Oz Blog News Commentary

A 50 per cent top rate makes sense

June 13, 2017 - 14:28 -- Admin

My column last week for The CEO Magazine reiterates a point made previously at Troppo: the weight of research shows decisively that high marginal tax rates have little effect on the efforts of most high-income earners.

Sample quote:

“These research results line up with what we all see each day. Does anyone really believe that if you slug all those Macquarie bankers 50% instead of 48, they’ll suddenly start arriving in the office at 8.55am and leaving at 5.25pm? Nope. They’ll still be streaming through the lobby at 7.15am tomorrow, coffees in hand, ready to work as hard as they did yesterday.”

This was Nick Gruen’s conclusion in his influential CEDA paper Tax Cuts for Growth, which in 2006 seems to have pretty much established that extra tax on high incomes would not devastate the economy.

The paper also pointed out that given how much the rewards of the economy were shifting towards the top end of the income scale, increasing taxes there would raise a decent amount of dough.

If anything, the past decade has reinforced those conclusions. If you really think Australia needs to address its Budget deficit, then higher marginal tax rates for the biggest earners make a good deal of sense.

So now that Bill Shorten is suggesting exactly that, it’s worth revisiting what Nick had to say. It all still applies.

Read the whole thing.