Australian budget 2018

Natsem modelling shows people in wealthiest suburbs of Sydney and Melbourne would be most advantaged by tax cut plan

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An aerial view of Vaucluse in Sydney’s eastern suburbs.
An aerial view of Vaucluse in Sydney’s eastern suburbs, where residents would be $8,844 better off on average under the Coalition’s flat tax arrangement. Photograph: Phillip Hayson/Getty Images

The Turnbull government’s plan to dramatically flatten Australia’s income tax scales by 2024-25 would provide a tax windfall to the richest households in Australia’s capital cities, while leaving regional areas with noticeably fewer gains.
Households in Sydney’s eastern suburbs, inner harbour and north shore would receive the biggest concentration of the largest tax cuts in New South Wales.
Inner Melbourne suburbs such as Toorak, South Yarra, East Melbourne, and Prahran, and Brighton in the south, would receive the biggest concentration of the largest tax cuts in Victoria.
The National Centre for Social and Economic Modelling (Natsem) has modelled the distributional impact of the government’s $140bn personal income tax cut plan.
The analysis follows Bill Shorten’s budget reply speech in which is out-bid the Coalition on tax relief for low and middle-income earners, promising a rebate worth almost double the government’s proposal of $530.
Labor will vote for the first phase of the government’s tax plan but Shorten on Thursday night hardened his language against the final and most expensive phase of the budget centrepiece, which delivers the lion’s share of tax cuts to high-income earners.
Natsme’s analysis is among four independent modellers that have considered the distributional impact of the tax cuts, including ANU’s Centre for Social Research and Methods, the Grattan Institute and the Australia Institute thinktank.
Each modelling exercise has found the biggest beneficiaries of the tax cuts will be high-income earners.
Using a small area modelling technique to identify the effect of the tax cuts on every suburb in Australia for which it has data, Natsem found areas that would benefit most from the government’s tax cut package would be cities, and areas surrounding cities.
The areas that would benefit least from the tax cuts would be on the far north coast of NSW, and areas in Tasmania, due to the lower incomes in those areas.
In Sydney, households in Malcolm Turnbull’s electorate would be among the biggest beneficiaries. Residents in Paddington would gain an average increase in their disposable income of $9,458 in 2024-25, followed by residents in Bellevue Hill ($9,355), Darlinghurst ($8,892) and Vaucluse ($8,844).
By comparison, individuals in Lakemba in Sydney’s west would receive some of the smallest average increases in disposable income in the state, worth $2,693.
In far north NSW, residents in Inverell ($2,722), Kempsey ($2,795), and Taree ($2,904) would receive similarly small increases in disposable income.
In Melbourne, residents in East Melbourne would gain an average increase in their disposable income of $9,294 in 2024-25, followed by residents in Toorak ($9,057), Darlinghurst ($8,892) and Vaucluse ($8,844).
Residents in St Albans in Melbourne’s west would receive an average boost to their disposable income of roughly $2,800 in 2024-25.
Natsem also looked at the average changes in annual disposable income per person across the country.
Taking into account that the government hopes to roll out its income tax package in three stages between now and 2024-25, Natsem says middle income households would benefit most in the 2018-18 financial year – the first phase of the rollout – due to changes in tax offset criteria.
Lower income households would benefit less than middle-income earners as they already pay no or little tax.
But higher income earners would benefit most when the tax package is fully implemented, with huge increases in disposable income among Australia’s richest occurring from 2022-23 onwards.
By 2024-25, the top 10% of income earners would enjoy the biggest average windfall in annual disposable income of any group (between $5,995 and $9,593).
The bottom 10% would receive the smallest average gains per person (between $2,246 and $3,158).
Natsem’s geographical analysis was released after the Grattan Institute released its own modelling on Thursday.
Grattan’s analysis found once the government’s seven-year income tax plan was fully implemented in 2024-25, $15bn of the annual $25bn cost would result from collecting less tax from the top 20% of income earners.
With a mini-election underway courtesy of the looming by-elections in Longman, Braddon, Perth, Mayo and Fremantle, the Labor leader on Thursday night goaded the prime minister to line up the Coalition’s budget plan, including the proposed tax cut for Australia’s largest businesses, against the opposition’s alternative.
The government is pressing the Senate to agree to its budget centrepiece but not everyone is convinced of the merits of the whole package. Shorten’s comments on Thursday night suggest Labor won’t back the tax relief proposed for higher-income earners.
Both the One Nation and the Centre Alliance blocs have signalled they will back the first two stages of the Turnbull government’s income tax cut plan but are reserving their position on the final element of the reform – a more controversial proposal that flattens the tax scales and provides the biggest benefit to high-income earners.
The Tasmanian senator Steve Martin supports the Coalition’s package and the South Australian senator Tim Storer is on board with the first two stages but not the third.
Asked to give his position on the proposal on Thursday, the Victorian senator Derryn Hinch said: “I’m nowhere at the moment.”
Hinch told Sky News he intended to be “the last man standing” in any negotiation with the government but would not horse trade over the package.