Angus Taylor says personal income tax increased by a ‘record’ 27 per cent in the first 18 months of the Albanese government. Is that correct?
The claim
As speculation swirled earlier this year over the future of the Coalition’s already legislated stage three tax cuts, Shadow Treasurer Angus Taylor accused the government of deciding that “the way out of inflation is to tax Australians more”.
In an opinion piece penned for The Australian shortly before Labor announced its amended tax package, which the Coalition has agreed to support, Mr Taylor called on Labor to honour its commitment to the original stage three tax cuts, labelling them “essential” to mitigating the effects of bracket creep.
The shadow treasurer then claimed: “[I]n the first 18 months of Labor’s time in office, personal income tax had increased by a record 27 per cent”.
Is that correct? RMIT ABC Fact Check investigates.
The verdict
Mr Taylor’s claim is overblown.
In simple dollar terms, the total amount of income tax paid by Australians increased by 27.3 per cent over the 18 months to September 2023.
However, this is not a record increase, with much larger historical rises having occurred under both Liberal and Labor governments.
The 18-month period cited by Mr Taylor also includes roughly two months when the Coalition was still in government. Taxes under Labor during the 15 months for which data was available increased by 23.9 per cent.
The winding up of a temporary tax offset for low and middle income earners was just one of several factors contributing to the recent rise in tax receipts.
Experts consulted by Fact Check also highlighted the role of population growth, wages growth, higher employment and changes to work hours.
To account for this, they said it was more appropriate to measure income tax as a share of household income.
Measured this way, taxes grew by a substantial but smaller 13.6 per cent over 18 months (or 11.8 per cent over 15 months), which was also not a record increase.
Source of the claim
In his opinion piece, Mr Taylor cited Australia’s National Accounts as the source for his “record 27 per cent” tax figure.
Published by the Australian Bureau of Statistics, the accounts provide quarterly estimates of key economic measures such as gross domestic product (GDP), consumption, investment, income and saving.
They also include estimates of the total income tax paid by individuals.
A spokesman for the ABS told Fact Check in an email that its total income tax estimates include “income tax, fringe benefit tax and tax payable on superannuation contributions”.
“The main part of this series (over 90 per cent) is … income tax and it includes [the] Medicare levy and capital gains tax”, he said, noting that these taxes cover “non-labour income” such as interest and dividends from investments.
A spokesman for the shadow treasurer confirmed to Fact Check that the 27 per cent increase was calculated by comparing the quarterly tax figures for March 2022 and September 2023, the latest quarter for which data was available when the claim was made.
Context of the claim
Mr Taylor has made several references to a 27 per cent rise in personal income taxes paid.
In December, after the ABS released its latest National Accounts, Mr Taylor twice issued press releases claiming that taxes had gone up by “over 27 per cent” since Labor came to power.
On February 11, following his claim about a “record” increase, he told the ABC’s Insiders program that the past 18 months had been “disastrous”, in part due to a “27 per cent increase in personal income taxes being paid”.
According to Mr Taylor, bracket creep was “working its ugly magic … [taking] from Australians’ pay packets without them noticing”.
“That’s one of the functions of inflation, where wages haven’t been able to keep up,” he added, also highlighting the impact on taxes of removing the low and middle income tax offset (LMITO) from June 2022.
Worth up to $1,500 for individuals, this was a temporary offset that before the 2022 election the former Coalition government also said it planned to repeal if re-elected.
The ABS spokesman told Fact Check: “In the September quarter 2023, we saw strong income tax payable estimates driven by a strong rise in compensation of employees, investment income and the end of LMITO.”
What the data shows
Strictly speaking, Mr Taylor’s 18-month comparison starts during the tail end of the Coalition’s time in government, with data only available for the first 16 months after Labor won the May 2022 election.
According to the ABS’s seasonally adjusted data, total taxes on income paid by individuals increased in nominal terms by 27.3 per cent over the 18 months from March 2022 to September 2023, from $71.5 billion to $91.0 billion.
This includes a 2.7 per cent ($1.9 billion) quarterly increase between March and June 2022, covering roughly two months when the Coalition was still in power.
Ben Phillips, principal research fellow at the Centre for Social Research and Methods at the Australian National University, told Fact Check that including these two months was problematic, noting that from June 2022 to September 2023 the increase was 23.9 per cent.
|
Quarter |
Income tax paid by individuals ($m) |
Quarterly change (%) |
Change since March 2022 (%) |
|---|---|---|---|
|
March 2022 |
71,493 |
– |
– |
|
June 2022 |
73,438 |
2.7 |
2.7 |
|
September 2022 |
73,726 |
0.4 |
3.1 |
|
December 2022 |
78,528 |
6.5 |
9.6 |
|
March 2023 |
81,507 |
3.8 |
13.4 |
|
June 2023 |
84,534 |
3.7 |
17.1 |
|
September 2023 |
90,987 |
7.6 |
24.7 |
Source: Australian Bureau of Statistics, 2023
Was it a record rise?
