Australian workers have been hard done by and tax reforms in the budget only begin to return some fairness | Greg Jericho
Wages are growing at a much slower pace than inflation, according to the latest data,This fits the story of the budget: that those earning a living off wages have been left behind by those who make their money through investments and tax minimisation schemes such as discretionary trusts,So I have some good news for the governor of the Reserve Bank, Michele Bullock,She can relax,Because, as has been the case for roughly 35 years, there is no evidence of a wage-price spiral.
In the March quarter, wage growth for the private sector was the slowest it had been since the end of 2024,Private sector wages grew just 0,76% in the quarter,If that kept up for the next three quarters, annual growth would barely be above 3% – i,e.
the top of the inflation target,If the graph does not display click hereIn annual terms, in the year to March, private sector wage growth dropped to 3,2% – the slowest since the middle of 2022:If the graph does not display click hereAt this point, I wish to refer to Bullock’s comments last week where she said she worries we “will end up with higher wage increases and that will feed through into businesses and businesses think, ‘well, that’s now the norm’,That’s the inflation expectations worry that I have”,One week later and we get the lowest annual wage growth for nearly four years.
Cripes.Importantly, that 3.2% growth is rather well below the inflation figure of 4.6%.That means the real value of wages has fallen, which is a problem even at the best of times, and terrible given the past falls since 2021:If the graph does not display click hereThe lack of wage growth and the need to increase the incomes of wage earners is pertinent given the policies in Tuesday’s budget.
The only new tax cut was the working Australia tax offset (which shall be known as the Wato).It is only $250, but importantly only applies to wages and salary earners – not incomes generated through investments.This intention was also behind the changes to capital gains tax and negative gearing.While the CGT 50% discount ruined housing affordability, it also made income inequality worse.Within the budget papers is some quite brilliant research by the Treasury department about who benefits from capital gains and negative gearing and also discretionary trusts.
Normally we can use the tax data to look at who benefits from such things in any single year.The Treasury has rather cleverly realised that over the course of a life people move from renters to homeowner, share owner and perhaps also to investment property owners.It found that an Australian on median lifetime earnings (i.e.in the 50th percentile) gets around $12,356 benefit from the CGT discount, negative gearing and discretionary trusts.
By contrast someone in the richest 1% gets $732,253 benefit (or nearly 60 times more):If the graph does not display click hereWhen focusing on capital gains alone, the richest 1% get 36% of all the benefits,The richest 10% get 56% – i,e,more than the other 90% of AustraliansIf the graph does not display click hereNow that would not matter so much were it not for the way the tax system was very much weighted to benefit those who don’t earn wages or salaries,Again, Treasury has done some brilliant research to look at what this does to the average tax rate of wage earners compared to those who get a significant amount of income from other things (like capital gains, trusts or shares).
They found for example that someone who earns $150,000 through wages pays an average tax rate of 29% while someone who earns the same amount but gets a significant amount from non-wages pays just 27.5% because of all the discounts and ability to minimise tax – in effect paying $2,250 less in tax just because they were able to game the system:If the graph does not display click hereReducing the CGT discount and putting a 30% floor on the tax rate of discretionary trusts was a move to address this and make those who earn money from investments and trusts pay a more similar tax rate to those of us who get most of our income through wages.Treasury also found that the CGT discount was overwhelmingly favourable to investing in housing rather than in shares:If the graph does not display click hereThis meant the 1999 introduction of the CGT discount not only increased the benefit to non-wage earners, it did so in a way that incentivised investing in rental properties rather than shares.That in turn drove up house prices over the past 26 years such that for the first time since the second world war fewer than half of people in their early 30s own a home.At a time when real wages are falling and the RBA seems determined to prevent any decent wage rises, it is good that the government has finally acknowledged that wage earners have been hard done by in the tax system and have begun to return some fairness into the system.
Greg Jericho is a Guardian columnist and chief economist at the Australia Institute
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