Today, ATA Policy Director, Satya Marar, wrote to Labor Shadow Ministers to urge them to reconsider their decision not to offer bipartisan support for the full income tax cuts package proposed by the government.
This week, a meeting of the Shadow Ministry concluded with a decision not to support the third tranche of the government's income tax cuts package which will lower the 32.5 per cent marginal rate to 30 per cent while abolishing the 37 per cent bracket for those earning between $125,000 and $200,000 by 2024-25. The result will be that all workers earning under $200,000 to benefit from a top rate of 30 cents for every dollar they earn.
The ATA supports this important microeconomic reform as it will provide relief to hardworking taxpayers suffering every year due to inequitable 'bracket creep' which takes more of our earnings without an increase in real wages, and will boost productivity and create incentives to hire workers, invest, seek promotions, save, and boost womens' workforce participation. It will also add over $10 billion annually to Australia's GDP, and will give consumer wellbeing an annual boost of $3 billion.
Leader of the Opposition
Hon Anthony Albanese MP
Deputy Leader of the Opposition
Shadow Minister for Defence
Hon Richard Marles MP
Leader of the Opposition in the Senate
Shadow Minister for Foreign Affairs
Senator the Hon Penny Wong
Deputy Leader of the Opposition in the Senate
Shadow Minister for Home Affairs
Shadow Minister for Immigration and Citizenship
Senator the Hon Kristina Keneally
Shadow Minister for Industrial Relations
Shadow Minister for the Arts
Manager of Opposition Business in the House of Representatives
Hon Tony Burke MP
Shadow Minister for the National Disability Insurance Scheme
Shadow Minister for Government Services
Hon Bill Shorten MP
Shadow Minister for Education and Training
Hon Tanya Plibersek MP
Dr Jim Chalmers MP
Shadow Minister for Climate Change and Energy
Deputy Manager of Opposition Business in the House of Representatives
Hon Mark Butler MP
Shadow Minister for Health
Hon Chris Bowen MP
Shadow Minister for Infrastructure, Transport and Regional Development
Hon Catherine King MP
Shadow Minister for Agriculture and Resources
Hon Joel Fitzgibbon MP
Shadow Special Minister of State
Shadow Minister for Sport
Shadow Minister for Tourism
Shadow Minister Assisting the Leader of the Opposition
Senator the Hon Don Farrell
Shadow Minister for Constitutional Reform
Hon Mark Dreyfus QC MP
Shadow Minister for Communications
Michelle Rowland MP
Shadow Minister for Finance
Shadow Minister for the Public Service
Manager of Opposition Business in the Senate
Senator Katy Gallagher
Shadow Minister for Families and Social Services
Shadow Minister for Indigenous Australians
Hon Linda Burney MP
Shadow Minister for Ageing and Seniors
Shadow Minister for Women
Hon Julie Collins MP
Shadow Minister for Employment and Industry
Shadow Minister for Science
Shadow Minister for Small and Family Business
Hon Brendan O’Connor MP
Shadow Minister for Regional Services, Territories and Local Government
Shadow Minister for Housing and Homelessness
Hon Jason Clare MP
Shadow Minister for Early Childhood Education
Shadow Minister for Youth
Hon Amanda Rishworth MP
Shadow Minister for the Environment and Water
Terri Butler MP
Shadow Minister for Trade
Madeleine King MP
Dear Shadow Ministers,
I write to you as the Policy Director of the Australian Taxpayers’ Alliance (ATA), a 75,000+ member national grassroots advocacy group which represents Australian taxpayers, and urge you to support all three stages of the government’s income tax cuts package.
We urge you to support the full package as it will allow millions of hardworking Australian workers to keep more of what they earn, because it will help to remedy inequitable income tax ‘bracket creep’ which hikes taxes on ordinary Australians every year without improvement in our real wages, because it will significantly boost productivity and facilitate women’s participation in the workforce, and because we believe that its benefits as a shrewd and fair microeconomic reform far outweigh its cost to the budget.
We understand that as of the 26th of June 2019, the Shadow cabinet has declined to support the final stage of the cuts, which will lower the 32.5 per cent marginal rate to 30 per cent while abolishing the 37 per cent bracket for those earning between $125,000 and $200,000 by 2024-25. We understand that Shadow Minister for Agriculture and Resources, Joel Fitzgibbons MP, and Peter Khalil MP have also called on the Shadow cabinet to support this third tranche and commend them for their stance. It is our position that this tranche should ideally be fast-tracked, rather than delayed until 2024-25, but that locking it in now regardless of when it takes effect, is in the interest of taxpayers and the Australian economy as it will maintain the progressive nature of our income tax system (by still maintaining multiple tax brackets and levying proportionally more income tax from higher income earners), whilst allowing all workers earning under $200,000 to benefit from a top rate of 30 cents for every dollar they earn. It is our position that this important reform deserves bipartisan support. We hope that the evidence, concerns and comments presented in this letter will encourage the Shadow cabinet to reconsider your decision and potentially lend the necessary support to pass this reform.
