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Federal Election 2019: A primer on tax policy


Jessica Tang

By

May 7th, 2019


Jessica Tang breaks down and compares each major party’s promises for tax policy in the lead up to the election.


The Coalition

As per the 2019 Federal Budget, the Coalition has sought to sustain a ‘tax cuts for all’ policy, which importantly sees a flattening of the tax bracket system. Employing a ‘staged’ method, the Coalition seeks to gradually increase the upper threshold of the 32.5 per cent tax bracket from $87,000 to $200,000 by July 2024. To slightly offset regressive impacts of fostering a much flatter tax system, the lower threshold of the bracket will grow from $37,000 to $41,000. Ultimately, this will mean that a broad tax bracket composed of incomes from $41,000 all the way to $200,000 will be subject to the same tax rate. Not only did the Coalition announce at the 2019 Federal Budget that they would stick to this plan, they also promised further tax relief by bringing the rate of 32.5 per cent down to 30 per cent.[1] There have been suggestions that these considerable tax savings come at a costly expense; many have questioned how the government will generate adequate revenue. Further, the Coalition’s income tax plan has been attacked for its excessive emphasis on middle to high income earners.[2] In the case of lower income earners, the Coalition has promised extra tax cuts from $255 for the lowest income earners (those who earn less than $35 000) up to $1,080 for those earning between $48,000 to $80,000.[3]

As with previous election platforms, corporate tax has been raised as a central issue for the Coalition. Small and medium sized businesses have been promised further tax reductions. Although the Coalition’s proposed plans to slash taxes to 25 per cent for businesses with an annual turnover of $50m failed to pass in the Senate, the Coalition was able to secure this tax cut for businesses earning less than $50m by 2021.[4] Small businesses are expected to further benefit from the Coalition’s proposed unincorporated small business tax discount. Under this scheme, small businesses with an annual turnover short of $5m will enjoy a tax offset of 16 per cent by 2021.

Labor

Although Labor’s tax policy proposals – branded as ‘A Fair Go for Australians’ – have arguably reflected a greater progressive stance, some aspects considerably reflect the same position as that of the Coalition. In the case of the lowest income earners, Labor has promised to offer a tax offset of $350 for workers earning under $35 000.[5] Although this is a welcome change for the nation’s lowest income earners, it arguably only represents a marginal difference from the Coalition’s offer of $255. If we move up the income ladder, the observable pattern is that Labor’s proposed tax offsets continue to slightly exceed that of the Coalition. While this difference appears rather slight, it has been estimated that under Labor’s tax offsets, workers earning under $40 000 will benefit 30 per cent more than under the Coalition’s.[6] The real difference between the two major parties is better reflected in Labor’s treatment of higher income earners. Critically, Labor has criticised the Coalition’s plans to flatten the tax bracket system. Although Labor has backed the government’s proposals to increase the 32.5 per cent tax bracket from $87,000 to $90,000, they have pledged to repeal any further lifts to the tax bracket.[7] Instead, Labor has proposed to increase taxes for the nation’s highest income earners by offering a tax increase of 2 per cent for those earning above $180,000.[8]

Labor’s election platform has also recently run on proposals to reform the franking credits system. Under the current system, individuals are able to use imputation credits from dividends to reduce their tax liability. If their imputation credits exceed their tax liability, individuals are eligible to receive a cash refund from the government. Under Labor’s policy suggestion, individuals will continue to be able to reduce their tax liability, but the government will no longer hand out cash refunds. To mitigate the potential for seniors to be most disproportionately disadvantaged from this reform, Labor has proposed a ‘pensioner guarantee,’ where pensioners will be exempt from any future changes.[9]

Another tax issue central to Labor’s platform is negative gearing. Labor has long remained committed to their plans to limit negative gearing to newly built houses.[10] Labor’s negative gearing policy has faced criticism for its potential to drive rents up while pushing prices down. There have been further concerns that such reform will most adversely impact on modest income earners.[11] Despite this, Labor has maintained that their policy will raise revenue from the nation’s wealthiest. Similarly, Labor has maintained their progressive stance on the issue of capital gains by announcing plans to halve the capital gains tax discount from 50 per cent to 25 per cent.[12]

