You are here

Tax Progressivity in Australia: Facts, Measurements and Estimates

Chung Tran and Nabeeh Zakariyya

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 based on the tax progression approach implies a significant decline in the average level of tax progressivity since 2004. Meanwhile, the result based on 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 the early 2000s and the introduction of tax offset for low income earners (LITO) are main driving forces. Moreover, the evolution of income distribution and interactions between income distribution and bracket creep strongly affect the overall progressivitiy level of Australia's income tax system. Hence, our findings provide insights into the dynamics of income adn tax progressivity, and a new reference for public debated on tax reform in Australia. 

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

PDF icon Download (1.85 MB)