Better Stage 3: Fairer tax cuts for more Australians sets out a clear pathway for the government to deliver Stage 3 tax cuts in a more equitable and economically responsible way, even if it refuses to scrap the policy altogether.
The report examines four alternatives, each of which would be between $70 billion and $130 billion cheaper over ten years than Stage 3 as it stands today. Under all four alternatives, everyone earning between $45,000 and $124,600 would also receive a more significant tax cut. In three of the alternatives those earning less than $45,000 - who will receive no tax cuts under the current Stage 3 - will all be better off.
"The Stage 3 tax cuts are unfair and wasteful. If the government remains committed to them, it must ensure they are fairer, and properly address bracket creep and the impacts of higher inflation," said Greg Jericho, Chief Economist at the Australia Institute.
"It does not have to be an all-or-nothing choice. There is a middle ground between delivering Stage 3 as legislated under the Coalition and cancelling them altogether - ensuring more of the tax pie goes to workers who need it most."
"Any of the four scenarios would also give the biggest boost to people earning under $120,000 who are most affected by bracket creep. Those on $100,000 would have between $522 and $868 more in their pockets come tax time, while people on $65,000 would be between $200 and $875 better off.
"Each alternative would shave between $70 billion and $130 billion off the cost of Stage 3 over the decade, allowing the government to raise the rate of JobSeeker to the level of the Age Pension while still spending less than the current approach.
"The government has a unique opportunity to do Stage 3 better, delivering bigger and fairer tax cuts to most Australians."
Alternative one
Reduce the 32.5% rate to 29% for people earning between $45,001 and $120,000
- This would give the biggest tax cut to people on $120,000 or less (2.2%)
- Everyone earning up to $130,700 would receive a larger tax cut (%) than under the existing Stage 3
- Taxpayers would save $130 billion over a decade
Alternative two
Reduce the 19% tax rate for those earning between $18,201 and $45,000 to 17%, and lower the 32.5% tax rate for those earning between $45,001 and $120,000 to 30%
- This would give the biggest cut to people on $120,000 or less (2%)
- Everyone earning up to $127,600 would receive a larger tax cut (%) than under Stage 3 as it stands
- Taxpayers would save $111 billion over a decade
Alternative three
Lower the 19% tax rate for those earning between $18,201 and $45,000 to 15%, and the 32.5% tax rate for those earning between $45,001 and $120,000 to 31%
- This would give the biggest tax cut to those earning $45,000 (2.4%)
- All taxpayers earning up to $124,600 receive a larger tax cut (%) than would be the case under Stage 3
- Taxpayers would save $92 billion over a decade
Alternative four
Lower the 19% tax rate to 18%, raising the $45,000 threshold to $50,000. Cut the 32.5% to 30% tax rate for those earning between $45,001 and $120,000, with the threshold raised to $50,001.
- This would give the largest tax cut to those earning $120,000 (2.3%)
- Everyone earning up to $132,400 would receive a larger tax cut (%) than would be the case under Stage 3
- Taxpayers would save $70 billion over a decade
