When is a tax cut not really a tax cut? When it’s due to a bracket change:
Greens leader Adam Bandt is preparing to fight the government over already-legislated tax cuts but has stopped short of threatening the passage of supply bills if Labor doesn’t dump them in its October budget.
“The Greens will not support a Labor budget based on cuts that hurt everyday people while continuing the handouts to billionaires.”
Under the stage-three tax cuts, which were legislated in 2018 by then-treasurer Scott Morrison, the 37 per cent tax bracket will be abolished, the top 45 per cent bracket will start from $200,000 and the 32.5 per cent rate will be cut to 30 per cent for all incomes between $45,000 and $200,000.
The cuts are on track to cost the budget $37 billion a year by the early 2030s, according to costings by the Parliamentary Budget Office that the Greens released during the election.
To be clear, “tax cuts” such as these do not “cost” the government anything. It’s also not a “handout” to billionaires. It’s simply a reindexing to allow people to claw back what’s known as “bracket creep”, where people pay more in tax over time because the government does not index its income tax brackets to inflation. The last time Australia changed its top tax bracket was in 2008-09 – thirteen years ago. Since then, the purchasing power of the Australian dollar has declined by around 35%.
Put into the context of taxation, a person who earned $200,000 back in 2008-09 would today be earning $267,325, assuming their salary had kept up with inflation. They currently pay an effective tax rate of 34.9%, up from 33.5% in 2008-09. Under the proposed changes their effective tax rate would fall to 31.0%, although given current inflation it would only take three years before it’s right back to where it was in 2008-09!
The math is similar for someone on $80,000 in 2008-09, who back then would have had an effective tax rate of 22.5%. They would now earn about $107,000 (inflation-adjusted), meaning their effective rate has jumped up to 25.3%. The proposed changes would drop that to 23.0%, an effective rate that’s still higher than it was in 2008-09.
In other words, under these changes a high-income individual ($200k in 2008-09) would temporarily be taxed slightly less than they were in 2008-09 (2.5 percentage points), while someone who was on $80k in 2008-09 will still be taxed more. Once you get into billionaire territory the difference is negligible due to most of their income falling in the 45% bracket at all times.
If Bandt believes taxes should be higher, he should make the case for higher taxes. But throwing support behind taxation by stealth while claiming he’s opposing tax cuts for “billionaires” is just pure deception.