The financial benefits of the Albanese government's major tax and welfare policies will flow overwhelmingly to Australia's richest households, making income inequality worse.
Those are the findings of new modelling of the impact of key policies in the new Labor government's first budget.
The modelling shows the government's policies will see the top 20 per cent of households getting an extra $12 billion a year in disposable income in 2024-25.
That's worth $5,740 a year for every household in the top 20 per cent.
The bottom 20 per cent of households will only get an extra $40 million in disposable income in 2024-25.
That's worth $17 a year for every household in that lowest-income group.
Albanese government's first three years
The modelling has been run by Associate Professor Ben Phillips, from the Australian National University (ANU), and his colleagues Professor Matthew Gray, Cukkoo Joseph, and Richard Webster.
It considers the distributional impact of three major measures in the Albanese government's 2022-23 budget:
- The increase in Parental Leave Pay (PLP) from a maximum of 20 weeks to 26 weeks
- The increase in child care subsidies
- The stage 3 tax cuts which passed parliament under the previous Coalition Government and which will be implemented in 2024-25
The numbers are based on the full impact of the increase in parental leave pay, the child care subsidies, and the stage 3 tax cuts assuming their full implementation by 2024-25.
The modelling shows the average change in the annual disposable income for households in different income quintiles from the three major policy measures in 2024-25, the final year of the Albanese government's first term.
An income "quintile" refers to the income distribution that has been divided into five groups.
Income quintile 1 is the lowest 20 per cent of households by income, and quintile 5 is the highest 20 per cent of households by income.
According to the modelling, the Labor government's budget will provide extremely small average gains for the lowest 40 per cent of households in 2024-25 ($17 a year for quintile 1, and $204 a year for quintile 2).
But the gains will be much larger for higher income households ($2,625 a year for quintile 4, and $5,740 a year for quintile 5).
How much will that be worth?
The modelling also shows the total dollar value of those benefits.
The lowest 20 per cent of households (quintile 1) will only receive $40 million in extra disposable income, and the next 20 per cent of households (quintile 2) will get $440 million.
The vast bulk of the gains will go to higher income households ($5.5 billion to quintile 4, and $12 billion to quintile 5).
And as you can see in the graph below, the overwhelming majority of the additional disposable income will be coming from the stage 3 tax cuts.
The benefits of the increase in the Labor government's child care subsidy and the expansion of parental leave pay will mostly go to income quintiles 3, 4 and 5.
Very little additional money from those two measures will go to households in quintiles 1 and 2.
What about by household type?
The modelling also looks at the impact of the three budget measures on different household types within each quintile.
For example, couple families with children in the highest income category will receive the largest average gains in disposable income in total in 2024-25 ($9,763 a year). That compares to the lowest income families with children who will only gain $194 from the three budget measures.
Total benefit for the highest income households (top 20 per cent):
- Couple with children ($9,763)
- Couple only ($4,360)
- Lone person ($3,499)
- Single parent ($6,714)
Total benefit for the lowest income households (bottom 20 per cent):
- Couple with children ($194)
- Couple only ($3)
- Lone person ($0)
- Single parent ($6)
What about other budget measures?
Dr Phillips said there were other measures in the October 2022-23 budget that would also end up having important impacts on household living standards, such as changes to aged care, the cost of medicines, and funding for more public housing, but they couldn't be modelled in a timely manner (and the public housing won't be built until after 2024-25).
However, he said those additional policies would cost a little less than $2 billion in 2024-25, and while they would clearly be beneficial to a small number of households, their inclusion in the modelling would be unlikely to alter the main findings of his analysis.
As a point of comparison, the three major policies modelled in this analysis total more than $20 billion in 2024-25.
He said it showed how large the stage 3 tax cuts really were.
"Overall, the modelling shows a decrease in personal income tax revenue of $18.3 billion in 2024-25," he said.
"This is by far the largest change modelled in this paper and also the major driver of the distributional impact, in particular the increase in income inequality.
"Childcare subsidies are set to increase by $1.5 billion in 2024-25 with most benefit going to the top 40 per cent of households when ranked by income.
"Parental leave pay costs around $700 million in 2024-25 (if fully implemented) and again, most of the benefit goes to households in the top 40 per cent of the income distribution."
He said when looking at the beneficiaries of the three policies combined, the top 20 per cent of households gain around 59 per cent of the total gains, and the top 40 per cent gain around 86 per cent.
