No income tax on earnings between $18,201 and $45,000 a year. Relief aimed at the people hit hardest by grocery, energy, transport and child and aged care prices, not at the top end.
Justice & EquityCost of Living & a Fair Economy
Justice & Equity · Cost of LivingNo tax until $45,000. A referee on prices.
Big increases in grocery, energy, transport and child and aged care prices have hit the lowest incomes hardest, so the plan starts there: abolish the tax bracket that currently levies tax on earnings from $18,201 to $45,000. Then give the ACCC the power to investigate, monitor and regulate prices in child and aged care, banking, grocery and food, as Fels recommended. Six commitments, aimed at the households that spend every dollar they get back.
$45,000 Earned before the first dollar of income tax The plan abolishes the lowest bracket, which now taxes earnings from $18,201 to $45,000 a year.
52.4% Of all Australian wealth, held by the richest 10% The most recent ABS snapshot. The same data shows wealth inequality getting consistently worse over the last 20 years.
100% Of every dollar back, spent by the lowest 20% They are the only bracket that spends all of its disposable income, so relief reaches the shops the same week.
$89bn Of JobKeeper that never had to be repaid Australia's leading economists urged income-contingent loans instead, repayable if and when companies could. A loophole meant the money stayed.
Run your own numbers
Set your annual income and see what abolishing the lowest tax bracket — the one levied on earnings between $18,201 and $45,000 — leaves in your pocket each year.
Savings shown at the current 15% rate for the $18,201–$45,000 bracket, as the policy proposes abolishing it entirely. Figures are illustrative for a single income.
The case in three beats
- The set-up
The squeeze began long before the pandemic.
The pandemic and the war in Ukraine have sharpened the cost-of-living crisis, but they are only the latest drivers in what has been a long-term trend. Allan Fels, the former head of the Australian Consumer and Competition Commission, found questionable pricing practices, a lack of price transparency and regulation, a lack of market competition, supply chain problems and unrestricted price setting by retailers among the likely causes.
- What it costs
Capital collects the gains; wages carry the prices.
Technology growth and globalisation increased the role of capital and reduced the role of labour, and the economies of scale that follow have produced natural monopolies in supermarkets, mining, airlines and tech. The OECD's 2023 economic outlook found corporate profits were a larger factor in driving up inflation than wages. For workers without a serious share portfolio, wages are increasing at a lower rate than living costs.
- The fix
Recalibrate the tax system, then referee the prices.
The answer is to recalibrate the tax system so the burden reflects the economy we actually have: lifted off the lowest incomes, and carried by passive capital income and the super profits of non-renewable resource extraction. Alongside that, a regulator with the power to hold the price of the essentials to account, so prosperity from technological advancement is shared rather than extracted only by the few.
The plan at a glance
Reduce the capital gains tax discount from 50% to 25%, so income from passive capital is taxed effectively.
A 20% super profits tax on non-renewable resource extraction, with the revenue used to transition the national power grid to renewable energy.
Women lost twice as many jobs as men during COVID and were much less likely to receive JobKeeper support. The plan corrects that loss rather than letting it compound women's lifetime economic disadvantage.
Adopt Alan Fels' recommendations: an ACCC empowered to investigate, monitor and regulate prices in child and aged care, banking, grocery and food, to ensure fair and transparent pricing.
A mandatory grocery code of conduct for the food and grocery sector, and a price register for farmers that protects them from unfair pricing by major supermarkets and food processors.
Who the rules work for
The same pay packet and the same essentials, under two rulebooks: the one we have, and the one this plan writes.
Today
- Passive capital gains taxed at a 50% discount, while wages increase more slowly than living costs
- No super profits tax on non-renewable resource extraction, and no revenue stream dedicated to the grid transition
- Women who lost twice as many jobs as men during COVID, and were much less likely to receive JobKeeper, still carrying the cost
- No ACCC power to investigate, monitor and regulate the price of the essentials, no mandatory grocery code, no price register for farmers
Under the plan
- The capital gains tax discount cut to 25%, so passive capital income is taxed effectively
- A 20% super profits tax on non-renewable resource extraction, funding the shift of the national power grid to renewable energy
- Those losses corrected, instead of compounding women's lifetime economic disadvantage
- The ACCC empowered to investigate, monitor and regulate child and aged care, banking, grocery and food prices, with a mandatory grocery code and a price register for farmers
The change that does the most
Income tax charged on earnings from $18,201 a year up
No income tax at all until you have earned $45,000
One line, and it is the whole idea. Abolishing the lowest income tax bracket is the fairest, most effective way to reduce cost of living pressures for those who need it most, because the money goes to households already stretched by grocery, energy, transport and child and aged care prices. It is also sound economics: the lowest 20% of households are the only bracket that spends every dollar of disposable income it receives, so relief given here is spent here.
The full policy
Word for word — the platform as our members wrote it.
The Issues
The fairest, most effective way to reduce cost of living pressures for those who need it most is to abolish the lowest income tax bracket. Those on such low incomes have been particularly hard hit by big increases in grocery, energy, transport, and child and aged care prices.
