ taxpayer they are fighting for is saved from being hostage to the 32.5 per cent tax bracket and instead only pays 19 cents in the dollar. A worthy inclusion one would have thought, but a notable omission none the less.
The Australia Institute in its analysis of the tax cuts fails to take into account the amount of tax actually paid by individuals in certain brackets, which is why it can point to someone earning under $18,200 getting nothing from the plan. The missing feature here is that someone earning this amount doesn’t pay any tax and therefore can’t get anything back. Just a minor detail.
Similarly, what this new campaign fails to mention is that the 416,000 taxpayers earning over $180,000 pay a median amount of income tax of $84,600 and their contribution to the tax pie is more than 7.5 times their population share. They make up 4.1 per cent of taxpayers but contribute 30.3 per cent of all personal income tax collected.
19.3 per cent of taxpayers earned between $87,000 and $180,000 and paid a median bill of $30,500. Their share of tax paid is 34.8 per cent of the pie.
Therefore, the top two current tax brackets make up 23.4 per cent of total tax payers but pay 65.1 per cent of the total tax bill. Contrary to the view put by the Australia Institute and ACOSS, there is a significant amount of tax paid by these income brackets.
Manipulating the figures to say that a $255 tax relief to people earning up to $37,000 whilst someone earning $90,000 gets $1,080 disregards the basic fact that someone earning more pays more tax – a basic assumption lost by the Australia Institute.
They use these figures, however, to construct an argument that tax cuts must be scrapped so that more can be spent on welfare and other big Government programs as highlighted by another senior economist at the Australia Institute, Matt Grundnoff, who said “almost none of the tax cuts would go to low-income taxpayers who are more likely to spend it in their local community”.
It makes me wonder what you need to prove before you can be a ‘senior’ economist for the Australia Institute. One matter is obvious as a prior qualification – you must tick yes in the box next to this proposition: the wage of an employed Australian is not their’s to keep, but rather for the Government to spend.