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But Who is the Middle Class?

Correction: an early version of this article erroneously reported a weekly income of $2000 for those earning more than $87,000 PA. It has been corrected to $1680.

The 2018 federal budget is terrible in many ways, such as ABC’s funding cut and reduction in benefits to refugees, but it is not the worst outcome one could imagine from the Coalition government. There have been monetary increases to healthcare, aged care, veterans and Aboriginal and Torres Strait Islander services, infrastructure investments and seed funding for an Australian space agency. While this is not the worst scenario imaginable, the budget’s tax cuts do raise some questions on who deserves lower tax rates. It is  important to note that tax cuts do not simply mean more money for people, tax cuts are also a cost – it means that the government will have less money to spend on essential services.

Currently, personal income in Australia is taxed progressively – the taxation rate increases as an individual’s taxable income does. The tax plan does two things for individuals. Firstly, it eliminates the 37 per cent tax bracket in 2024 and secondly, it creates a permanent tax offset for individuals earning up to $120,000 a year. These two reforms effectively put a person earning $45,000 a year into the same category as a person earning $200,000, while in the past the 37 per cent bracket began at $87,000 a year. The tax plan cuts taxes for individuals earning between $87,000 and $200,000 but not for those at the lower end of the ‘middle income’ bracket.

Lower taxes for all Australians is a good thing. It means that individuals and families have a bit more money to go about their lives. But the difference between $45,000 a year and $200,000 is the difference between ‘barely surviving’ and ‘living in luxury’. If we needed to cut taxes, that tax cut should be given to those who need more money – individuals and/or families living on less than, say, $87,000 a year. Individuals earning at least $87,000 a year, i.e. more than $1680 a week, are in the highest quartile of income earners. We need to ask ourselves whether this category of Australians needed that tax cut.

Company tax in Australia is usually a flat 30 per cent. In 2016, a lower 28.5 per cent tax rate was introduced for businesses which have an annual turnover of less than $2 million. This move was lauded for giving small businesses room to grow and the chance to compete with established, bigger businesses. The 2018 budget, however, gets rid of the small business scheme and establishes a new scheme to reduce taxes to 25 per cent for companies of up to a $50 million turnover. Once again, the government puts a small business in the same category as a company that has considerable means to survive the market.

We need to resist the Coalition’s idea of who deserves tax breaks and where government spending is cut. The tax plan conflates the ideas of middle class or medium sized business for the wealthiest Australians. It shows the Coalition does not care much for the working Australians and those living in regional Australia, but reaffirms that it is a government working only for the interests of inner city elites.

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