The Greens have sought to highlight the major parties’ records on fighting inequality, claiming changes supported by both Labor and the coalition will result in low-paid workers paying the same tax rates as their bosses.
However, the claim is only true of the top – or ‘marginal’ – tax rate for those earning between $45,001 and $200,000 from 2024/25. Those on lower incomes will only pay this rate on a small share of their income, meaning overall they are subject to much lower average tax rates.
In an interview with the 7am podcast, released on May 5, Greens leader Adam Bandt said both the Liberal and Labor parties “now support changing our tax system so that someone on the minimum wage will pay the same tax rate as the CEO” (audio mark 21min 26sec).
“This is the end of progressive taxation in Australia if Labor and Liberal get their way,” he said.
The Greens’ website includes a similar claim in setting out the party’s position on the planned tax changes, which it says will “turbocharge inequality” and “could see a worker on minimum wage paying the same effective tax rate as a CEO”.
When contacted by AAP FactCheck about the basis of Mr Bandt’s claim, a spokesman said the Greens leader was referring to the proposed 30 per cent marginal tax rate for everybody earning between $45,001 and $200,000.
The new tax rate is scheduled to apply from 2024/25 under the third and final stage of personal income tax cuts first announced in the 2018-19 budget. The stage would introduce the 30 per cent rate on the share of people’s incomes between $45,001 and $200,000, while a 45 per cent rate would apply on income above $200,000. Earnings between $18,201 and $45,000 would be taxed at a rate of 19 per cent.
The system of marginal tax rates would mean that those earning $45,001 would pay 30 per cent tax on $1 of their income, while those earning $200,000 would pay the rate on nearly $155,000 of their income.
While the largest benefits of the first stage of tax cuts flowed to those on incomes from $50,000 to $100,000, high-income earners would receive by far the greatest gains in stage three. A Parliamentary Budget Office analysis of the stage-three cut found it would result in the bottom 60 per cent of income earners paying $700 million less in tax in 2024-25, while the top 40 per cent would pay $14.9 billion less (table B1).
Labor voted in favour of the coalition’s full tax-cut package when it was passed through parliament in 2019. The party has said it will continue to support the stage-three cut if elected despite shadow treasurer Jim Chalmers previously describing it as the “least affordable, least fair” part of the package.
Associate professor Nicolas Herault, principal research fellow at the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne, told AAP FactCheck that Mr Bandt’s claim was not strictly wrong – but it was misleading.
“(Mr Bandt) is correct if the CEO in question made less than $200,000 as then both the CEO and the worker on $46,000 would face the same marginal tax rate of 30%. That’s obviously not true anymore if the CEO makes more than $200k, as they then face a marginal rate of 45%,” Dr Herault said in an email.
“The claim is also wrong if he meant the same average tax rate, as I suspect most people would have understood it … Because the tax system would remain progressive, it is straightforward to see that average tax rates would still be increasing with income.”
Following the stage-three cuts, a person earning $45,000 would pay an average tax rate of 11.3 per cent on their income, compared to 21.6 per cent for someone earning $100,000 and 25.8 per cent for a person earning $200,000, excluding the Medicare levy and surcharge, and low and middle-income offsets due to expire after 2021-22.
Associate professor Ben Phillips, a tax and economics expert at the ANU’s Centre for Social Research and Methods, told AAP FactCheck another problem with Mr Bandt’s claim was that somebody earning the minimum wage and working a standard 38-hour week may not earn enough to fall into the proposed 30 per cent tax bracket, even accounting for likely wage growth to 2024/25.
A full-time worker on the minimum wage in 2021/22 earns $772.60 per week, an annualised rate of $40,286 – below the $45,001 required to trigger the new tax rate.
Dr Phillips, who has modelled the impact of the coalition’s income tax changes up to 2029, agreed it was true that someone earning around $45,000 and a person earning $200,000 would be on the same top marginal tax rate under the stage-three changes.
“That said, of course the higher income earners will pay a much higher average rate of tax than someone on or close to the minimum wage,” he added.
Dr Phillips said he would “not use the term effective tax rate” – as featured on the Greens website as part of the claim – as this “incorporates a broader range of ‘taxes’ such as losing government benefits”.
The Verdict
The claim that a person on the minimum wage will pay the same tax rate as a CEO following tax changes is only true of the top or marginal tax brackets for those earning $45,001 to $200,000 under the plan. The overall tax rate for those at the bottom of the bracket would be less than half that for those at the top end of the bracket.
Misleading – The claim is accurate in parts but information has also been presented incorrectly, out of context or omitted.
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