Case for top-end tax cuts not supported by data

New Australia Institute analysis of the long term impacts of bracket creep shows that taxpayers are being over compensated for bracket creep at all income levels.

The government has used bracket creep as a key reason why it needs to implement its top-end income tax cuts as outlined in the 2018 Budget. 

“There is no compelling case for an income tax cut to reduce the impact ofbracket creep,” said Matt Grudnoff, Senior Economist at The Australia Institute. “Our analysis shows the two highest income tax brackets have received the largest amounts of overcompensation in the name of bracket creep, when in fact they actually require the least. 

“The government’s income tax plan gives most of the tax cut benefit to the highest tax brackets. These high income individuals are already the most overcompensated. 

“Given that bracket creep is regressive, these top tax brackets require the least compensation, not the most. 

“Claims by the government that their top-end tax cuts are designed to reduce the impacts of bracket creep are simply not supported by the data. 

“If the government were concerned about bracket creep in future years, then its focus should be on the 32.5% tax bracket which spans incomes of $37,000 to $87,000. 

“The income tax bill should be split or amended to at least remove step 3 and the part of step 2 that lifts the 37% threshold from $90,000 to $120,000 before removing it altogether.” 

Key Findings:

+ The report analysed the impact of bracket creep from 00-01 to 17-18 to create abracket creep baseline that is a hypothetical tax rate if bracket creep had been removed and compared that to the current rate of tax

+ Comparing current income taxation levels to the bracket creep baseline shows current levels of tax paid are lower than if bracket creep had been removed

+ If the government’s proposed top-end tax cuts were implemented, overcompensation would rapidly rise for those earning more than $140,000 per annum

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