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Personal income

– eg, personal income tax scale and offsets

– see also Capital gains; Concessions; Corporations; Families; Fringe benefits; International transactions; Older people;   Workers

Changes in average personal income tax rates: distributional impacts

PBO, October 2017

Report no. 03/2017

In the 2017–18 Budget, the projected return to surplus in 2020–21 is predominantly due to a projected increase in personal income tax revenue.  This report analyses the expected increase in average tax rates for individuals in different parts of the taxable income distribution and examines the factors that are driving these outcomes.  The paper also examines trends in average tax rates over a longer time period, using historical data from 2000–01 and projections up to 2021–22.


Macroeconomic and Distributional Effects of Personal Income Tax Reforms: A Heterogenous Agent Model Approach for the US

IMF, September 2017 

This paper is relevant to recent comparisons between Australian and American tax systems. This paper assesses the macroeconomic and distributional impact of personal income tax (PIT) reforms in the U.S. drawing on a multi-sector heterogenous agents model in which consumers have non-homothetic preferences and sectors differ in terms of their relative labor and skill intensity. The model is calibrated to key characteristics of the US economy. We find that (i) PIT cuts stimulate growth but the supply side effects are never large enough to offset the revenue loss from lower marginal tax rates; (ii) PIT cuts do “trickle-down” the income distribution: tax cuts stimulate demand for non-tradable services which raise the wages and employment prospects of low-skilled workers even if the tax cut is not directly incident on them; (iii) A revenue neutral tax plan that reduces PIT for middle-income groups, raises the consumption tax, and expands the Earned Income Tax Credit can have modestly positive effects on growth while reducing income polarization; (iv) The growth effects from lower income taxes are concentrated in non-tradable service sectors although the increased demand for tradable goods generate positive spillovers to other countries; (v) Tax cuts targeted to higher income groups have a stronger growth impact than tax cuts for middle income households but significantly worsen income polarization, even after taking into account trickle-down effects and an expansion of the Earned Income Tax Credit. 

Rising Inequality: An Australian Reality

ACTU, September 2017

This report shows  Australia is at risk of becoming an Americanised society of working poor if people are not given a pay rise. 

Rising inequality is forcing working people into poverty, with the number of workers who are now on minimum or award wages rocketing a staggering eight per cent in six years to 2016. 

The ACTU has produced this report because, while the Turnbull Government continues to throw its support behind the big corporations and a group of small elites, Australian workers and families are struggling to pay the bills. 

And while many Australians are struggling to pay the bills, the Turnbull Government is attacking the very people who could help them get a pay rise – unions. 

Unions have been on the frontline of collective change for more than a century and it is only through our work that working people see positive adjustments to their pay and conditions. 

If the Government continues to try to destroy unions, and with them working people’s rights at work Australia will be a fully Americanised society of high inequality and dead end jobs, with long working hours, no holidays, zero job security and poverty pay levels. 


A Progressive Medicare Levy – the Medicare top-up

David Richardson, The Australia Institute (June 2017). A new report models the impact of an increased Medicare Levy in comparison to a progressive Medicare Levy, more like income tax, on the spread of Australian income earners.

The Government proposes to increase the Medicare levy to 2.5 per cent of income from July 2019. That would mean a gradual switch in the tax mix from the progressive income tax to the Medicare levy; a ‘flat tax’ that raises the same proportion from higher and lower income earners.

The Impact of Penalty Rate Cuts on Personal Tax Revenue and Welfare

The Australia Institute (27 March 2017). Research from the Australia institute has calculated the impact of the recent Fair Work Commission decision to cut penalty rates on the Commonwealth Budget.

The paper from Richard Denniss, Chief Economist at The Australia Institute, found reduced income tax collection from lower wages as well as greater welfare assistance for low income earners is, based on conservative assumptions, estimated to cost the budget bottom line $650 million over 4 years.

