Future tax cuts will do most to boost economic growth if they target middle and lower income earners, according to new research from CEDA.
Tax Cuts for Growth: The impact of marginal tax rates on Australia's labour supply finds that Australia's high-income earners are less responsive to tax cuts than those on middle and lower incomes.
The report, by Lateral Economics chief executive Nicholas Gruen, looks at how and where tax cuts should be targeted to maximise Australia's economic growth.
Though high income earners face the highest "headline" tax rates, Australians facing the strongest disincentives to work are mostly on middle and lower incomes. These people are also the ones most likely to respond to the incentive provided by tax cuts.
CEDA's CEO Catherine Baldwin says the report aims to inform the continuing public debate on tax, and the broader debate on Australia's economic development.
"Australia is facing labour shortages, yet we still have many people unemployed or underemployed," she said. "Our research suggests that Australia has an opportunity to address both of these challenges at the same time".
Ms Baldwin says the research suggests the recent Federal Budget took a forward step in raising the threshold for paying the 30 per cent tax rate, from $21,600 to $25,000.
If the aim of tax cuts is to encourage more work and higher economic output, the report recommends pursuing these strategies:
The report draws on new modelling from the Melbourne Institute, as well as major overseas studies. It follows a series of papers on tax delivered at CEDA forums in the past 18 months.
CEDA Information Paper 84, Tax Cuts for Growth: The impact of marginal tax rates on Australia's labour supply, can be downloaded by CEDA members from the CEDA website or purchased for $16.50.
For further information please contact:
John Harris
Corporate Relations Director
Phone 03 9652 8415
Email info@ceda.com.au
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