Despite Mr Taylor’s claim of a “record” 27 per cent rise, this is not the first time Australians have experienced a nominal tax increase of this size over 18 months, as the graph below shows.
For example, personal income tax receipts increased by:
-
43.5 per cent between September 1963 and March 1965 (under prime minister Robert Menzies)
-
40.9 per cent between March 1969 and September 1970 (John Gorton)
-
32.1 per cent between March 1971 and September 1972 (Billy McMahon)
-
43.5 per cent between September 1980 and March 1982 (Malcolm Fraser)
-
34.3 per cent between March 1985 and September 1986 (Bob Hawke)
-
32.4 per cent between December 2000 and June 2002 (John Howard).
According to the ABS series, taxes rose at their fastest rate under Labor prime minister Gough Whitlam, increasing by 107.2 per cent between March 1973 and September 1974.
A 27 per cent rise was also not a record for a first term government, with prime ministers Bob Hawke (32.4 per cent) and Malcolm Fraser (41.7 per cent) both recording larger increases in their first 18 months.
A better way to measure the tax burden?
Robert Breunig, director of the Australian National University’s Tax and Transfer Policy Institute, told Fact Check in an email that simply measuring the increase in tax dollars paid was “not particularly informative”.
“Australians today pay lots more tax than Australians did 20 years ago but the overall percentage of income that is devoted to tax hasn’t changed [by as much as the total dollar amount has].”
Dr Phillips said it was “inappropriate” to measure rising taxes without taking into account the role of population growth, wages growth and changes in labour supply such as hours worked.
“These factors affect both tax received and gross income so the better way to characterise changes in tax is to compare tax paid to income received,” he said, noting that this ratio could be calculated using the National Accounts household data (table 20).
The data shows that the ratio of tax to gross household income was 15.1 per cent in March 2022, 15.4 per cent in June 2022 and 17.2 per cent in September 2023.
In other words, the share of taxes relative to household income increased by 13.6 per cent over the 18 months to September 2023 (or 11.8 per cent over 15 months).
Once again, this is not a record, with multiple previous prime ministers recording higher changes in the tax to gross household income ratio.
Gareth Aird, the head of Australian economics at the Commonwealth Bank, also recommended examining taxes as a share of gross household income.
Looking at the past six decades of data, he said that taxes were at a record high reminiscent of the early 2000s peak under John Howard, although he noted that the economy is different today.
What the experts say
Professor Breunig told Fact Check that higher earnings and economic growth were behind the high levels of tax currently being paid.
“Economic activity goes up, incomes go up, taxes go up,” he said. “Taxes going down … would be a bad sign indeed.”
Roger Wilkins, the deputy director of the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne, told Fact Check there was “no doubt that bracket creep has been substantial since inflation took off in 2022”.
But the increased amount of taxes paid was “not just a function of bracket creep”, he said, noting that ” ‘record income taxes’ are actually somewhat of a good thing if they stem from record levels of employment and incomes”.
Professor Wilkins added: “The Australian population is growing strongly, and the proportion of the adult population in paid employment is at a record high.”
“We would not generally regard someone who has an increase in income due to obtaining a job as experiencing bracket creep.”
Dr Phillips said the strong growth in total taxes was because “the economy grew strongly out of COVID with strong employment growth, wages growth and population growth”.
“Some of the growth was due to bracket creep but it would have happened regardless of who was in government as the policy settings were the same,” he said, referring to the termination of the low and middle income tax offset in June 2022.
Dr Phillips added: “These sorts of comparisons are pretty fraught as policy impacts of one government don’t necessarily stop the day they leave office and the impact of the next government is rarely felt the day they enter office”.
Mr Aird told Fact Check that bracket creep was “impacting people’s ability to spend” as the economy had grown and that the current “ratio of tax as a share of income will continue to rise” until the introduction of tax cuts later this year.
Will Labor’s tax cuts address bracket creep?
Bracket creep occurs when pay rises result in people paying a greater share of their income in higher taxes, and not only when they move into a higher tax bracket.
As the Grattan Institute explains: “It also occurs because as a person’s income rises, a greater share of that income is earned in their highest tax bracket. This means their average tax rate creeps higher over time.”
“Without periodic tax cuts, everyone will pay more of their income in tax over time.”
