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Tax Progressivity in Australia: Facts, Measurements and Estimates†

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  • Chung Tran
  • Nabeeh Zakariyya

Abstract

We study trends in progressivity of the Australian personal income tax system after the introduction of A New Tax System (Goods and Services Tax) Act 1999. We employ two methodological approaches: one based on tax liability progression and one based on tax liability distribution. The latter shows a cycle of lesser and greater tax progressivity in Australia between 2000 and 2018. We identify two main drivers of the tax progressivity cycle: lack of automatic indexation and mismatch between the income tax code and the evolution of market income distribution. Active tax policy with frequent adjustments to income brackets, marginal rates and offset levels drive the progressivity level before 2010. Meanwhile, inactive tax policy induces lower levels of tax progressivity after 2010 as the income tax code fails to track the changes in market income distribution. Indexation to inflation can partially mitigate the decline in progressivity; however, it is not a full substitute for a proper tax indexation system with (annual) frequent adjustments. Furthermore, we separate the contributions of taxes and transfers to overall progressivity of the tax and transfer system. We find the redistributive role of transfers is more pronounced.

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  • Chung Tran & Nabeeh Zakariyya, 2021. "Tax Progressivity in Australia: Facts, Measurements and Estimates†," The Economic Record, The Economic Society of Australia, vol. 97(316), pages 45-77, March.
    • Handle: RePEc:bla:ecorec:v:97:y:2021:i:316:p:45-77
    DOI: 10.1111/1475-4932.12578
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    3. Thomas Abhayaratna & Andrew Carter & Shane Johnson, 2022. "The ATO Longitudinal Information Files (ALife): Individuals—A New Dataset for Public Policy Research," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 55(4), pages 541-557, December.
    4. Michal Krajňák, 2021. "Evaluation the impact of the personal income tax reform in the Czech Republic in 2021 on effective tax rate and tax progressivity," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 7(2), pages 134-145.

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