The impact of tax and benefit systems on the workforce participation  incentives of women

Alastair Thomas and Pierce O’Reilly, OECD (December 2016). This paper examines the impact of tax and benefit systems on the incentives for second earners to enter formal employment. The paper highlights how various tax design features create greater participation disincentives for second earners than for primary earners or single individuals. As second earners in OECD countries are more often women, these greater disincentives create significant gender-equity concerns. As second earners are also typically highly responsive to work disincentives, these features are likely to negatively impact economic growth. These disincentives stem from a range of policies including the choice of family-based rather than individual-based taxation, the use of dependent spouse tax credits and allowances, and the use of tax credits and benefits based on family rather than individual income. Reform options to address these issues will depend on countries’ existing tax policy design choices. For countries where individual-based taxation is combined with some family-based provisions, reform of these family-based provisions to lessen their impact on second earner work disincentives may be warranted. For countries with family-based tax systems, the introduction of some individual-based provisions could be considered to mitigate the negative effects of family-based taxation on second earner work incentives.

Briefing note: closing carbon tax compensation for some but not all

The Australia Institute (September 2016). In the 2016 budget the government announced that it would close carbon tax compensation to new recipients of government welfare benefits.  This will have the effect of reducing the amount paid to welfare recipients. This will save the government $1.3 billion over the forward estimates. The clean energy supplement was not the only part of the compensation package for the carbon price. The other main feature was of income tax cuts, which the government is not proposing to cut. These tax cuts are estimated to be costing the budget $8.4 billion over the forward estimates. This is considerably larger than the expected savings of $1.3 billion associated with scrapping the clean energy supplement for new welfare recipients. This briefing note examines the costs and savings associated with both measures.

Drivers of inequality: trade shocks versus top marginal tax rates

Douglas Campbell and Lester Lusher (September 2016). Growing inequality has been one of the most pressing political issues since the Great Recession. However, there is a relative lack of consensus on the significant drivers of this trend. This column investigates the contribution of globalisation, via international trade, to US inequality. Although trade is found to have had important effects on certain parts of the US labour market in the early 2000s, the growth in US inequality since 1980 can be traced back to Reagan-era tax cuts.

Australia fails to hold the poverty line

The Australia Institute (May 2016). As the Turnbull Government prepares to deliver tax cuts for high income earners and highly profitable corporations, including large banks, the latest data shows those living on government assistance are slipping further below the poverty line. 

Good economics or populism: Is there an economic case for income tax cuts?

Matt Grudnoff, The Australia Institute (April 2016). A report analysing cutting the budget repair levy and giving high income earners a tax cut to compensate for bracket creep, as touted by Treasurer Scott Morrison, finds the measure would exacerbate the revenue problem and not deliver growth. 

New polling shows lack of support for income tax cuts

The Australia Institute (March 2016). A ReachTEL poll of 1217 Queenslanders and 1077 South Australians shows respondents resoundingly rejected conventional political wisdom – that income tax cuts are even more popular than government investment in health, education and infrastructure.

Are government plans to tackle bracket creep good for average people?

Matt Grudnoff, The Australia Institute (February 2016). The government has spent a considerable amount of time talking about bracket creep with a particular focus on average incomes ‘creeping’ into the second top tax bracket. The government seems increasingly likely to focus any income tax cuts to prevent these average wage earners from being pushed into the second highest tax bracket. An example of how the government could achieve this is by increasing the threshold of the second highest tax rate from $80,001 to $100,001.
While the discussion has left the impression that these tax cuts are designed to give tax relief to average Australians the reality is very different. Most of the benefit of such a tax cut is likely to flow to high income earners. They are also likely to flow overwhelmingly to men.

Why Individual Income Tax Revenues Grow Faster Than GDP

Jim Nunns and Jeff Rohaly, Urban Brookings Tax Policy Center (September 2015). Using the latest long-term budget projections from the Congressional Budget Office, the Tax Policy Center projects that individual income tax revenues under current law will increase as a share of GDP from a little over 9.5 percent in 2025 to a little less than 13.3 percent in 2090, an increase of over 3.7 percentage points. This paper describes the factors that explain this differential in growth rates and provides estimates from the Tax Policy Center’s new long-run microsimulation model of the relative importance of each of these factors over the 2025-2090 period. The Tax Policy Center finds that 80 percent of the increase in revenues as a share of GDP occurs because current law does not adjust some individual income tax parameters for inflation and none of the parameters for changes in real income.

