Coalition plan to flatten tax brackets means more than half of the income tax cuts would go to the top 20%, modelling shows

This article is more than 1 year old

This article is more than 1 year old

High-income earners will receive at least $77bn from the Coalition’s 10-year income tax package, shrinking the proportion of the overall tax burden shouldered by the rich, according to a new analysis.

The Australia Institute modelling, released on Thursday, furthers the progressive thinktank’s argument that the Coalition’s flat tax policy is a “radical attack on Australia’s progressive tax system”, as its senior economist, Matt Grudnoff, summarised.

Labor and the Coalition largely agree on tax cuts for low- and middle-income earners in the short term, but the opposition has rejected the government’s plan to extend more generous income tax cuts to middle- and high-income earners from 2022.

Under the plan in the 2019 budget, those earning more than $41,000 will receive a tax cut in 2022 and by 2024 everyone earning between $45,000 to $200,000 will pay a marginal rate of 30%.

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According to Treasury documents, flattening tax brackets will result in a total tax cut of $1,205 a year for a person earning $50,000, $1,955 for someone earning $80,000, $3,040 for a person earning $100,000 increasing to $11,640 for those earning $200,000 or more.

Based on the government’s figures that the Coalition’s plan will cost $230bn more than Labor’s, the Australia Institute analysis finds those earning more than $180,000 will get at least $77bn in tax cuts over the next 10 years. Most of that benefit ($64bn) will flow to those earning more than $200,000, it says.

The majority of the income tax cuts (54%) goes to those in the top 20% of taxpayers, according to the Australia Institute.

The analysis also reveals that under the flat tax plan high-income earners – defined as the top 20%, estimated to be those earning $203,000 by 2024 – will be paying 4% less of the overall income tax take than in 2018-19.

Low-income earners, the bottom 30%, will pay 1.7% more of the overall tax take and middle-income earners, the middle 50%, will pay 2.2% more.

The Australia Institute analysis finds that average rates of tax paid by high-income earners will fall from 33.4% in 2000 to 31.5% in 2018 to 28.1% in 2024, suggesting that rather than rectify bracket creep the flat tax plan will over-compensate high-income earners by lowering their effective rate of tax.

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On Wednesday the Coalition campaign spokesman, Simon Birmingham, dismissed the $77bn figure by claiming The Australia Institute is “the research tank of choice for [progressive campaign group] Get Up”.

Asked about the figure nine times on Radio National, Birmingham refused to say how much high-income earners would receive and argued the tax package is still “well and truly weighted towards supporting middle-income earners”.

“I think it is very fair that workers earning $45,000 deserve a tax break.

“I think it’s very fair that those who choose to work an extra shift, work an extra day, take on an extra job, ought to keep their earnings rather than be pushed up into a higher tax bracket.”

Birmingham said that high-income earners will still pay around 60% of income tax, although the Australia Institute says the true figure is 57%.

Grudnoff said “instead of dismantling Australia’s progressive tax system in the name of addressing bracket creep, the Morrison government ought to focus their attention on addressing stagnant wages”.