Analysis – Bringing forward the government’s tax cuts in budget would worsen inequality

1 April 2019

New analysis by ACOSS shows that if speculation about income tax cuts rings true in the budget the biggest winners will be those on high incomes, while there will be little or no benefit for households with the lowest 40% of incomes. In fact, one third of households have incomes too low to pay income tax.*

The government has already legislated $140 billion in tax cuts over the next decade, including another two rounds worth $17 billion per year due to come into effect in 2022 and 2024.

ACOSS’ analysis shows that if, as speculated, the government brings forward these tax cuts to 2019-20:

  • Households with income over $200,000 a year would receive an average of $104 a week**
  • Households with income of $50,000-$75,000 a year would receive an average of $4 a week
  • Households with income of $25,000-$37,000 a year would receive an average of 50 cents a week

The analysis shows that even if the government decides to cut the lowest tax rate – from 19% to 17.5% – to provide more support for people on lower incomes, this would still offer little benefit to the lowest 30% of households since around one in three households have incomes too low to pay income tax (including for example, pensioners, unemployed people and very low-paid workers):

  • Cutting the 19% tax rate to 17.5% would mean Households on less than $50,000 a year would gain an average of less than $5 a week, compared with $7 a week for a household on $100,000 and $9 a week for one on $200,000 a week.

The analysis concludes that increasing Newstart is the most effective way to support people on the lowest incomes. It shows that almost all of the gains of increasing Newstart by $75 per week would flow to the lowest 10% of households by income.

ACOSS CEO Dr Cassandra Goldie said:

“Instead of handing out more tax cuts to those who can do without them, the government should be supporting those on the lowest incomes by increasing Newstart and investing in our essential services, such as health, education and aged care.

“It’s grossly unfair to be handing those households on more than $200,000 a year an extra $100 a week, while we have three million Australians living below the poverty line.

“Most households in the lowest 40% by income – which includes many pensioners, people locked out of paid work and low paid workers – get no benefit from tax cuts. It’s not good enough to offer temporary ‘bonuses’ to people receiving social security when high income-earners get permanent tax relief.

“The rate of Newstart has not been increased in real terms in 25 years and there is broad support from economists, business, the union movement, local governments and the community for it to finally be increased.

“Tax cuts, especially those going to high income-earners, are not effective in boosting economic growth because much of them will be saved rather than spent immediately. Low income-earners, including people on Newstart Allowance, have to spend every dollar they get on the essentials such as rent and food, so it goes straight into the regional economies that need it most.

“We urge the Parliament to block any attempt to rush through even more tax cuts in the final days before we go to an election. The next Government should guarantee essential services and increase Newstart instead,” Dr Goldie said.

* The modelling in this analysis was conducted using the STINMOD+ Online model provided by NATSEM at the University of Canberra. All views and opinions are those of the authors, not of NATSEM or the University of Canberra”. 

** These examples include households in each income group that do not fully benefit from the tax cuts (for example, where household income is split evenly between partners). The gain for individual taxpayers on $200,000 or more that fully benefit from these tax cuts is $227 per week.

Read the full analysis.