The Liberal-National Coalition ("the Coalition") and the Australian Labor Party are both proposing a number of changes to the personal income taxation system. This paper considers the average household tax rate, fiscal consequences and distributional consequences of the Coalition and Labor personal income tax policies over the period 2018-19 to 2029-30. We consider which household types gain the most and whether or not the tax cuts are sufficient to overcome bracket creep.

For the purpose of this research note the Coalition personal income taxation policies include the changes contained in the Federal Budget for 2019-20 and the changes announced in Federal Budget for 2018-19 (Commonwealth of Australia, 2018, and 2019). The Coalition changes are effectively in two stages. The first stage consists of modest tax cuts provided in 2018-19 which are aimed at low and middle income earners. The second stage are more significant tax cuts that are directed more towards middle and higher income earners (these include changes in the 2018-19 and 2019-20 Budgets). The Government rationale for the tax cuts are designed to ‘be simpler, reward effort and maintain progressivity’ (Commonwealth of Australia, 2019b). The tax cuts are also claimed to return to taxpayers some of the fiscal drag being generated by the non-indexation of tax thresholds.

The Labor personal income tax changes considered are those announced by the Hon. Bill Shorten, Leader of the Opposition in the Budget Reply Speech (Shorten, 2019) and described in the associated Media Release (Shorten and Bowen, 2019). The Labor changes for the period to 2022-23 are slightly more generous for some lower income earners than the Coalition changes. The Labor policy does not implement the larger Coalition tax cuts from 2022-23 onwards. The analysis here focusses on the personal income tax changes to rates, thresholds and offsets and so does not include several other planned Labor changes such as negative gearing, capital gains, or franking credits.