Closing the Tax Loopholes a Buffett Rule for Australia

Matt Grundoff, The Australia Institute (April 2015). With large parts of the 2014 budget not passed by the Senate, Prime Minister Tony Abbott
has asked Senators for alternative ways to reduce the budget deficit.1 One alternative is a “Buffet rule” for Australia – named after billionaire investor Warren Buffett, who commented that his secretary should not pay a higher average rate of tax than he does.


Who Pays Taxes in America in 2015?

Citizens for Tax Justice (April 2015).  The US tax system is barely progressive. Those who advocate for top-heavy tax cuts and erroneously claim the wealthy are overtaxed focus solely on the federal personal income tax, while ignoring  other taxes that Americans pay.

Short run responses to the new 50% income tax rate in the UK

James Browne and David Phillips, Institute for Fiscal Studies (March 2015).

Composition of income reported on tax returns in 2012

Lydia Austin and Roberton Williams, Urban Brookings Tax Policy Center (March 2015). As income increases, the composition of income changes substantially. For most taxpayers, salaries and wages contribute the most. But higher-earners typically report income from capital gains and businesses.

Proposed Expansion of EITC to Childless Workers Would Benefit 10.6 Million Individuals and Families

Citizens for Tax Justice (March 2015). On March 4, 2015, Senate and House Democrats proposed the “Working Families Tax Relief Act of 2015,” a bill that would improve the Earned Income Tax Credit (EITC) for childless workers. The bill would provide an average annual tax benefit of $604 to 10.6 million low-income working individuals and couples across the United States through boosting the maximum credit and expanding eligibility to more childless workers.

Who’s the fairest (and most efficient) of them all – income or consumption taxes?

Peter Davidson, Need to Know Oz Social Policy Blog, 16 January 2015.

A brief history of tax: Part 1 Income tax, the great leveller

Peter Davidson, Need to Know Oz Social Policy Blog, posted 8 January 2015.

ACOSS Tax Talk No 1:  Are we paying our fair share?

ACOSS (January 2015). This Tax Talks Paper No 1, is the first in the ACOSS series addressing some of the key questions about the direction that tax reform should take. There are several important principles that should drive reform, one of which is the principle of equity or ‘fairness’. Fairness or ‘equity’ should be a key measure against which any tax system is assessed.

Effects of Income Tax Changes on Economic Growth

William Gale and Andrew Samwick, Urban Brookings Tax Policy Centre (September 2014). This paper examines how changes to the individual income tax affect long-term economic growth. The structure and financing of a tax change are critical to achieving economic growth. Tax rate cuts may encourage individuals to work, save, and invest, but if the tax cuts are not financed by immediate spending cuts they will likely also result in an increased federal budget deficit, which in the long-term will reduce national saving and raise interest rates. The net impact on growth is uncertain, but many estimates suggest it is either small or negative. Base-broadening measures can eliminate the effect of tax rate cuts on budget deficits, but at the same time they also reduce the impact on labour supply, saving, and investment and thus reduce the direct impact on growth. However, they also reallocate resources across sectors toward their highest-value economic use, resulting in increased efficiency and potentially raising the overall size of the economy. The results suggest that not all tax changes will have the same impact on growth. Reforms that improve incentives, reduce existing subsidies, avoid windfall gains, and avoid deficit financing will have more auspicious effects on the long-term size of the economy, but may also create trade-offs between equity and efficiency.

Top Incomes and Taxation in OECD Countries: Was the crisis a game changer?

OECD (May 2014).  Top earners capturing growing share of total income in many countries, says OECD.

Reforming Australia’s Hidden Welfare State: Tax Expenditures as Welfare for the Rich
Dr Benjamin Spies-Butcher and Adam Stebbing, Centre for Policy Development, (February 2009).  Discusses problems with Commonwealth tax expenditures and outlines possible reforms to superannuation that could enhance fairness and transparency in government spending.

Jobs Australia’s Statement of Reform Priorities
David Thompson (September 2011).  Jobs Australia’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.

