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Monday, May 02, 2016

$80,000 is anything but average Mr Morrison

Comment

If Scott Morrison thinks that by offering tax cuts to Australians earning more than $80,000 he is helping average workers, he doesn't know what average workers earn.

Asked on Channel Nine about reports his budget will deliver election-eve tax cuts to Australians earning more than $80,000, he said he was going to clear the way for small and medium-sized businesses and "people out there earning average wages".

The average wage is $60,000. Most Australians don't get close to $80,000 and only around one quarter of them earn more than it. Put another way, the overwhelming majority of Australians, including those on average wages, won't be getting his reported tax cuts.

There's a logic to cutting tax for the highest-earning 25 per cent of Australians and not for the other 75 per cent. It's that $80,000 is where the second highest tax rate comes in. Morrison says over the next two years 300,000 Australians are going to move from just below $80,000 to just above it. While it won't make much difference to their total tax bill, because it will more highly tax only the few dollars they earn over $80,000, it will make them feel as if they are more highly taxed. And $80,000 is roughly the average wage for someone working full-time.

By misrepresenting a full-time figure as an average figure he spawned a myth: "that next year the average wage earner will be taxed up to 37 cents in the dollar on what they earn".

The upside, for him, is that the problem doesn't cost that much to fix; because it's nothing like the problem suggested. Relatively few people are at risk of earning more than $80,000 and relatively little of their income is above $80,000.

Lifting the second-highest threshold from $80,000 to $85,000 would cost just $600 million. Most of it would go to very high earners. Lifting the threshold further to $90,000 would cost $1.1 billion. The cost of lifting thresholds by that much at the lower end of the scale would be enormous, which is one of the reasons Morrison's predecessor Peter Costello rarely tried it.

Asked at Sunday's press conference whether ordinary Australians earning well below $80,000 would be getting tax cuts, Morrison said the answer would be revealed on budget night. It'll have to be no. There are too many of them.

In The Age and Sydney Morning Herald