$33 billion delivered to those earning more than $180k from unlegislated income tax cuts: new research

by Matt Grudnoff

The final stage of the Morrison Government’s unlegislated income tax plan, stage 3(a) will, over the five years after it is introduced in 2024-25, deliver a $33 billion benefit to those earning more than $180,000, according to a new distributional analysis from The Australia Institute’s senior economist Matt Grudnoff.

The Morrison Government is yet to legislate the additional tax cuts announced in the 2019-20 Federal Budget, which builds on the tax package announced in the previous 2018-19 Budget.

Key findings:

  • Those earning more than $180,000 will get $33 billion benefit from stage 3(a) of the tax cut over the five-year period from when it first starts in 2024-25. Those earning over $200,000 will get $26 billion over the same period.
  • 83% of the Stage 1(a) tax cut goes to middle-income taxpayers. Low-income taxpayers get 13% and the remaining 4% goes to high-income taxpayers.
  • The proportion of the benefit flowing to middle-income earners falls from 83% in stage 1(a) to 61% in stage 2(a), while high-income taxpayers share goes from 4% to 26%.
  • Stage 1(a) is expected to cost about $15 billion over four years from 2018-19 to 2021-22.
  • Stage 3(a) is expected to cost $95 billion over five years from 2024-25 to 2028-29.

“Economic growth hasn’t been this low since the GFC and the government’s proposed income tax cuts must be well targeted if they are to maximise economic growth,” said Matt Grudnoff, senior economist at The Australia Institute and author of the report.

“Low- and middle-income taxpayers are more likely than high-income taxpayers to spend their tax cuts and stimulate the economy. The increased LMITO in Stage 1(a) will cost the budget less money and proportionately benefit more people than Stage 3(a).

“The stage 3(a) income tax cut is expected to cost the budget $95 billion over five years. The Government will spend more on this part of the tax cut than it is expected to spend on the Pharmaceutical Benefits Scheme over the same period.”

“The Government should better target its tax cuts and abandon its stage 3(a) tax cuts, which will cost the budget a substantial amount of money and benefit relatively few taxpayers,” said Grudnoff.

Full report