New income distributional analysis from The Australia Institute senior economist Matt Grudnoff shows the Morrison Government’s proposed Stage 3(a) income tax cuts announced in the 2019-20 Federal Budget, to come into effect 2024-25, will overwhelmingly benefit high-income earners with over 50% of the benefit going to the top 20% of taxpayers, while the bottom half only get 12% of the benefit, and the bottom 20% receive a mere 0.2%.

The Morrison Government is yet to legislate the additional tax cuts announced in the 2019-20 Federal Budget. This 2019 Tax Plan builds on the tax package announced in the previous 2018-19 Budget, and comprised of three stages. The Section 3(a) income tax cuts, which would come into effect in 2024-25, propose decreasing the 32.5 per cent personal income tax rate down to 30 per cent.

Key findings:

• The Section 3(a) income tax cut will overwhelmingly benefit high-income earners with almost one-third of the benefit going to the top 10% of taxpayers, and over half the benefit (52.7%) flowing to the top 20% of taxpayers.
• The bottom 20% of taxpayers receive a mere 0.2% of the benefit of this tax cut, with the bottom 10% of taxpayers receiving nothing at all.
• These tax cuts will not come into effect until 2024-25 and will cost the budget $95 billion over five years.
• These tax cuts represent another attack on the progressive nature of Australia’s income tax system. They come after the Government has already legislated a significant flattening of the income tax system.
• While changes to the Low and Middle Income Tax Offset (LMITO) come in immediately and enjoy bi-partisan support, the final stage is far into the future and potentially faces stronger opposition in the Senate.

“Setting in place large tax cuts so far into the future is risky for Australia’s budget and economy,” said Ben Oquist, Executive Director of the Australia Institute.

“With political commitments to maintaining a budget surplus in place, such a reshaping of income tax risks forcing unwarranted spending cuts in the future. Less spending on the services that Australians demand from their Governments like health, education and aged care.

“This research shows that the overwhelming proportion of these new stage 3 tax cuts will flow to higher income earners. There is little evidence to suggest such tax cuts are needed on economic or equity grounds.

“There is, however, some economic rationale for more immediate tax cuts for low and middle-income earners that could stimulate the economy at a time of sluggish economic growth.

“The progressive nature of Australia’s income tax system has been a cornerstone of the Australian tax system for decades. These tax cuts weaken that progressive architecture.”