Media Release: Exclusive Economic Modelling Reveals Deficit Levy Spectacular Failure

Media Release
Exclusive: Economic Modelling Reveals Deficit Levy Spectacular Failure


Exclusive economic modelling undertaken by the Australian Taxpayers’ Alliance has revealed that the deficit levy proposed in the FY2014-15 Commonwealth budget will be a spectacular failure. The modelling, conducted by economist John Humphreys from the University of Queensland, a former revenue analyst at the Commonwealth Revenue and Deputy Director of the Australian Taxpayers’ Alliance, has demonstrated that the proposed levy will not only fail to achieve projected outcomes, but may actually result in a decrease in revenue.

“This is the mining tax all over again” said Tim Andrews, Director of the Australian Taxpayers’ Alliance. “This analysis proves that this is another ill thought out tax that may cost more than it will bring in”

"The proposed ‘deficit levy’ is unlikely to raise any revenue, and may actually decrease government revenue due to a shrinking in the tax base, as high-income people reduce their labour supply, investment, innovation and tax compliance," said John Humphreys

The modelling by Humphreys is due to be published in Policy Journal in the coming months, and will include costings of various tax reforms that show marginal changes in the top marginal tax rate (in either direction) have very little impact on revenue because of the behavioural responses.

"The experience in the UK was particularly noteworthy. When the UK government increased the top marginal income tax rate from 40% to 50% the British Treasury estimated that the tax increased raised nearly no additional revenue. When the top marginal tax rate was dropped to 45%, the revenue from high-income earners increased substantially. The UK Treasury now estimates their revenue-maximising top marginal tax rate at about 48%.

"There is no logical argument for increasing marginal tax rates about the revenue-maximising level, and indeed there is no good argument for having tax rates anywhere near the revenue-maximising level since those taxes raise very little money but cause significant economic damage.

"The proposed increase in the top marginal tax rate in Australia cannot be justified by normal economic analysis. It is a measure that will reduce investment and innovation, it will ironically lead to lower levels of private charity, and it will raise no revenue for the government. The only reason for such a tax increase is to make the political point of deliberately hurting successful people out of spite or jealousy."

Please visit https://www.taxpayers.org.au/levy/ for further details of the modelling undertaken

Media Contact:

John Humphreys
Deputy Director
Australian Taxpayers’ Alliance
(m) 0404 044 561
(e) john.humphreys99@gmail.com
www.taxpayers.org.au

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