ACOSS Response to NewStart Bill 2013
Australian Council of Social Service (July 2013)

The Bill amends the Social Security Act 1991 as follows to implement policies announced as part of the 2013-14 Budget: – An increase of the income free area that applies for recipients of Newstart Allowance, Widow Allowance, Partner Allowance, Parenting Payment (Partnered) and Sickness Allowance. The income free area would increase from $62 to $100 per fortnight, from 20 March 2014, and would be subject to annual indexation. – Extension of the eligibility for the Pensioner Education Supplement to single principal carer parents receiving Newstart Allowance Payments, from 1 January 2014. – A 12 week extension of eligibility for the Pensioner Concession Card to single parents who are no longer qualified for Parenting Payment Single because their youngest child has turned 8 years of age, and who do not qualify for another income support payment due to earnings. This measure would commence on 1 January 2014.

What The Rich Would Do To Avoid Tax
Dr Richard Denniss, The Australia Institute (July 2013)

Is economics a science? When we teach economics students, we usually tell them that they are learning about 'the science of the efficient allocation of scarce resources'. But when we listen to public debate, often economists don't sound very scientific. While it is often said that science can't proceed without failure, it's rare to hear an economist admit that they were wrong

Capital is Back: Wealth-Income Ratios in Rich Countries 1700-2010
Thomas Piketty and Gabriel Zucman, Paris School of Economics (July 2013)

This paper explores how aggregate wealth-to-income ratios evolve and why. The results have important implications for capital taxation and regulation and shed new light on the changing nature of wealth; the shape of the production function, and the rise of capital shares.

Executive-Pay Tax Break Saved Fortune 500 Corporations $27 Billion Over the Past Three Years
Citizens for Tax Justice (April 2013)

Earlier this year, Citizens for Tax Justice reported that Facebook Inc. had used a single tax break, for executive stock options, to avoid paying even a dime of federal and state income taxes in 2012. Since then, CTJ has investigated the extent to which other large companies are using the same tax break. This short report presents data for 280 Fortune 500 corporations that, like Facebook, disclose a portion of the tax benefits they receive from this tax break.

Top Individual Income Tax Rates: How Does the U.S. Compare?
Jim Nunns (April 2013)

Discussions of the effect of taxes on international competitiveness usually focus on corporate income tax rates, but individual income tax rates may also affect a country’s (or state’s) ability to compete for workers.

OECD Taxation Working Papers No. 15: Average Personal Income Tax Rate and Tax Wedge Progression in OECD Countries
Dominique Paturot, Kirsti Mellbye and Bert Brys, OECD, (2013)

ACTU Wages Report
Australian Council of Trade Unions (2012)

Preparing for a Better Future
Business Council of Australia (October 2011)

The Business Council of Australia puts forward its proposals for changes to the tax system, including changes to the personal and company tax systems.

Fair Share: The Tax Edition
VCOSS (September 2011)

Outlines how tax can change the way disadvantage is caused and addressed, and what changes VCOSS hopes for in the National Tax Forum.

Paying Our Way: Personal Income Tax in Australia
ACTU (October 2011)

This paper by the ACTU looks at how changes in personal income tax rates have flattened the gradient of the progressive tax system.

Mission Australia Statement of Reform Priorities

Mission Australia’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.

Council of the Aging Statement of Reform Priorities
Ian Yates (September 2011)

Council of The Aging (COTA) statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.

Catholic Social Services Australia Statement of Reform Priorities
Bishop Pat Power (September 2011)

Catholic Social Services Australia’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.

United Voice Statement of Reform Priorities
Louise Tarrant (September 2011)

United Voice’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.

Community and Public Sector Union Statement of Reform Priorities
Nadine Flood (September 2011)

Community and Public Sector Union’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.

Equal Rights Alliance Statement of Reform Priorities
Marie Coleman and Ruth Medd (September 2011)

Equality Rights Alliance’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.

Anglicare Australia Statement of Reform Priorities
Kasy Chambers (September 2011)

Anglicare Australia’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.

Community Housing Federation of Australia
Adam Farrar (September 2011)

Australian Community Housing Federation of Australia’s statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.

National Shelter Statement of Reform Priorities
Adrian Pisarski (September 2011)

National Shelters’ statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.

Uniting Care Wesley Adelaide Statement of Reform Priorities
Simon Schrapel (September 2011)

Uniting Care Wesley Adelaide statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.

Australian Council of Trade Unions Statement of Reform Priorities
Jeff Lawrence (September 2011)

Australian Council of Trade Unions’ statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.

