When Parliament reconvenes next month the first order of business will be the “Morrison” personal income tax cuts. In fact, a legacy of Malcolm Turnbull, the “Morrison” cuts were proposed slightly over a year ago -- when Turnbull was PM and Scott Morrison was federal Treasurer -- together with a bill cutting corporate taxes. Given the numbers in Parliament at the time, Turnbull had to dump the corporate cuts and months later the COALition dumped him and the Treasurer was promoted to PM.
The personal cuts weren’t particularly popular either. Labor opposed that bill then. But Labor lost the election. The COALition won. Parliament numbers changed.
During the elections, other than opposing every single proposal Labor put forward, virtually the COALition’s only proposal was the personal cuts.
So, what should be Labor’s stance on that issue now? Should they oppose that bill? Should they support it?
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Those are the questions keeping talking heads awake at night. Patricia Karvelas (Radio National), David Crowe (The SMH), and Sarah Martin (Guardian Australia), the latest guests of the ABC TV Insiders show (hosted today by some guy, replacing Barrie Cassidy), spent much of the program analysing that.
No other issue offers a better example of the extremes the COALition is willing to go to get what they want, how weak a Labor opposition can be, and how deliberately (?) obtuse politicians and the commentariat are.
This chart, from the Grattan Institute blog, illustrates the distribution of taxable incomes (the most recent data available). To their chart I added the percentages. That is, I think, a good starting point.
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During the financial year 2016-17 (the latest for which ATO has released data), out of 13.8 million tax returns, 13.4 million (97% of all returns) reported taxable incomes under $180K; 11.7 million (82% of all returns and 85% of all under-$180K returns) reported taxable incomes under $80K. That gives an idea how skewed to the right that distribution is. (Note well: we are talking about incomes, not salaries or wages. In other words, besides salaries and wages, those figures include all sorts of things, like profits, interests, rents, royalties, pensions, governmental transfers.)
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A little digression first: figures, data are one thing; another is the reality those abstractions are meant to represent. So, what kind of people lodged those 13.4 million returns (the four lowest rectangles) below $180K?
For privacy reasons the ATO cannot disclose identities. Still, one may formulate educated guesses.
Towards the lowest left corner, with yearly incomes between $14K and $16K, NewStart Allowance recipients and those on Work for the Dole are among the bottom rectangle, marked with 19%, but if they were on the dole the whole year at least they don’t pay income taxes.
Retirees relying exclusively on the Age Pension, on the other hand, get more money. However, singles ($24K per year) have the dubious honour of falling outside the 19%: they do pay income taxes. They are among the second rectangle: 23%.
At best, if people in those two sets are lucky, they own the place they live in, otherwise chances are they’ll have to couch-surf or sleep rough. (The glories of the Welfare State!)
At any rate, added together, those two rectangles represent 42% of all returns lodged in 2016-17: 5.8 million returns. Each and everyone of them with taxable incomes no greater than $37K a year.
At the other end of the age spectrum, young (not older than 20) workers are likely over-represented among the lowest 42% (see above): it’s not only the welfare-dependent who populate those two groups.
Let’s look some more. Consider the median tax return (the one reporting more income than the poorer half but less than the richer half). Although that chart does not allow a precise figure (and, if the figure exists, I could not find it in the ATO release), the median must be around the lower end of the third, big 40% rectangle representing 5.6 million returns. An eyeball guesstimate would put it between $40K to $46K. Assuming no other source of income, that range is roughly consistent with the average wages of a full-time pick & packer (approximately $44K), one of the lowest paid occupations in Australia.
Other than governmental transfers and wages and salaries, what other sources of income those people have? Given that wealth (other than labour, the other great source of income) is more unequally distributed than incomes, it’s likely most have nothing. Some may own their homes, from better days. And given that underemployment in Australia is high, it’s likely that many of them are underemployed.
How do they look like? Well, one should find more women than men there. It’s not that there aren’t men, it’s that men are less frequent there than they are among the whole labour force; women, in consequence, are more represented. Likewise, Aboriginal, Torres Straight Islanders and newly arrived migrants (particularly those on temporary residence working visas) are likely over-represented.
In any case, roughly speaking, 6.9 million tax returns (50%) report taxable incomes are no greater than between $40K to $46K; the other 6.9 million exceed that range.
Moving above the median range and deeper into the third and largest rectangle, one is likely to gradually find more wealth (including home ownership), less underemployment and virtually no unemployment. Initially, one finds small business owners, gradually owners or co-owners of larger business pop up. Men become more numerous and women, kids, Aboriginals, Torres Straight Islanders and newly arrived migrants less so.