The Greens

Although the Greens lack a comprehensive tax plan, it is clear that the Green’s tax platform has largely revolved around ensuring large corporations and wealthy Australians pay a greater share. The Greens have announced proposals to introduce the ‘Buffett Rule’ to limit the amount of tax deductions that the nations’ wealthiest are entitled to. Under this rule, individuals with a taxable income in excess of $300 000 are prohibited from claiming tax deductions to a level below 35 cents for every extra dollar earned. Importantly, this means that high income earners will be effectively forced to pay a minimum rate of tax.[13]

Another issue central to the Greens’ election platform is that of corporate taxes. Having criticised the Coalition’s tax reforms for benefitting big corporations, the Greens have announced plans to reverse all corporate tax cuts for businesses with an annual turnover greater than $10m. The corporate tax rate for these businesses will be restored to 30 per cent. Small businesses with an annual turnover of less than $10m will retain their tax cuts.[14]

Similar to Labor, the Greens have pledged to reform both negative gearing and the capital gains tax discount. Under the Greens’ proposal, negative gearing will be limited to one property per investor and future house sales will be barred from the practice.[15] Taking Labor’s capital gains tax discount reforms one step further, the Greens have promised to scrap the tax discount altogether by gradually reducing the rate by 10 per cent over 5 years until it is nullified.[16]


[1] Liberal Party of Australia 2019, ‘Our Plan: Lower Taxes,’ Liberal Party of Australia, https://www.liberal.org.au/our-plan/lower-taxes

[2] Wright, S 2019, ‘Tax cuts will cost $30 billion a year and may drive budget back to deficit, research finds,’ The Sydney Morning Herald, April 9, https://www.smh.com.au/politics/federal/tax-cuts-will-cost-30-billion-a-year-and-may-drive-budget-back-to-deficit-research-finds-20190408-p51c0l.html

[3] Liberal Party of Australia 2019, ‘Our Plan: Lower Taxes,’ Liberal Party of Australia, https://www.liberal.org.au/our-plan/lower-taxes

[4] ibid.

[5] Australian Labor Party 2019, ‘Tax Refund for Hardworking Australians,’ Australian Labor Party, https://www.alp.org.au/tax_refund_for_working_australians

[6] Murphy, K 2019, ‘Labor homes in on Coalition’s budget tax offer for lower income workers,’ The Guardian, April 19, https://www.theguardian.com/australia-news/2019/apr/03/labor-coalition-budget-tax-offer-lower-income-workers

[7] Janda, J & Khadem, N 2019, ‘Coalition and Labor income tax plans compared as federal election looms,’ ABC, April 8, https://www.abc.net.au/news/2019-04-05/tax-plans-compared-as-federal-election-looms/10973968

[8] ibid.

[9] Australian Labor Party 2019, ‘Dividend Imputation Credits,’ Australian Labor Party, https://www.alp.org.au/other/dividend-imputation-credits/

[10] Australian Labor Party 2019, ‘Positive Plan to Help Housing Affordability,’ Australian Labor Party, https://www.alp.org.au/other/negativegearing/

[11] Frydenberg, J 2019, ‘Labor’s reckless plan on negative gearing, capital gains bad for housing,’ Liberal Party of Australia, Oct 8, https://www.liberal.org.au/latest-news/2018/10/08/labors-reckless-plan-negative-gearing-capital-gains-bad-housing

[12] ibid.

[13] The Australian Greens 2019, ‘Paying for our plans,’ The Australian Greens, https://greens.org.au/platform/redistribution#tax-cuts

[14] ibid.

[15] The Australian Greens 2019, ‘Affordable Housing,’ The Australian Greens, https://greens.org.au/sa/policies/affordable-housing

[16] ibid.

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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