Australian Council of Social Services Statement of Reform Priorities
Dr Cassandra Goldie and Peter Davidson (September 2011)

Australian Council of Social Services statement of taxation reform priorities in preparation to the Tax Forum 4-5 October 2011.

Per Capita Tax Survey for 2011: Public Attitudes towards Taxation and Government Expenditure
David Hetherington (September 2011)

The Per Capita Tax Survey for 2011 has asked 1,300 Australians for their views on personal tax contributions, overall taxation levels, public service spending and new tax proposals such as the Minerals Resource Rent Tax and the carbon tax.

Australian Attitudes Towards Wealth Inequality and Progressive Taxation
David Neal, Cassandra Govan, Mike Norton & Dan Ariely (31 August 2011)

A national survey conducted by Empirica Research and the Harvard Business School of Australian knowledge, attitudes, and perceptions of wealth inequality and progressive taxation.

National Tax Forum discussion paper
Australian Government (28 July 2011)

Discussion paper released by the Australian Government in the leadup to the National Tax Forum in October 2011, particularly dealing with the six sessions to be included at the forum: Personal tax, transfer payments, business tax, state taxes, environmental and social taxes, and tax system governance.

Summary of ACOSS proposals, Henry Review recommendations
Australian Council of Social Service (5 Apr 2011)

This is a brief summary of the Henry Review’s key tax reform proposals and compares them with those advanced by ACOSS, and the Government’s response.

Taxation trends in the European Union
Eurostat (1 July 2011)

An overview of taxation in the European Union, by type of tax (consumption, labour income, company income and capital income), by level of government (federal, state, local), and by country.

Tax cuts: who needs them?
Robert Tanton, Australian Policy Online (10 Apr 2011)

Commentary on the proposal to increase the tax free threshold from $6,000 to $10,000, finding that the main beneficiaries of tax cuts are those who don’t really need the additional money.

The Very Rich and the Tax Code (USA)
Roberton Williams, Tax Policy Centre (19 May 2011)

Roberton Williams, Senior Fellow at the Urban-Brookings Tax Policy Center, talks about the historically low tax rates currently paid by the richest U.S. taxpayers, why taxing the rich by itself won’t bridge the budget gap, and why raising taxes on capital gains is a complicated policy option.

Taxing Wages
OECD (11 May 2011)

Taxing Wages provides unique information on income tax paid by workers and social security contributions levied on employees and their employers in OECD countries. This year’s report found that the average tax and social security burdens on employment incomes rose in most countries in 2010, reversing a trend toward declining tax burdens seen in previous years. In most cases, though, any rise reported was small.

Tax reform and low incomes
Grant Belchamber, ACTU (30 Mar 2011)

A presentation to the ACOSS National Conference on reform to the taxes and transfers systems, particularly focusing on tax rates and tax thresholds for people on low-incomes. Includes an analysis of the Henry Review proposal for personal income tax.

Cutting Tax Preferences Is Key to Tax Reform and Deficit Reduction
Donald Marron, Tax Policy Centre (Feb 2011)

Donald Marron’s testimony before the Senate Committee on the Budget on reforming the tax code by cutting tax preferences. His testimony includes: how tax preferences pervade the US tax code, how the first step in any income tax reform should be to broaden the tax base by reducing or eliminating tax preferences and how policymakers can then use the resulting revenue to lower tax rates, reduce future deficits, or both.

'The Missing Billions: The UK Tax Gap
Trade Union Congress (29 February 2008)

A report that calculates the tax lost to the UK Government from tax avoidance and from tax planning by the very wealthy.

Tax Cuts Favour the Rich
The Australia Institute (1 July 2009)

Media statement that discusses how the July 2009 tax cuts are highly skewed towards the rich.

Towards a Better Taxation of Savings
Ken Henry, Secretary to the Commonwealth Treasury (1 October 2009)

Speech to the Australian Conference of Economists Business Symposium on the taxation of the personal capital income including savings, assets and superannuation.

Progressive Tax Reform: Reform of the Personal Income Tax System
Australian Council of Social Service (November 2009)

This report advocates strengthening the personal income tax system in order to achieve progressive tax reform. It covers topics such as personal income tax rates, consumption taxes, company income taxes, taxation and saving, taxation and the transfer system.