Advertisement

Rich men to win from early income tax cuts: report

(Source: Getty)
(Source: Getty)

The Government’s income tax cuts are not “well-targeted stimulus” and would “disproportionately” benefit men over women, new modelling has revealed.

Treasurer Josh Frydenberg announced the income tax cuts in the 2019 federal budget, which were designed to boost the economy by stimulating household spending. The first stage of the tax cuts have already been delivered, with the second and third tranches slated to be delivered 2022-23 and 2024-25.

Frydenberg has indicated more than once he is considering bringing forward the tax cuts ahead of the 2020-21 budget to be revealed on 6 October.

But according to a new report by Australia Institute senior economist Matt Grudnoff, income tax cuts will largely benefit high-earning Aussies – and these tend to be “overwhelmingly male”.

“Giving tax cuts to the wealthy will have a very limited stimulatory effect on the broader economy, but it will significantly widen the economic divide that already exists between men and women in this country,” Grudnoff said.

The money would be better spent on stimulating the economy in other ways, he added, and should go to those “most disadvantaged by the pandemic recession”.

And this would be women, he said, who have lost more jobs (5.3 per cent for women vs 3.9 per cent for men in March and April) and hours of work (11.5 per cent for women vs 7.5 per cent for men).

(Source: Australia Institute)
(Source: Australia Institute)

How much will tax cuts help – and where would they go?

Research from the Australia Institute showed that bringing forward the tax cuts would only “overwhelmingly benefit taxpayers on high incomes, the least effective targets of stimulus”.

That is, more than 50 per cent of the benefits would go to the wealthiest 10 per cent of Aussies, with 79-91 per cent of benefits to go to the top 20 per cent of earners.

Meanwhile, the lower half of all income earners would see only 3 or 4 per cent of the benefits.

And for tax cuts to be effective, it has to be spent, Grudnoff wrote.

“High income earners would save some or all of the tax cut making it less effective for stimulating the economy.”

Meanwhile, bringing forward Stage 2 to 2021-22 would see men receive a benefit of more than double what women would gain.

“For every dollar of tax cut that women get, men get $2.28. This means men get more than twice the tax cut that women get,” Grudnoff said.

“In total, men get 70 per cent of the tax cut and women get 30 per cent of the tax cut.”

Even among the highest earning 10 per cent of Australians, men will benefit more than women.

“Men in the top 10 per cent get almost 40 per cent of the tax cut (38 per cent), while women in the top 10 per cent get 14 per cent of the tax cut.”

So if the tax cuts were brought forward, gender inequality would worsen, Grudnoff said.

“Rather than reducing unemployment benefits, as the Government is currently planning to do at the end of September, the Government could instead increase the coronavirus supplement.

“Stimulating employment intensive industries like healthcare, aged care and education will be more efficient than bringing forward the tax cuts, as it will create more jobs for every million dollars of stimulus. These employment intensive industries also disproportionately employ women.”

Make your money work with Yahoo Finance’s daily newsletter. Sign up here and stay on top of the latest money, economy, property and work news.

Follow Yahoo Finance Australia on Facebook, Twitter, Instagram and LinkedIn.