Labor’s $2000 tax sting for average workers

Average wage earners would be paying between $500 and $2000 a year more in personal income tax by 2024-25 under Labor.

A senior teacher in a NSW public school would be $1808 worse off.

Average wage earners such as teachers, nurses and mechanics would be paying between $500 and $2000 a year more in personal income tax by 2024-25 under Bill Shorten’s tax plan than the ­Coalition’s, according to the government’s analysis of the competing tax policies on which the next election will be fought.

At the same time, Treasury modelling revealed the Turnbull government’s tax plan would ­result in people in the top tax bracket paying a larger share of ­income tax than they do now, while at the bottom end there would be a significant increase in the number of people paying little or no tax at all.

In a sign of how bitterly contested the tax debate is becoming, Labor is now not ruling out backing stage two of the government’s tax cuts. If it did back stage two, an average wage earner such as a teacher would be no more than $36 worse off, the opposition said.

The economic analysis of ATO data provided to The Australian, based on conservative wage growth of 2 per cent a year, as ­opposed to Treasury wage growth forecasts of 3.25 per cent, shows that workers at the top end of the salary scale, such as school principals, managers or police chiefs, could be slugged up to $8000 a year more, with Labor refusing to support the third stage of the government’s seven-year tax reforms, which would abolish the 37 per cent tax bracket.

A taxing choice for workers.

GRAPHIC: A taxing choice for workers

The analysis covers 30 job ­descriptions across a range of professions and trades, many ­assumed to be traditionally Labor strongholds and which the opposition claims would fare better under its policy.

A mid-level teacher in NSW forecast to be earning $103,555 in 2024-25, which ­according to Treasury would be less than the equivalent of today’s average wage of $81,947, would pay $577.80 a year extra ­income tax under Labor’s plan, and would pay an average tax rate of 26.4 per cent compared to 25.8 per cent under the Coalition.

A forklift driver/excavator would pay almost $4000 more a year in tax under Labor on a salary estimated at the most qualified level to be $164,331 in 2024-25.

A senior teacher in a NSW public school would be $1808 worse off while a Queensland police sergeant would pay $1253 more in tax every year because they would be elevated to the 37 per cent tax bracket, which the Coalition plans to abolish. The government figures have not been disputed but they are based on the assumption that Labor will only support stage one of the plan, which it has ­already committed to. The opposition has not ruled out supporting other ­elements including stage two changes to thresholds — $37,000 lifted to $41,000 and $90,000 to $120,000 — and leave only high-income earners worse off under its policy.

Malcolm Turnbull said yesterday his income tax plan would ­deliver “lower, fairer and simpler taxes” for middle and lower-­income Australians. “Ten million Australians will benefit in the first year, with nearly 4.5 million receiving relief of $530,” the Prime Minister said.

“Because it is a comprehensive plan it will mean that, at the conclusion of the plan in 2024-25, 94 per cent of Australians will not have to pay more than 32.5c in the dollar for an extra dollar of income between $41,000 and $200,000.”

Opposition Treasury spokesman Chris Bowen is demanding more policy detail from the government before committing to further elements. This could see Labor’s overall package ultimately rival that of the government for the majority of workers over the long term. The opposition has pledged more than $900 a year in tax relief for low to ­middle-income earners — almost double the government’s promised tax offset.

“Turnbull is telling 10 million Australians they can’t have Labor’s bigger and better tax cut because they have to wait six more years for his fairytale tax plan to come true — he is hopelessly out of touch,” Mr Bowen said. “The fact is if you’re earning under $125,000 over the next four years, you’ll be better off under Bill Shorten’s tax cut plan. Scott Morrison’s stage-three tax cuts see all of the $42bn in benefits flow to the top 20 per cent of income earners — Treasury’s analysis shows that. Labor is continuing to seek more information, including year-on-year fiscal cost numbers, through the Senate inquiry before finalising its position on stage two.”

Separate analysis provided by Treasury to the Senate economics committee yesterday showed that by the time the full personal tax package is implemented in 2024-25, taxpayers in the top tax bracket will be paying 36 per cent of all personal tax revenue.

The latest tax statistics reveal people in the top tax bracket delivered only 30 per cent of personal tax revenue in 2015-16, while Treasury estimates that rising ­incomes have pushed a further 160,000 into the top tax bracket over the three years to 2018-19, raising their share of income tax to 33 per cent.

The Turnbull government has sold its package as a response to “bracket creep”, the impact of ­inflation pushing a larger share of wage income into higher tax brackets. Raising the threshold at which the top 45c tax rate cuts in from $180,000 to $200,000 from July 2024 accounts for only $9bn of the $144bn cost of the package.

The biggest cost is eliminating the 37 per cent tax bracket, which currently runs from $87,000 to $180,000. By the time the package is fully implemented, incomes from $41,000 to $200,000 would all be taxed at 32.5c. That has a full 10-year cost of $75bn. Lifting the threshold at which the tax rate jumps from 19 per cent to 32.5 per cent from $37,000 to $41,000 from 2022-23 also carries a large budget cost of $41bn over the 10 years.

The tax package would result in a substantial increase in the number of people paying very little tax. The increase in the upper threshold for the 19 per cent tax rate lifts the number of people paying no more than that from 2.2 million people to 2.7 million people. These people would pay only 2 per cent of the government’s total income tax receipts, about the same as now.

The Treasury analysis shows that by 2024-25 there would be 820,000 people in the top tax bracket, compared with an estimated 580,000 in 2018-19. People earning $200,000 would receive a substantial 10.8 per cent cut in their tax bill to an annual $60,007, while people on middle incomes from $80,000 to $120,000 would be receiving tax cuts of from 2.8 per cent to 5.9 per cent.