Archive for March 19th, 2008

The social democratic (former) Howard government

I have argued before for the social democratic tendencies of the former Howard government. One basis for doing so is that upper income earners during the Howard years provided an increasing share of the government’s total income tax revenue.

With the release yesterday of the ATO’s 2005-06 income tax statistics, Sinclair Davidson has updated the series of statistics (1996 to 2003 here) he has been keeping on what proportion of all income tax the top 25% of taxpayers pay. As it did every year except one since 1996-97, the top 25% picked up a larger share of the tax bill in 2005-06 than it had the year before.

In 1996-97, the top 25% of income earners paid 60.8% of all income tax. By 2005-06 that had increased to 65.2%, compared to 64.3% the year before. That was despite the complaints back in 2005 (eg from Andrew Leigh) that the tax cuts implemented that year would be regressive.

Yes, this was off an increased share of total income – up from 50.5% to 50.9%. But such is the effect of still very high marginal tax rates that a 0.4% increase in the top 25%’s share of income translated into a 0.9% increase in the share of all income tax paid. It helps explain why overall income inequality is quite stable.