The kaleidoscope of numbers to come out of Canberra this week has probably left most heads in Australia spinning.
But if there’s one thing you should take away from the whole business, it’s the following: If you earn less than $94,000 a year, you will immediately be better off under Labor’s income tax cuts.
If you earn more than that, you will eventually be better off under the Coalition’s income tax cuts.
And if you earn a lot more than $94,000, you will eventually (by 2024) be a lot better off under the Coalition’s income tax cuts – to the tune of thousands of dollars.
On Thursday night, opposition leader Bill Shorten claimed that a Labor government would offer “bigger, better and fairer” income tax cuts than the cuts announced by Treasurer Scott Morrison in his budget on Tuesday.
In total dollar terms, it’s not true that Labor’s would be “bigger”. The Turnbull government’s are far bigger – approximately $20 billion a year to Labor’s $5 billion.
However, the bulk of the Coalition’s tax cuts wouldn’t come in until after 2024, and – here’s the crucial point – the vast majority would go to the richest 20 per cent of Australians, as the chart from the Grattan Institute below shows. Michael Pascoe made the same point in his recent column for The New Daily.
To the majority of Australians earning under $94,000, though, Mr Shorten is spot on. His tax cuts are indeed bigger than the Coalition’s – though only by a few hundred dollars.
Mr Shorten said a teacher on $65,000 a year, a defence force worker on $90,000 a year, and an aged-care worker on $50,000 a year would all receive a tax cut of $928 a year.
That is $398 more than the same teacher and aged-care worker would receive under the Coalition’s tax cut plan, and $253 more than the defence force worker would get.
Under Labor’s tax cuts, the maximum reduction is $928 a year, and that goes to everyone earning between $50,000 and $90,000. After that, it tapers down. In other words, the wealthy barely get a tax cut at all.
Under the Coalition’s tax cuts, meanwhile, the maximum reduction is $7226 a year. That goes to anyone on $200,000 a year or more.
Someone on $150,000 a year, meanwhile, would save $3375 a year, someone on $120,000 would save $2025 a year, and someone on $100,000 would save $1125 a year.
The teacher on $65,000 would save $540 a year, one thirteenth the savings of the doctor on $200,000 a year.
Play with the government’s calculator to see how much you would save under the Coalition plan. But be warned – the big figure the tool draws your attention to is the saving you would make over seven years, not one year. This is not clearly explained on the website.
Which plan is fairer?
Labor would say its plan is fairer because it gives tax cuts to the people who most need them – low and middle-income Australians struggling to pay their bills.
Mr Shorten did not run hard on the position that high-income earners do not need a tax cut – probably because he didn’t want to alienate higher-income swinging voters.
However, he touched on it in this comment in his budget reply: “We will not allow the Prime Minister to threaten to block tax cuts for 10 million Aussies, unless the Parliament writes a cheque for high-income earners seven years hence.”
The Coalition, meanwhile, would say their plan is fairer because the wealthy would still be paying far more tax than lower and middle-income Australians even after this big tax cut. The plan, they argue, will simply let them keep more of their money.
This is how Mr Morrison put it in his budget speech: “You don’t have to punish some people with higher taxes, who are already paying the majority of tax, to give others tax relief.”
There is, of course, a lot more to consider than income tax cuts. But at the moment it looks like this will be the single most important issue in the looming federal election.