The Australia Institute: Bringing forward income tax cuts would benefit wealthy, would be a stimulus failure

The Australia Institute said modelling found bringing forward income tax cuts would be a stimulus failure. Picture: Jamila Toderas
The Australia Institute said modelling found bringing forward income tax cuts would be a stimulus failure. Picture: Jamila Toderas

Bringing forward the government's personal income tax cuts would benefit the wealthy and be a stimulus failure, according to new research.

It came after the business sector called for the government to accelerate stage two of planned cuts to personal income tax for economic stimulus.

As part of its federal budget submission, the Australian Industry group said elements of the cuts should be brought forward from 2022 to January 1, 2021.

But modelling from The Australia Institute found the cuts would mainly affect high-income taxpayers who would put the money into savings or use it to pay off existing debts.

The top 20 per cent of income earners would receive 91 per cent of the benefit under stage two of the government's personal income tax cuts. The bottom 20 per cent would receive nothing.

The modelling showed it would benefit only 40 per cent of taxpayers.

Stage two of the personal income tax cuts would increase the threshold of the 32.5 per cent bracket from $37,000 to $45,000. The 37 per cent cent bracket threshold would be increased from $90,000 to $120,000.

The Australian Institute also modelled what would happen if stages two and three of the cuts were brought forward together. Stage three would reduce the 32.5 per cent rate to 30 and the threshold would expand from $45,000 to $200,000.

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The 37 per cent tax bracket would be eliminated. Under that scenario, the top 20 per cent would receive 79 per cent of the benefit. Again, the bottom 20 per cent would receive nothing.

Australia Institute senior economist Matt Grudnoff said the research showed if the government sped up its income tax cuts it would not improve the economy.

"Bringing forward the income tax cuts would have a very poor stimulatory effect," Mr Grudnoff said.

"Stage two and three of the government's tax cuts will do far more to increase the savings of high-income earners than encourage more spending in the economy that would help to create jobs.

"It is a simple fact of economics that high-income earners are more likely to save or pay down debt with the tax cuts rather than spend the extra funds to help stimulate the domestic economy.

"Low-income earners, on the other hand, are far more likely to spend some or all of the extra money on much-needed essentials in the domestic economy."

This story Bringing forward income tax cuts 'would benefit wealthy' first appeared on The Canberra Times.

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