We’re all in this pandemic together. But we’re currently leaving it to a small proportion of the community to shoulder most of the economic pain.
It’s an approach that’s compounding social and intergenerational inequity.
To date the Australian government has committed A$320 billion to support households and businesses during the COVID-19 pandemic. The Commonwealth’s net debt had been projected to peak this year at $392 billion and then decline. Now that debt is set to almost double.
Paying the debt will likely take decades. The burden will fall mostly on younger generations, through higher taxes or reduced public services such as health care and education.
Younger workers are also bearing the brunt of the immediate economic effects. Industries with the biggest proportion of young workers have been hit hard. In arts and recreation services, a quarter of workers are under the age of 25. In retail it’s about a third. In accommodation and food services it’s almost half.
But the peculiar dynamics of this crisis open the opportunity to introduce a temporary levy now. This would enable those with secure incomes to share the pain and reduce the double impost on the younger generation.
A temporary income tax levy is not unprecedented.
In 2014 the federal government implemented the “temporary budget repair levy” to reduce the budget deficit (then A$37 billion). Gross national debt was about $320 billion. The levy increased the marginal tax rate on the top income bracket (more than $180,000 a year) from 45% to 47%. It collected about A$3 billion over three years.
Given the magnitude of the deficit we now face, a similar levy makes sense.
An example levy is illustrated in the table below (based on income tax data from 2016). A 1% levy is applied to annual income between A$18,200 and A$37,000, a 2% levy to income between A$37,000 and A$90,000, a 3% levy up to A$180,000, and a 4% levy to income of more than A$180,000.
- ^ A$320 billion to support households and businesses (treasury.gov.au)
- ^ $392 billion (budget.gov.au)
- ^ Vital Signs: Scott Morrison is steering in the right direction, but we're going to need a bigger boat (theconversation.com)
- ^ biggest proportion of young workers (docs.employment.gov.au)
- ^ after natural disasters (www.ato.gov.au)
- ^ temporary budget repair levy (theconversation.com)
- ^ A$1,463 a week (www.abs.gov.au)
- ^ The Sydney Morning Herald and The Age (www.smh.com.au)
- ^ One-off government stimulus payments (www.smh.com.au)
- ^ longer-term effects of natural disasters (theconversation.com)
- ^ More Australians are worried about a recession and an increasingly selfish society than about coronavirus itself (theconversation.com)
- ^ telehealth consults (theconversation.com)
Authors: Jonathan Karnon, Professor of Health Economics, Flinders University