In the run-up to the NSW election, there were reports that the NSW government had taken steps to boost revenue and cut costs by eliminating tax breaks for big companies and for high-income earners.
But, as it turns out, those moves were only part of the story.
In the past year or so, the NSW Labor government has reduced taxes on the richest in society.
This was a key plank of the New South Wales election platform.
But it’s a policy that, as the ABC’s Dan Jackson reports, has been “misconstrued” and could be costing the state money.
And the Government is trying to claim it’s not doing so.
A recent review of NSW’s tax system by the Auditor-General of NSW, Professor Brian Owers, found that the government had “effectively” reduced the corporate tax rate by more than 10 per cent over the past five years.
This, the Auditor General said, “significantly increased the tax burden” for people in the middle and lower incomes.
“We believe that the tax system, including the GST, should be progressive rather than punitive, in line with the recommendations of the Auditor’s report,” the Auditor general said.
So why is the Government claiming it’s doing so?
The Auditor-general’s report noted that the Coalition’s policy was “progressive” because it reduced taxes for the richest.
It was also progressive in the sense that it didn’t just cut taxes for people with incomes in excess of $100,000.
It didn’t even include people earning less than $60,000 in income.
Professor Owers said the government’s tax cuts were progressive, but that the “toughest hit” was for people earning over $100k.
“It’s the very richest that suffer the most, because their tax bill goes up the most,” he said.
“The other big losers are people who are working and making more than $50,000 a year.”
So, where does that leave us?
The NSW Government says it’s cutting taxes for everyone and says it has “effectually” reduced tax rates on the rich.
But Professor Ows found that it was the very rich that were being hit the hardest.
That’s because, in the last five years, the tax rate on the top 10 per per cent of earners has dropped from a peak of 12.5 per cent in 2012-13 to 8.5 in 2017-18.
That means the richest 1 per cent now pay only 5.3 per cent less in tax.
This has resulted in a significant increase in tax rates for the middle class.
That, in turn, means the government has to pay more money into the public coffers.
What does the Auditor report say?
The audit also found that while the NSW Government’s “progression” policy was progressive, the policy did not include any other tax cuts for the “lower and middle income earners”.
The Auditor General also said that the Government’s tax reduction measures were “incompatible with” the government plan to “end the carbon tax”.
But Professor Ozers report noted the NSW Liberal Party had also “introduced significant tax breaks to low-income households”.
It said “the Coalition has been consistent in its support of progressive taxation, with an emphasis on cutting taxes on households in the lower and middle incomes”.
The Coalition has said it wants to end the carbon price, but this is currently set to expire in 2020.
That will mean that any changes to the tax code will need to be legislated.
Professor Ozors report also found the “proportionate” reductions in taxes on higher earners were “significant”.
But, he said, it was “not clear” that the Liberal Party’s tax changes would be “effective” in ending the carbon emissions tax.
In other words, it’s impossible to know how much of the carbon reduction benefits the wealthy and how much is going to benefit low- and middle-income people.
The audit found the NSW Liberals also cut the rate of return for dividends to a “proportional” rate of 6 per cent from the previous rate of 9 per cent.
The Auditor also found $8 million of tax relief for low- to middle- income earners was “non-recourse” and did not go into the state’s general fund.
That was a big cut to the budget, and it is likely to cost the state a lot of money.
The Treasurer said it was not fair that the state would be spending more money on these tax cuts.
Professor Jackson asked if the Government was trying to “reward” the wealthiest in society by reducing the GST and the income tax.
The answer was “no”.
It was just “fair” that they should pay more into the government budget, Professor Jackson said.
He said that while some of the tax cuts could be interpreted as a “revenue-raising measure” for the Government, Professor Owes’ report showed that “those tax cuts did not benefit the bottom
