New research from The Australia Institute demonstrates that bringing forward Stages 2 and 3 of the Government’s income tax cuts would mainly benefit high income earners and have a very poor stimulatory effect on the economy.

Key findings

• The benefits of bringing forward the income tax cuts would mainly go to high income taxpayers who are more likely to save the extra money or pay down debt.
• Almost none of the tax cuts would go to low income taxpayers who are more likely to spend it in their local community.
• If stage 2 of the tax cut is brought forward to 2021-22, 91% of the benefit goes to the top 20% while only 4% goes to the bottom half of taxpayers.
• If both stage 2 and 3 are brought forward to 2021-22, 79% of the benefit goes to the top 20% while only 3% goes to the bottom half of taxpayers.
• Neither option gives any tax cut to the bottom 20% of taxpayers.

“Bringing forward the income tax cuts would have a very poor stimulatory effect,” said Matt Grudnoff, Senior Economist at The Australia Institute.

“Stage two and three of the Government’s tax cuts will do far more to increase the savings of high income earners than encourage more spending in the economy that would help to create jobs.

“It is a simple fact of economics that high income earners are more likely to save or pay down debt with the tax cuts, rather than spend the extra funds to help stimulate the domestic economy. Low income earners, on the other hand, are far more likely to spend some or all of the extra money on much needed essentials in the domestic economy.

“Our research shows that, if the Government does choose to fast-track its income tax cuts, it will do little to improve the health of the economy and will instead increase inequality across the country.

“A more effective way to stimulate the economy would be to invest heavily in direct employment programs or focus on supporting those who are doing it tough by maintaining or increasing the current rate of the JobSeeker supplement.”