Fairfax spanks bawling Hockey

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By Leith van Onselen

Fairfax Media has stepped up its attack on Joe Hockey following the Treasurer’s hissy fit over the weekend in which he accused Fairfax of “malevolent attacks” in relation to its Budget reporting.

Following yesterday’s exchange, where Fairfax economics correspondent, Peter Martin, challenged Hockey to release the Treasury’s detailed modelling showing the impact of the Budget on different Australian household types, Martin has today questioned the Treasurer’s false claims in relation to how much tax higher income earners pay:

The Treasurer has made a big mistake.

“Higher-income households pay half their income in tax,” Mr Hockey told Channel Nine this week while defending his budget.

He said it twice: “Higher-income households pay half their income in tax”…

But the amount of tax actually collected from those Australians is nothing like that much, as a quick workout of the Australian Tax Office calculator makes clear.

An Australian earning $200,000 pays around 36 cents in the dollar including the Medicare levy and the deficit surcharge, far short of the claimed 50. Even an exceptionally high earner on $500,000 pays no more than 44 cents in the dollar.

Typical high earners pay much less. An Australian on $80,000 pays $19,147. An Australian on $120,000 pays $34,747.

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Martin’s point is a good one. The existence of the tax free threshold and progressive tax rates up to $180,000 mean that virtually no one in Australia loses half their earnings in income taxes.

That said, debates over how much taxes higher income earners pay is a sideshow. As noted by Martin, the key issue is that the Abbott Government deliberately elected to leave-out the table showing winners and losers in the May Budget – a table that has been included in every Budget since 2005 – presumably in an attempt to hide the Budget’s impact on lower income Australians.

Martin also questions why, if the Coalition genuinely wanted to reform entitlements, it did not cut into higher-income welfare, such as superannuation tax concessions and negative gearing? Reforming these tax lurks could have delivered substantial Budget savings while improving the progressiveness and equity of the tax and welfare systems.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.