- by Anna Pha
- The Guardian
- Issue #2054
Photo: Noah Sutherland / Antipoverty Centre (CC BY-NC-SA 4.0).
Over the past two decades the bottom 90 per cent of Australians on average have received only seven per cent of economic growth per person while the top ten per cent have pocketed 93 per cent. The Stage 3 tax cuts, to come into effect from July 2024, will exacerbate this trend.
Factors such as record profits, real wage reductions, the rise in precarious employment and, most recently, rapidly rising interest rates and inflation have played a part in this process. So has a gradual and regressive flattening of marginal tax rates over the past 40-50 years that has increasingly benefited the rich and served to widen the wealth gap.
Australia once had a progressive tax system where those on higher incomes paid a higher percentage of their income in taxation. In the early 1950s there were 29 marginal rates, each one higher for each additional increment of taxable income. A marginal rate is the rate at which tax is paid on every additional dollar of income.
The top personal income tax rate reached more than 90 per cent between 1944 and 1963, peaking at 94 per cent during the Second World War.
Today there are only four marginal rates with the highest rate of 45 per cent on taxable income over $180,000. This represents a massive flattening of the tax brackets and a halving of the highest marginal rate.
Today the marginal rate on income from $45,001 to $120,000 is 32.5 per cent and 37 per cent on income from $120,001 to $180,000. When the Stage 3 tax cuts are introduced, these two rates will be replaced by one flat rate of 30 per cent on income between $45,001 and $200,000.
The result is a reduction from four to three marginal rates, and the higher the income the larger the tax cut for the rich.
“We’ve always said when we can afford to give tax relief, particularly to low- and middle-income earners, then that’s a worthy objective as well, and governments of both persuasions have done that over time,” Treasurer Jim Chalmers told ABC TV.
“These tax cuts kick in at $45,000 – that’s a fact, which is sometimes lost in the conversation.”
Chalmers conveniently omits to mention that at the same time as someone on $200,000 or more per annum, including politicians like himself, pockets a tax cut of $9,075, the low- and middle-income tax offset (LMITO) will end. It ranges from $675 for someone on $37,000 up to $1,500 at an income of $48,001 to $98,000.
The Australia Institute (TAI) notes, “For someone on the current median income of $65,000 the LMITO was worth $1,500. That has now gone and has been replaced by a $500 tax cut under Stage 3. That means that person will pay $1,000 more in tax once the Stage 3 cuts come into effect in 2024-25 than they did last year.”
So that’s what Labor calls a “worthy objective.” An income tax cut for the rich and an increase for those on low and medium wages!
The legislation for the Stage 3 tax cuts was passed by the Morrison government in 2019 with Labor’s support. Since coming to office Labor has steadfastly refused to repeal the legislation.
With inflation high and wages still falling far behind rising prices and interest rates, the tax increase for those on low and middle incomes adds another burden for families struggling to make ends meet. These workers include nurses, teachers, paramedics, aged care workers, retail and hospitality workers, and a host of others.
“Almost half of the total benefits go to the richest 3 per cent, and so massive are the costs at $300bn over 9 years, that you could raise Jobseeker from its current rate of $693 a fortnight to $1,925 and you would still end up with a smaller government deficit in 2032-33 than you would with the Stage 3 tax cuts,” research by TAI shows.
In addition to lifting hundreds of thousands of people out of poverty, raising JobSeeker would have economic benefits by increasing demand for goods and services and generating jobs.
Income tax on company profits has also been slashed from a high of 49 per cent in 1986 to 30 per cent and 25 per cent for small businesses – also reducing government revenue by billions of dollars.
The Howard government introduced the Goods and Services Tax (GST) of 10 per cent in 2000. This is a regressive flat tax. People like the unemployed and pensioners spend the greater proportion of their income on goods and services that it taxes.
Public services are in crisis whether it be healthcare, education, aged care, housing, the NDIS, transport, women’s refuges, legal centres, or Aboriginal and Torres Strait Islander services. Successive governments, including the Albanese government, talk in terms of “balancing” spending and “making tough decisions.”
Compounding the tax cuts, the government plans to spend hundreds of billions of dollars on war preparations. It will continue to cry poor when it comes to funding services such as healthcare, public education, the NDIS, and aged care.
Such priorities are central to neoliberal ideology. Former Coalition Treasurer Joe Hockey stated that the objective was to wind back the taxation of incomes to zero and fund government spending through indirect taxes such as the GST.
Such an aim goes hand in hand with the neoliberal philosophy of “self-provision” and “small government” whereby government abdicates its responsibilities for the well-being of the nation.
Labor must be forced to dump the Stage 3 tax cuts and take steps to restore marginal rates so that the taxation of personal income once again becomes progressive.
The GST should be replaced with a new super profits tax on larger corporations raking in massive profits.
The allegations against the big accounting firm PwC of misusing internal Australian Taxation Office (ATO) information obtained through its work for the ATO illustrate the problems that can arise through contracting out private work and revolving doors between staff of accounting firms and the ATO.
Contracting out of government responsibilities not only costs more because of the layers of private profit but also benefits the private sector in other ways. It should end.
Such reforms along with the cancellation of the nuclear submarines would provide hundreds of billions of dollars to meet all the crises facing the public sector, social security and to address climate change.