Former head of the Australian Consumer and Competition Commission, Allan Fels, found inflation, questionable pricing practices, a lack of price transparency and regulation, a lack of market competition, supply chain problems and unrestricted price setting by retailers were some likely causes.
Our Plan
-
Target those in need by abolishing the lowest income tax bracket (which currently levies tax on earnings $18,201 $45,000 per annum).
-
Effectively tax passive capital income by reducing the capital gains tax discount from 50% to 25%.
-
Introduce a 20% super profits tax on non-renewable resource extraction and use the revenue to transition the national power grid to renewable energy.
-
Correct the loss of wages to women in particular who lost twice as many jobs as men during COVID and were much less likely to receive JobKeeper support, compounding women’s lifetime economic disadvantage.
-
Adopt Alan Fels’ recommendations to empower the ACCC to investigate, monitor and regulate prices for child and aged care, banking, grocery and food sectors to ensure fair and transparent pricing.
-
Develop a mandatory grocery code of conduct for the food and grocery sector and a price register for farmers, protecting them from unfair pricing by major supermarkets and food processors.
The Evidence
Much has been made of the role of the pandemic and the war in Ukraine in driving the current cost-of-living crisis. While these factors have exacerbated the crisis, these events are only the latest drivers in what has been a long-term trend.
Australian Bureau of Statistics data shows that wealth inequality in Australia has been getting consistently worse over the last 20 years. The most recent snapshot shows that the wealthiest 10% of Australians own 52.4% of all wealth.
Over the last generation, our economy has been transformed by technology growth and globalization leading to an increase in the role of capital and a decrease in the role of labour.
New technologies (including AI and automation) have led to an increase in fixed business’s costs relative to marginal/operating costs. For example, when Amazon equips a new distribution centre with robotic machinery for sorting and packaging deliveries, it incurs a large upfront cost to build the facility, but from then on, it has low marginal costs for each product it moves through the facility once it is operational. This is different from the economic model of the past, where tasks were manually undertaken by salaried workers, who were considered by the employer to be operating costs.
This new cost structure results in economies of scale which leads to the emergence of natural monopolies. The usual examples are Amazon and the other FAANG companies (Facebook, Apple, Netflix and Google), but this phenomenon is not restricted to the tech sector. We see the same thing with supermarkets, mining companies, airlines, and in many industries across the economy.
In its 2023 economic outlook, the OECD found that corporate profits were a larger factor in driving up inflation than wages.
For the owners of shares in these increasingly large companies, the result is huge dividends and capital gains. For workers on a salary who don’t own a serious share portfolio, the outcome is that wages are increasing at a lower rate than living costs, resulting in a higher cost of living.
the system is producing self-reinforcing spirals up for the haves and down for the have-nots
— Ray Dalio, founder of Bridgewater Associates
The trend has been exacerbated by globalization, which is associated with a reduction in barriers to trade and investment. The result is internationally-mobile capital that constantly seeking to invest in countries with the lowest labour costs (and environmental and human rights standards). The nature of globalisation is to pour capital into countries with the cheapest labour, and to incentivize countries into a race to the bottom in terms of workers rights, environmental standards and corporate tax rates.
In addition to the inequality drivers described above, it is also the case that in many instances governments have put forward poorly designed policies that have exacerbated the issue by giving handouts to the top end of town.
The most obvious example is the COVID JobKeeper program, which gave away $89 billion of taxpayer money to corporations. While the intent of the program to help companies keep their employees on during lockdowns may have been sound, the policy had a giant loophole that meant companies never had to pay the money back.
A number of Australia’s leading economists were on record at the start of the pandemic stating that a program of this kind should use “income-contingent” loans. That is, companies have to pay them back if and when they can. As it turns out, almost all of the companies that received JobKeeper could have paid amounts back, which would have avoided the enormous budgetary hit that the country took during the pandemic.
The Morrison-Frydenberg Government ignored the advice of the experts and unnecessary JobKeeper payments were not returned.
We need to ensure prosperity from technological advancement is shared, not extracted only by the few. This can be achieved by recalibrating our tax system to shift the tax burden to reflect the changes that have occurred in our economy over the last 20 or 30 years. By targeting the lowest income tax bracket, our proposal will give money back to those in need, who really need it. And from a cold hard economic perspective, it will also be good policy, because the lowest 20% of households are the only bracket that spends 100% of every dollar of disposable income they receive.
References
-
Select Committee on Cost of Living. Submission 30. University of Western Australia Economics Department.
-
Select Committee on Cost of Living. Submission 48. The University of Tasmania Economics Department.
-
OECD Economic Outlook Volume 2023 Issue 1. Box 1.2. The contribution of unit profits to domestic inflationary pressures.
-
The Conversation. Supermarket Charging Exploitative Prices. February 2024.
-
The Conversation. Give people and businesses money now they can pay back later (if and when they can). March 2020.
Make it happen.
Policies like this only become law when enough people push. Push with us.