Tax Progressivity in Australia: Facts, Measurements and Estimates

68 Pages Posted: 24 Apr 2019

See all articles by Chung Tran

Chung Tran

Australian National University (ANU) - School of Economics

Nabeeh Zakariyya

Australian National University (ANU)

Date Written: March 26, 2019

Abstract

We study the progressivity of Australia’s personal income tax system after the introduction of a New Tax System (Goods and Services Tax) Act 1999. We use two data sets: administrative data from Australian Tax Office (ATO) 2004-16 and survey data from the Household Income and Labour Dynamics in Australia (HILDA) survey 2001-16. We first document the distributions of income and tax liabilities, properties of the joint distributions of taxes paid and income, and discuss how taxes are varied across households and over time. We next provide estimates of tax progressivity using two approaches: one based on tax liability progression and one based on tax liability distribution relative to income distribution. The result obtained from the tax progression approach implies a significant decline in the average level of tax progressivity since 2004. Meanwhile, the result obtained from the tax distribution approach indicates a tax progressivity cycle with a modest decline up to 2006, then a sharp increase until 2010, and a slight decline thereafter. The personal income tax cuts for all taxpayers in early 2000s and the introduction of tax offset for low income earners (LITO) are main driving forces. Moreover, the evolution of income distribution and its interactions with bracket creep strongly affect the overall progressivity level of Australia’s income tax system. Hence, our findings provide new insights into the dynamics of income growth and tax progressivity, which has implications for tax policy debates in Australia.

Keywords: taxation, progressiveness, income dynamics, inequality, parametric tax function, Suits index, Kakwani index

JEL Classification: E62, H24, H31

Suggested Citation

Tran, Chung and Zakariyya, Nabeeh, Tax Progressivity in Australia: Facts, Measurements and Estimates (March 26, 2019). Tax and Transfer Policy Institute, Working paper 5/2019. Available at SSRN: https://ssrn.com/abstract=3360047 or http://dx.doi.org/10.2139/ssrn.3360047

Chung Tran (Contact Author)

Australian National University (ANU) - School of Economics ( email )

Arndt Building 25B
Canberra, Australian Capital Territory 0200
Australia

Nabeeh Zakariyya

Australian National University (ANU)

Canberra, Australian Capital Territory 2601
Australia

Register to save articles to
your library

Register

Paper statistics

Downloads
11
Abstract Views
249
PlumX Metrics