Andrew Leigh (Fenner, Australian Labor Party, Shadow Assistant Treasurer) Share this | Hansard source

I hear those opposite saying 'nonsense'. You can change whatever laws you like, but the laws of mathematics are immutable. It is those laws that the coalition would desperately like to change, because they don't want Australians to know how regressive their long-term tax plan is.

NATSEM modelling suggests that the new tax system from 2024-25 is less progressive than the current tax system. This means we'll get higher inequality as a result of these cuts. There is a simple metric for progressivity. It's a measure that looks at how much the tax system reduces inequality. You have a fixed level of inequality that comes from the market, and then you can ask the question, 'How much does the tax system reduce that?' There are a bunch of indices one can use for this—like the Suits index and the Musgrave-Thin index—but the simplest is the Reynolds-Smolensky index, which simply says you've got a Gini coefficient, inequality before the tax system, and another Gini coefficient, inequality after the tax system takes effect. The difference between the two is the Reynolds-Smolensky index.

Danielle Wood from the Grattan Institute has simply calculated how much that index would change under business as usual or under the government's tax plan. Under the government's tax plan, you actually see an increase in that index over the short term. You see an increase in progressivity—the tax system does a little more to reduce income inequality in Australia. That's why Labor has said, on the measures that take effect from 1 July this year that we will be supporting those. But then, from 2024-25 onwards, you see something very different. The Grattan Institute analysis from that period onwards shows that the redistributive effect of taxation would be much lower—in other words, that we would have a higher level of inequality from 2024 onwards under the government's tax plan than we would get under a baseline measure. In rough terms, we're talking about half a Gini point of difference in inequality in Australia by the late 2020s under the government's tax plan compared to business as usual.

You can also see the difference looking across Australian suburbs. As work by NATSEM has shown, the biggest winners out of these tax proposals by 2024 are those in Sydney's eastern suburbs, inner harbour and north shore, as well as inner Melbourne suburbs. Households in Bellevue Hill gain $9,355. A household in Toorak by 2024-25 gains $9,057 according to NATSEM. Meanwhile, a household in Lakemba sees a disposable income increase of $2,693. A household in St Albans, in Melbourne's west, gains $2,800. The areas that benefit least include the far north of New South Wales and areas in Tasmania. There's also a gendered impact of the tax changes. The Australia Institute's analysis shows that roughly two-thirds of the benefit of the government's proposed income tax cuts flow to men, since men dominate the ranks of high-income earners. For every dollar in tax cuts that goes to women, men get $2.

That's why Labor has said very clearly that we see merit in supporting the first stage of this tax plan, the measures due to take effect on 1 July this year. In fact, we don't just support them; we're bettering them. We're offering more-generous tax cuts for 10 million Australians, under a Shorten Labor government. Those earning from $50,000 to $90,000 will see a tax cut under a Labor government nearly twice as generous as that which they would receive under the government's tax plan. Households earning from $50,000 to $90,000 would be around $400 a year better off.

There are some, notably the Australian Greens, who don't believe that 10 million middle Australians should receive a tax cut. They're wrong because, at a time when we are seeing real wages flatlining, middle Australia is doing it tough. The most recent wage price index is up only 2.1 per cent over the year. The quarterly number is the second lowest since the Australian Bureau of Statistics started calculating the wage price index in 1997. So most workers haven't seen any real growth in pay.

Drivers are also doing it tough as a result of increases in the cost of petrol in Australia. Analysis by economist Shane Oliver calculates that there's been around an $8 a week rise in the average cost of petrol in Australia, with petrol prices going up from around $1.25 a litre to $1.45 a litre and potentially rising another 3c or 4c a litre in the next week or so. Were that to occur, that would consume the entire benefits for a middle-income household of the government's proposed tax increase.

Labor will always be the party of equity. But we are also the party of productivity and growth. The way in which you get growth and productivity is by making sure that you are focused on the effective marginal tax rates of those who are on the margin and moving from welfare into work. That's why Labor make no apologies for focusing our tax cuts on middle Australia. We will not be following the Irving Kristol, Grover Norquist, George W Bush, Donald Trump, Tony Abbott playbook for taxes. We will not be offering middle Australia a short-term bauble and giving long-term, massive handouts to the top end of town.

See this speech in context