In 2019, the Morrison government legislated a series of changes to Australia’s income tax system, with the third and final stage scheduled to take effect from July 1, 2024.
In the intervening years, the COVID-19 pandemic, several instances of global instability and rising inflation have impacted the Australian economy.
Stage three of the tax changes, which Labor committed to ahead of the 2022 election, was to establish a new 30 per cent rate for everyone earning between $45,000 and $200,000.
This would involve lowering the current 32.5 per cent tax rate for people earning above $45,000, abolishing the 37 per cent rate for people earning over $120,000 and raising the threshold for the 45 per cent rate, from $180,000 to $200,000.
After Mr Taylor made his claim, however, Labor announced its intention to alter the stage three package.
The 37 per cent bracket would now be retained but with a higher income threshold. Rates for the two lowest tax brackets would meanwhile be reduced, and the 45 per cent threshold would be raised to $190,000 rather than the legislated $200,000.
In broad terms, the legislated tax cuts would be reduced for people on higher incomes and increased for those on lower incomes.
The differences are summarised below:
|
Pre-stage 3 |
Stage 3 (legislated by the Morrison Government) |
Revised Stage 3 (proposed by the Albanese Government) |
|---|---|---|
|
Tax free threshold $18,200 |
Tax free threshold $18,200 |
Tax free threshold $18,200 |
|
$18,200 to $45,000 at 19% |
$18,200 to $45,000 at 19% |
$18,200 to $45,000 at 16% |
|
$45,000 to $120,000 at 32.5% |
$45,000 to $200,000 at 30% |
$45,000 to $135,000 at 30% |
|
$120,000 to $180,000 at 37% |
— |
$135,000 to $190,000 at 37% |
|
$180,000 + at 45% |
$200,000 + at 45% |
$190,000 + at 45% |
Source: Parliamentary Budget Office, 2023
Treasury modelling shows that Labor’s revised plan will have little effect on the budget over the next five years but is expected to net an additional $28 billion in taxes over the next decade compared to the original stage three cuts.
However, the analysis also notes that Labor’s redesign means the lowest 70 per cent of income earners will experience “a smaller increase in average tax rates”.
“In other words, it reduces bracket creep more for these groups compared with both Stage 3 and a no change scenario.”
A separate analysis of the revised tax cuts conducted by the Grattan Institute has found that bracket creep will “erode the value of [Labor’s] tax cuts over time”, although it notes, the “vast bulk” of taxpayers will still benefit from the revised package.
“[W]hile the share of tax filers facing a higher average tax rate each year under the new tax plan will grow over time — from about the top 10 per cent today to around 22 per cent by 2033-34 — the accumulated savings over time means many are likely to still be better off over the next decade.”
“And we estimate that roughly 83 per cent of tax filers should expect to pay the same or less tax over the next decade under the government plan than they would have under the original Stage 3.”
The effect of the revised plan on households has also been modelled by Dr Phillips.
In an article for The Conversation, he concludes that “the redesigned Stage 3 does a better job of offsetting bracket creep than the original. It is also better targeted to middle and upper-middle income households.”
Principal researcher: Ashleigh Webb
Sources
- Angus Taylor, Australians deserve unambiguous commitment to stage three tax cuts, 15 January 2024
- Parliamentary Budget Office, Bracket creep and its fiscal impact, 29 September 2021
- Grattan Institute, Albanese Tax cut plan who wins who loses, 4 February 2024
- Angus Taylor Press Release 6 December 2023
- Angus Taylor Press Release 13 December 2023
-
ABC News, Coalition tax plan analysis + Shadow Treasurer Angus Taylor, 11 February 2024
- Ann Kayis-Kuma, The Low and Middle Income Tax offset is gone forever, 2 October 2023
- National Accounts — National income and expenditure and product, September quarter 2023
- ABS Media Release on the Australian Economy — September quarter, 6 December 2023
- Grattan Institute, Governments creepy tax hike habit, 7 June 2018
- Amy Remeikis, Stage-three tax cuts: what are they, how do they work and why do they exist?, 9 October 2022
- Angelica Snowden, Nerves of an unstable world, 2 November 2023
- RMIT ABC Fact Check, Promise Check: Maintain the Coalition’s legislated tax cuts, 19 May 2023
- ABC News, Government rewrites stage three tax cuts, January 2024
- Parliamentary Budget Office, Distributional analysis of Labors revised stage 3 tax cuts, January 2024
- Department of Treasury, Advice on amending tax cuts to deliver broader cost-of-living relief, January 2024
- Ben Phillips, ‘Stage Three Stacks Up’, January 2024
