The main thrust of the Government’s proposed personal income tax changes announced in the 2018-19 Budget is welcome, but they could be improved to better promote economic efficiency. Also, implementation should be brought forward, with the earlier revenue losses offset by tighter expenditure management. Specifically, the government’s proposal should be enhanced by implementing the following measures:

• Formally indexing income tax thresholds once the planned discretionary increases in thresholds are implemented.
• Significantly increasing the 45% top marginal tax rate threshold beyond the level proposed by the government and/or reducing the top marginal rate from 45%.
• Bringing forward the planned elimination of the 37% rate to a more credible date ¾ say, within the life of the next parliament and within the current forward estimates period — rather than in 2014.

Note: This Policy Paper is a slightly edited version of the authors’ submission to the Senate Standing Committee on Economics Legislation for the Committee’s Inquiry into the Treasury Laws Amendment (Personal Income Tax Plan) Bill 2018. The submission was lodged on 24 May, 2018.