The distribution of the government’s stage 3(a) tax cuts

Taxation Income tax Tax cuts Weather Australia

The Morrison Government is yet to legislate the additional tax cuts announced in the 2019-20 Federal Budget. This 2019 Tax Plan builds on the tax package announced in the previous 2018-19 Budget, and comprised of three stages. The Section 3(a) income tax cuts, which would come into effect in 2024-25, propose decreasing the 32.5 per cent personal income tax rate down to 30 per cent.

Key findings:

  • The Section 3(a) income tax cut will overwhelmingly benefit high-income earners with almost one-third of the benefit going to the top 10% of taxpayers, and over half the benefit (52.7%) flowing to the top 20% of taxpayers.
  • The bottom 20% of taxpayers receive a mere 0.2% of the benefit of this tax cut, with the bottom 10% of taxpayers receiving nothing at all.
  • These tax cuts will not come into effect until 2024-25 and will cost the budget $95 billion over five years.
  • These tax cuts represent another attack on the progressive nature of Australia’s income tax system. They come after the Government has already legislated a significant flattening of the income tax system.
  • While changes to the Low and Middle Income Tax Offset (LMITO) come in immediately and enjoy bi-partisan support, the final stage is far into the future and potentially faces stronger opposition in the Senate.
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