“Poor economic analysis” could explain recent confusion around a round of income tax cuts set to benefit taxpayers earning more than $40,000 per annum.
Stage three income tax cuts are due to start in 2024 and will reduce the marginal tax rate from 32.5 and 37 percent down to 30 percent for most taxpayers.
Despite the reform’s initial popularity, with the Liberal Government introducing it and the Labor Government promising to keep it, a piece of economic analysis has inspired a movement to campaign against it.
Taxpayer advocacy group, Australian Taxpayers’ Alliance has labelled the analysis misleading.
ATA Chief Economist Dr John Humphreys said the analysis failed to consider human behaviour and how people respond to changes in tax policy.
“Tax rate changes affect taxpayer behaviour, often significantly, but this is ignored in the modelling,” Dr Humphreys said.
“It may seem like an unimportant squabble about methodology, but this oversight fundamentally warps the argument for stage three tax cuts by ignoring the benefits and exaggerating the costs.”
Dr Humphreys said stage three’s tax rate reduction would increase productivity but that this factor wasn’t captured at all in the modelling.
“Increased productivity from changed behaviour is a cardinal benefit of stage three,” Dr Humphreys said.
“Good tax reform encourages more efficient allocation of labour, more innovation and entrepreneurship, less tax avoidance and evasion, and more investment.
“All these behavioural changes manifest as a growing economy with higher wages and lower prices.
“To assume these benefits out of existence is a dishonest rhetorical trick.”
About the ATA:
The Australian Taxpayers’ Alliance is the nation’s largest grassroots advocacy group representing the everyday Australian taxpayer. Through our campaigns, we fight to oppose over-regulation, wasteful spending and burdensome taxes. Our mission is to transform our nation and build a better, freer, and more prosperous Australia.Found out more at www.taxpayers.org.au
