Alan Mitchell, economics editor of the Australian Financial Review, and Ross Gittins, economics editor of the Sydney Morning Herald and contributor to The Age, have both covered CEDA's new tax cuts report in detail.
Tax Cuts for Growth: The impact of marginal tax rates on Australia's labour supply finds that future tax cuts will do most to boost economic growth if they target middle and lower income earners. Australia's high-income earners are less responsive to tax cuts than those on middle and lower incomes, it says.
See more about Tax Cuts for Growth
Writes Alan Mitchell:
It has been said that the government, by giving excessively generous tax cuts to high income earners, has missed an opportunity to increase the labour force participation rates of low and middle income earners. It is these workers, economists say, who are likely to be the most responsive to cuts in effective marginal tax rates (EMTRs).
Nothing that has been said since the budget has shaken that general criticism, but the details of the alternative policy options have yet to be filled in. Nicholas Gruen’s paper Tax Cuts for Growth: The Impact of Marginal Tax Rates on Australia's Labour Supply, released today by the Committee for Economic Development of Australia, begins that task.
(This column is not available online.)
Writes Sydney Morning Herald economics editor Ross Gittins:
A study out today ... [was] produced by the most highly regarded business group, the Committee for Economic Development of Australia, which seeks to inform the public debate without lobbying.
The study, Tax Cuts for Growth, is by Dr Nicholas Gruen, a former econocrat and now principal of the consultancy Lateral Economics. Gruen finds little support for the belief that high tax rates discourage work effort by high earners. After all, we know that it's highly skilled and highly paid managers and professionals who are already working the longest hours.
All the research evidence says it's people at the bottom end of the income scale whose decisions about work are most affected by the tax rates they face. Tax rates particularly influence people with greater freedom to decide whether to work or not to work because they're their family's "secondary earner" - usually mothers.
And we know that, when you take into account the way family benefits are cut back as families' income increases, secondary earners commonly face "effective" tax rates much higher than 48.5 per cent.