Firstly, it will help remedy inequitable ‘bracket creep’ which is an income tax hike ‘by stealth’ that takes place every year since income tax brackets are not adjusted to inflation. As a result, Australian workers are pushed into higher tax brackets and pay more in tax despite stagnating real wages. The ATA firmly believe that any proposed tax hikes should be subject to adequate and open stakeholder consultation and parliamentary debate- the same as any significant policy change. Yet ‘bracket creep’ circumvents this due process by allowing the government to claim that it has raised revenue without raising taxes on workers every year- this is manifestly false and unfair. We understand that the only way to permanently fix this issue is to index tax brackets to inflation periodically, as is the practice with alcohol, tobacco, and fuel excise. However, given that no major political party has offered support for this proposition, it is submitted that the relief provided by the government’s income tax cuts should be supported in order to partially or fully offset bracket creep’s effects over many years. It is noted that supporting only the first two tranches of the government’s income tax cuts will grossly undermine the package’s beneficial mitigating effects against bracket creep which continues to cruelly dip into the family budgets of workers nationwide.
Secondly, we urge you to support the third tranche of the income tax cuts as it is a productivity-boosting microeconomic reform whose impact on the budget bottom-line will be offset by gains in long-term economic growth, jobs, investment, and increased workforce participation. We note that Labor are rightly concerned about the revenue impact of significant tax cuts, and commend Labor for taking these concerns into account as the ATA is keenly aware of the potential long-term negative consequences of national debt which will have to be paid for with interest by our children and grandchildren. However, it is our view that the importance of long-term structural microeconomic reform, of the kind which this country has not had in well over 20 years, is significant due to the need to boost our stagnating levels of productivity, and to create incentives for saving, investment, jobs growth, entrepreneurship, innovation, and foreign investment. This is especially true given the potential for global economic headwinds to shift in a negative direction, as has already damaged the government’s recent forecasts for GST takings. Michael Brennan, the chairman of the Productivity Commission, himself recently argued that Australia is in dire-need of productivity-boosting microeconomic reform. While the Parliamentary Budget Office estimates the cost of the government’s income tax cuts to be $158 million over 11 years, this modelling is static and does not take into account people’s behavioural responses, especially to the third tranche of the tax cuts. Dynamic response modelling by Dr John Humphreys of the non-partisan Centre for Independent Studies, instead finds that it will cost just $128 million over 11 years- primarily due to the third tranche of the tax cuts. In return, the third tranche of the tax cuts alone will delver over $10 billion in additional annual GDP growth, with an annual $3 billion boost to overall wellbeing i.e. the consumer surplus. Dr Humphreys notes that at the income brackets where this reform kicks in, individuals are actually more likely to change behaviour after tax incentives. They are more likely to work more, seek promotions, save, take entrepreneurial risks that drive innovation, invest in productive assets, and declare more taxable income as they can more easily rearrange their affairs or take advantage of the complex deductions system to minimise liabilities. Unlike the LMITO tax offset increase proposed in the first tranches of the government’s package which have Labor support, this will not simply deliver a short-term economic boost through spending. Rather, it is a longer-term reform whose benefits will pay dividends over many years as aspirational Australians advance through their careers- fostering social mobility in the process. That is why this tax cut is such an important and timely reform, one which will retain the progressive nature of our tax system by ensuring that those with the ability to pay still shoulder the lion’s share of the income tax burden as they should.
Thirdly, we note the increasing importance that society is placing on gender equality and facilitating female participation in the workforce. We note that studies have shown that company workforces with greater degrees of gender parity benefit economically too, as those with less gender parity are prone to greater degrees of groupthink, and lesser diversity of perspectives. A 2007 London School of Economics study is just an example of these, and indeed, a survey of companies by international consulting firm McKinsey and Co. has confirmed that this aligns with the experience of a vast majority of global companies. The ATA notes that insofar as measures that promote female workforce participation and gender parity go, tax cuts, especially at a level where they will benefit well-educated women in advanced roles, would be extremely effective in furthering this goal. We note analysis by Sydney Morning Herald Economics editor Ross Gittins, as well as studies cited by Shadow Treasurer Andrew Leigh on his own website, which agree that women are far more sensitive to tax incentives to work than men are. This is because women face a greater range of choice as they are far more likely to be secondary income providers in a family. This means that tax incentives are far more effective in encouraging women to move into full-time work from part-time, to take on more hours, or to re-enter the workforce at all. Where these incentives apply at the advanced occupation or higher-education level, they will hence also allow Australia to make the most of our human resources and capital as women who desire to pursue their career goals whilst having taken time out to focus on family life, will be encouraged to do so.
It is submitted that passing the complete tax cuts package now, even if the third tranche is only set to take effect in 2024-25, will help in holding the government to account in its promise to implement shrewd economic management, by locking in tax relief ahead of time. In doing so, it will allow Labor to assert its own economic credentials by showing support of principled, economically beneficial structural reform which retains fairness within the system- as was the case with the celebrated, trailblazing Hawke and Keating governments. The direct winners will include young people seeking social mobility at a time of rising costs of living, workers across Australia’s middle class, and women with career aspirations.
Thank you for considering our comments and concerns. We wish you well in your public service, and hope that you will reconsider passing the complete income tax cuts package in the interests of hardworking taxpayers and our families nationwide. If you have any thoughts or concerns about the contents of this letter or if I can be of assistance in any other way, please feel free to reach out.
Director of Policy
Australian Taxpayers’ Alliance (ATA)
115 Pitt St, Sydney NSW Australia 2000