Tax changes spark calls for complete system redesign

Esther Linder, Dominic Giannini and Kat Wong |

Labor’s move to direct more tax cut benefit to lower and middle income earners has wide approval.
Labor’s move to direct more tax cut benefit to lower and middle income earners has wide approval.

The federal MP representing Australia’s wealthiest electorate has called for a wider overhaul of the taxation system than the planned stage three tax cuts.

“Tax reform is too important an issue to be ignored,” independent MP Allegra Spender, who represents the inner-Sydney electorate of Wentworth, told the National Press Club on Wednesday.

“Our system is not fair, either between households or between generations.”

The latest alterations failed to address longer-term challenges, Ms Spender said, nominating housing affordability, productivity, and action on climate change as reform objectives. 

Richard Denniss, executive director of the Australia Institute, agreed the Albanese government needed to go further but called for a greater focus on business and resource taxes as a way of reducing inequality.

“A simple economically efficient … solution would be to collect a lot more revenue from the petroleum resource rent tax,” he told the press club.

The Business Council of Australia agreed with Ms Spender, saying “policy paralysis” had gone on for too long.

“As the latest Intergenerational Report found, we face a ticking time bomb of economic shocks which will mean our living standard drops dramatically unless we act now,” chief executive Bran Black said. 

Almost three in five voters across all demographics support changing stage three tax cuts so that people earning less get a greater slice of the pie.

Asked by the Australia Institute in late January, 58 per cent of voters supported middle-to-low-income earners benefiting more from the proposed tax changes.

The Australia Institute Director Richard Denniss
Richard Denniss says the government is responding to the current economic reality. (Mick Tsikas/AAP PHOTOS)

Only one in four coalition voters and a third of Australians earning more than $200,000 a year wanted to keep the policy as originally legislated by the Morrison government.

Dr Denniss said it was an indication voters in all tax brackets in the 1017-strong survey recognised the original scheme as “bad economic policy”. 

Under the tweaked scheme, tax relief has been redistributed so benefits are skewed toward lower and middle-income earners, with a benefit of about $1500 for someone on $73,000 a year.

Those in higher tax brackets will get $4500 in relief each year – halved from  $9075.

The opposition is still deciding whether it will support the package in parliament but has attacked the government for breaking an election commitment. 

Opposition finance spokeswoman Jane Hume will haul treasury officials before a parliamentary committee and press them on whether Labor’s changes will be inflation neutral, as cited.

“We want to make sure that we understand exactly what the details are of this legislation, exactly how it won’t be inflationary,” she told Seven’s Sunrise on Wednesday. 

Independent member for Wentworth Allegra Spender
Allegra Spender has outlined her vision for tax reform at the National Press Club. (Lukas Coch/AAP PHOTOS)

Dr Dennis said it was “inconceivable” the Labor government could implement the original scheme today given the cost of living crisis, saying it was a “grown-up” decision for the changes to be legislated. 

Cabinet minister Amanda Rishworth pointed to Treasury analysis, saying the government was not covering up any impacts of the tax cuts.

“It will not add to inflation but will give cost-of-living relief to those Australians that are doing it tough at the moment,” she said.

However, analysis from the Parliamentary Budget Office requested by the Greens suggests it would still disproportionately benefit the rich.

In the first year of the new tax cuts, the top 20 per cent of Australian earners will receive 50 per cent of the benefits – about $11.7 billion – while the bottom 20 per cent will collect $100 million or 0.4 per cent of the savings. 

Those who earn more than $180,000 per year will have taken one-quarter of the entire $318 billion package by 2034.

Analysis has also found women will receive 42 per cent of the benefits and men 58 per cent. 

AAP