The big Budget losers are people on incomes between $46,500 and $66,500. The transfer from tax cuts to superannuation hits them _ to the advantage of low-income earners. People on incomes over $66,500 lose all of the tax cuts promised in the second round of One Nation. And people on incomes between $46,500 and $66,500 lose the promised benefit on a sliding scale. People at the other end are major beneficiaries, as the graphs show. In rough terms $1000 a head goes from the middle- and high-end to the lower end. It sounds fine in theory, but it appears to happen every Budget. Moreover, the Government justified the now-abandoned tax cuts for middle incomes because the lower incomes had had their turn in the first round and in earlier Budget measures. Also, people on very high incomes did well in the early days of Labor when marginal rates came down from 66 per cent to 50 per cent.
The one time middle income earners appeared to get a break has now been taken reversed. Overall the tax and superannuation changes will put more money in government coffers and less in taxpayers’ pockets. The shift happened as follows. One Nation promised a second round of tax cuts. The timing was not set, but was tentatively set for 1998-99. People on $20,700 to $40,000 would have had their marginal rate cut from 34 per cent to 30 per cent. People on $40,000 to $50,000 would have had their marginal rate cut from 47 per cent to 43 per cent. People over $50,000 would have still had a marginal rate of 47 per cent, but would have benefited from the lower rates applying to that portion of their income earned between $20,700 and $50,000.
The first graphs shows how the One Nation tax cut would have given nothing to people up to $20,700. It would have given up to $772 on a sliding scale between $20,700 and $40,000 and sliding up to $1105 at $50,000 and flattening out at that level. So the highest percentage benefit under the now-abandoned One Nation cuts were for people on incomes over $40,000. Compare that to yesterday’s replacement superannuation benefit. The Government’s dollar-for-dollar grant comes in at zero income and applies at a flat maximum of $998 to an income of $46,585, after which it tapers off cutting out at $66,550. The people who do best in percentage terms are those from zero to $33,275. There is a further catch.
The One Nation tax cuts were to have applied from July 1, 1998 _ or at least that was the expectancy. The superannuation benefits, however, do not arrive in full until the financial year 2000-2001, two years later. In that year the superannuation benefit would be $4bn. That compares to $4.3bn in tax cuts in 1998-1999 and perhaps higher amounts in subsequent years. Ralph Willis asserted that ultimately the superannuation would outpace the tax costs, but there is no telling. Going on past performances of projecting benefits and taking them away, people might prefer a bird in the hand to two in bush