At the lower end of that upper half (and third rectangle) one finds receptionists, factory workers, retail and admin assistants, whose wages range from $47K to $49K: slightly better off than pick & packers.
But occupations, as wealth levels and demographic characteristics, change as one moves up the income ladder. Assuming conservatively they have no other source of income, by the time one reaches the top of the fourth rectangle (15%) one finds level E professors of economics at the University of Queensland, scoring a salary of $180K: the very threshold between the bottom 97% and the top 3%.
That threshold is important because during the financial year 2016-17 it was, according to ATO, pretty much the boundary between the “top end of town” (of which politicians and journalists -- like Karvelas, Crowe, and Martin -- have been talking about so much lately) and the rest of us.
Speaking of journalists: I couldn’t place them precisely within that distribution of taxable incomes. If pressed to do so, I think it would be safe to say where they are likely not to be: they are not (like yours truly is) one of the bottom 42% reporting incomes under $37K. It would still be reasonably safe, I believe, to say they are above the median ($40K to $46K). If further pressed, my best shot would be that they are probably closer to the $180K of an UQ economics professor than to the $14.4K of a “dole bludger”, but I couldn’t say how closer.
Above that threshold, a rank-and-file parliamentary backbencher, like Peter Khalil (a Labor MP greatly concerned about who’s in the “top end of town”), scores $211K a year (not counting superannuation and expenses): a 3-percenter, even if his household had no other source of income. I’m pretty sure Jim Chalmers (another Labor MP worried about that), as shadow Treasurer, is also there.
Incidentally, the same applies -- with even greater reason -- to PM Scott Morrison on $549K a year.
And from there, to infinity and beyond, as the cartoon character says. But today -- and for once -- that’s not my concern.
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Keeping that digression in mind, let’s consider Morrison’s tax cuts in a little more detail. If Parliament passes them (and even without Labor support, depending on crossbenchers, like Jaqui Lambie, they could pass), the cuts will be implemented in three stages: stage 1 starts in 2019, stage 2 in 2023 and 3 in 2025. They involve changes in tax rates, thresholds and rebates/offsets.
To avoid questionable assumptions let’s ignore inflation. Additionally and for simplicity, let’s leave aside rebates/offsets, too. Estimates here, thus, are based solely on Table 3 of the “Budget Strategy and Outlook, Budget Paper No. 1, 2019-20” (PDF). Using that information, the construction of tables like those shown at “Individual income tax rates” (ATO website) is straightforward.
Unless Parliament introduces changes, this is how the ATO “individual income tax rate” table for the financial year 2024-2025 shall look like:
Compare it with the current version:
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Rebates/offsets aside, the poorest 42% (5.8 million tax returns) is entirely bypassed: no change in threshold or rate. Indeed, by 2024-25, the threshold between the lowest 19% and the second lowest 23% ($18,200) will have lasted for 12 years. Bracket creep, anyone?
Morrison is throwing under the bus 4 Australians out of every 10: the 4 poorest ones. Old timers on age pension, kids, women, black and brown people, the unemployed and underemployed. He does that out of ideological ill will towards them, out of sadism. His “fair go for those who have a go” means a fair go only for those likely to vote for him.
It doesn’t take a genius to see that this is class warfare, waged unilaterally, with the tacit consent of the self-proclaimed pundits. It’s done to divide and polarise the population. But you don’t see talking heads (or even Labor politicians, like Khalil, or Chalmers) making a big deal of that. Instead what you see is them urging Labor to stop waging class war, on account of its weak attempts at stopping that monstrosity.
Morrison may be a mad bastard, leading Australia to self-destruction, but he isn’t stupid. By focusing on the “top end of town”, journalists and Labor politicians are helping him to sweep under the carpet the “bottom end of town”. When Anthony Albanese caves in, as he inevitably will, Labor will have lost any shred of credibility before those voters. The implosion of the milquetoast Left has been happening everywhere one cares to look.
Even Wayne Swan could see that, for Christ’s sake!
Come the next election, these people will flock towards whoever promises them heaven on earth.
This is how those tax cuts (stages 2 and 3) shall play out:
If Khalil is still in Parliament by 2025, he’ll collect the 30 silver coins his pragmatism earned him: 16% saving on his personal income tax bill compared to what he would have paid based on 2016-17 taxes. Journalists will be getting something between 11% and 18%.
The 42% under $37K will get nothing.
Even Morrison will get more tax relief than the underemployed.
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