New data shows how important funding public services is for reducing inequality

by Greg Jericho

Public services massively reduce inequality, but the Stage 3 tax cuts will make it much more difficult to fund them

The latest annual survey of Household Income, Consumption and Wealth by the Bureau of Statistics highlights the importance of ensuring the Australian government continues to raise enough revenue to fund vital public services and payments.

Much of the debate about the Stage 3 tax cuts has rightly focussed on how overwhelmingly the benefits of the cuts go to high-income earners. This alone will of course increase inequality, as it will reduce the progressive nature of the income tax system.  But the latest figures on household incomes reveal that even more important is the impact the tax cut will have on inequality due to the massive reduction in revenue available to the government.

The Stage 3 tax cuts are currently estimated to cost $17.7bn in their first year – that is $5.56bn more than is projected to be spent on JobSeeker, a third more than the childcare subsidy and $7bn more than is to be spent on public universities.

The importance of being able to fund these payments and services is revealed by the household income survey.

Prior to taxation and government social-assistance payments, the richest 20% of households accumulate 48% of national household income while the poorest 40% have just 13%. Taxation reduces this to 45% for the richest quintile, while the bottom 40% now have a 15% share. But the allocation of social assistance and services funded by taxation is when the real impact occurs.

Social assistance payments lift the share of income going to the bottom 40% of households up to 21% and reduce the richest households’ share to 41%.

Then comes the impact of social transfers in kinds – which is the technical term for the dollar value of services like public education and health. These services increase the share of national income going to the poorest 40% of all households up to 27% while the share to the richest 20% is now down to 35%.

Public services are vital for reducing inequality and Australia has a long history of public education and health working to make a fairer society. The Stage 3 tax cuts will not only increase inequality in the tax system, but their massive cost will also inevitably lead to cuts in government services and payments – payments and services that overwhelmingly go to the poorest.

The Stage 3 tax cuts will be disastrous for Australian equality and fairness and must not go ahead.

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