28 September 2016
by Gareth Hutchens

Cutting welfare to fund tax cuts for top earners 'unconscionable', Coalition told

Australian Council of Social Service blasts plan to offer tax cuts to those earning $87,000-plus, while Deloitte says those on less than $37,000 need more help

The Australian Council of Social Service has criticised the Coalition’s plans to cut taxes for the top 20% of taxpayers while simultaneously slashing welfare payments for the country’s poorest households.

Acoss has labelled the government’s Income Tax Relief Bill 2016 “unconscionable” and called on parliament to reject it, in a submission to a Senate inquiry.

At the moment taxpayers earning between $37,001 and $80,000 a year have a marginal tax rate of 32.5 cents for every dollar they earn over $37,000.

Taxpayers earning between $80,001 and $180,000 a year have a marginal tax rate of 37 cents for every dollar they earn over $80,000.

The Turnbull government wants to give “tax relief” to three million Australians by extending the 32.5-cent marginal tax rate from $80,000 to $87,000.

It will provide a tax cut of $6 a week for people earning more than $87,000 a year.

Acoss says this is unconscionable because the government is also trying to cut payments to Australia’s poorest households.

It says parliament should reject the tax cut plan because it is unfunded – costing the budget an estimated $4bn over four years – and will therefore have to be met from more spending cuts or borrowing.

“The [tax cut plan] is being considered at the same time as legislation – mostly carried over from the 2014 budget – to cut $7bn over the next four years from social security payments, mainly affecting people at risk of poverty,” the Acoss submission said.

“If passed, those bills would cut $60 a week from the income of a sole parent with two teenage children and $47 from the income of a 23-year-old applying for unemployment benefits.

“Any income tax cuts should be paid for by closing shelters and loopholes in the personal tax system, as has been done in the past.

“We advocate tightening of the tax treatment of capital gains, negative gearing, superannuation, work-related deductions and private trusts and companies to save approximately $12bn a year, half of which could be used to finance future personal tax cuts, for example in 2020 when the impact of ‘bracket creep’ is more significant.”

The government wants to lift the marginal tax threshold from 32.5 cents to 37 cents to insulate middle income taxpayers from so-called “bracket creep” – where inflation pushes them into higher tax brackets.

The government announced the plan in its 2016 budget.

At the time Scott Morrison said the tax cuts were about “providing room in our tax system” for average full-time wage earners to earn more without being taxed more.

“Of course we would like to do more but this is what we can afford today,” he said.

The Greens treasury spokesman, Peter Whish-Wilson, told Guardian Australia that he would not support the tax cuts, “especially while the drums are beating for another crackdown on income support”.

“If the parliament gifts $315 a year to those who need it least, it won’t be long before the Liberal government starts screaming ‘budget emergency’ while coming after assistance payments for those who really need our help,” he said.

Deloitte Access Economics, in its submission to the inquiry, said taxpayers with incomes between $30,000 and $37,000 a year actually faced the greatest challenge from bracket creep.

It also said that, given the current fiscal environment, the government should consider restricting the benefits of tax relief to the tax bracket targeted – for those earning between $80,000 and $87,000.