On Monday the government, perhaps realising its electoral fortunes are flagging among its usual demographic of voters, decided to suggest younger voters should get onboard the Liberal party train because they apparently are the ones who have most benefited from its tax cuts.
As they say, that’s a bold strategy; let’s see if it pays off for them.
What we find is that while those on lower incomes – who are younger on average than high income earners – did benefit from the first stage of tax cuts, the coming stage three tax cuts will be massively directed towards high income earners, who are decidedly not young.
On Monday, Nine newspapers were given a nice drop from the treasurer’s office of figures that purportedly show that “workers aged from 25 to 34 secured the biggest single share of the income tax cuts promised at the last election”.
Given the most recent published ATO taxation data is only from 2018-19, we can’t really check the veracity of the statement of Josh Frydenberg that “Australians aged between 25 and 34 are on average more than $3,400 better off due to the government’s tax cuts”.
But, pointedly, Nine’s David Crowe notes that “The figures do not include the tax cuts due to start in 2024 and which are controversial because of the benefits for workers on higher incomes.”
It’s not actually all that surprising that younger workers did OK under the recent tax cuts.
The stage one tax cuts involved the low-to-middle income tax offset (LMTO), then an increase in the low-income tax offset (LITO), which mostly benefitted those earning under $90,000.
Stage one was also amended to raise the upper threshold for the 19% tax bracket from $37,000 to $45,000. This also benefited low-middle income earners.
But then came stages two and three.
Stage two saw a change to the 32.5% and 37% tax-bracket thresholds that mostly benefited those earning over $90,000.
Stage three, set to come into effect in 2024-25, flattens the tax rate by removing the 37% bracket and then lowering the 32% rate to 30%, and then for good measure raises the 45% tax threshold to $200,000:
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Just how greatly the stage three tax cuts benefit the wealthy is seen when we break down their three elements:
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So given stage one mostly benefited lower-middle income people it is no surprise that the government is now saying their tax cuts mostly benefit younger workers, because younger workers on average earn less than older ones and are thus more likely to be in lower tax brackets:
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Thirty seven percent of those in their late 20s are in the bottom two tax brackets, compared with around 27% of those in their 40s.
The problem for the government’s spin is that these stage one tax cuts were in effect a political necessity if they were going to have any chance of introducing the stage two and three tax cuts, which are actually much bigger.
So yes, Frydenberg might be able to say that young people benefited from the tax cuts, but that is only because they were a measure designed to make the overall tax package look fair (or at least fairer).
But when you consider that the stage three will benefit to a small extent those earning $50,000 and then to a larger extent those earning over $90,000, $120,000 and $200,000, the suggestion that voting for the Liberal party at the coming election is good for younger workers rather falls flat (and also reveals just how inequitable they are across all ages):
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Just 2.6% of those aged 18-24 earned more than $90,000 in 2018-19, compared with 17% of 25-34 year olds and then 29% of those aged 35-64.
Only 11% of those aged 25-34 earned over $120,000, compared with 21% of 35-64 year olds.
Even worse, however, is the latest finding by the Parliamentary Budget Office that by 2031 all of the tax cuts will be wiped out by bracket creep for those earning under $91,000:
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So yes, to an extent the tax cuts since the last election have favoured younger workers. But this is also very much a case of past performance not being indicative of future results.
These tax cuts were the nice showroom product that does not look so good when you get it home – especially when you realise the extra charges you have unwittingly agreed to.
For now the government has no tax cuts planned that will be overly good for young workers – instead they are skewed toward older, and wealthier, workers.
The stage three cuts to come, which are also supported by the ALP, are not equitable either by age or incomes.
