The total tax package designed by the Morrison government was not fair because Stage 3 was so clearly directed to giving money to those on high incomes. The new changes improve the entire package.
One of the more common lines being pushed by members of the business lobby and the opposition party is that changing Stage 3 is irresponsible because it was a part of a total package that includes Stages 1 and 2. According to this view if you include Stages 1 and 2 along with the old Stage 3 you would see a very fair and balanced package of tax cuts.
Senator Bridget McKenzie, for example, told Channel 10’s The Panel that “Stage 3 is obviously part of a tranche of changes over a period of time legislated back in 2019 to make our system fairer recognising that those that got the immediate benefit and the cumulative maximum benefit of those changes were absolutely those low to middle-income earners who got the major benefit”.
Similarly, former Treasurer Peter Costello for example told Nine Newspapers (of which he is the chair) that “You’ve got to remember they are part of a package and stage one and two have already been delivered. One and two were the parts of the tax cuts directed at low and middle-income earners. And this is the final part. If you take away the final part, it undoes the whole package”
Unfortunately for Senator McKenzie, Mr Costello and others who think this is a winning point, when you examine Stages 1 and 2 you see that they were not directed at low-middle income earners at all and they did not get in any way “the major benefit”, and when you add the old Stage 3 the entire package become extremely biased toward those on high incomes.
Stage 1 increased the threshold for the 37% tax rate from $87,000 to $90,000 – this did nothing for those on low-middle incomes, given the current median full-time income is $83,200. Stage 1 also included the introduction of the low-middle income tax offset. That might have been “immediate” to use Senator McKenzie’s words, but it was also only temporary. It is no longer in place. Thus the only thing remaining from Stage 1 all goes to those earning above the median full-time income.
Stage 2 included changes that assisted those on low and middle incomes, such as the 32.5% threshold increase from $37,000 to $45,000. But it also included an increase of the 37% threshold again, this time to $120,000, which once again this part provided no benefit at all to low or middle-income earners.
As you can see below, the impact of Stage 1 (grey) and Stage 2 (blue) was largely even across the income ranges, and while those on $50,000 did benefit the most, that benefit was not greatly above that experienced by someone on $200,000.
The old Stage 3 however was very much directed at those on high incomes. It was not at all about providing some balance given Stage 1 and 2, but was purely ignoring those on low incomes and giving very little to those in the middle.
The new Stage 3 provides a much fairer total package when including Stages 1 and 2.
It only serves to highlight that the only way to improve Stage 3 was not to include Stage 1 and 2 but to change Stage 3 itself. And it is why we applaud the government’s changes.
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