Since no-one else seems to be doing it, I’ve been tinkering with the Coalition and ALP tax proposals, trying to look at how they’re distributed across the income spectrum. Here’s my best estimate as to their distribution across the 10 family income deciles.

Family income decile Coalition proposal ALP proposal (excl education credit) ALP proposal (incl education credit)
Bottom 0.2% 0.3% 0.4%
2 3.2% 3.3% 3.3%
3 3.5% 3.6% 3.8%
4 7.1% 7.4% 7.4%
5 9.8% 10.1% 10.2%
6 9.5% 9.9% 10.1%
7 9.7% 10.0% 10.2%
8 12.5% 13.0% 13.1%
9 15.8% 16.4% 16.3%
Top 28.3% 25.5% 24.8%
Total 100% 100% 100%

I’ve also done the same analysis by percentile. I won’t bother to show all 100 groups, but here’s the richest 10 percent.

Family income percentile Coalition proposal ALP proposal (excl education credit) ALP proposal (incl education credit)
90 1.7% 1.8% 1.8%
91 1.5% 1.6% 1.6%
92 1.7% 1.8% 1.8%
93 1.8% 1.9% 1.9%
94 2.1% 2.2% 2.1%
95 2.4% 2.5% 2.4%
96 2.2% 2.3% 2.2%
97 2.3% 2.4% 2.3%
98 3.3% 3.2% 3.1%
99 3.7% 3.2% 3.2%
Top 7.1% 4.4% 4.3%

Here are some things that I learned from this exercise:

  • The action is really at the top. The only difference between the Howard and Rudd tax cuts is that Rudd wouldn’t cut tax rates from 45% to 42% for those earning over $180,000. Assuming the same rate of wage growth that we’ve had over past years, only 1.4% of adults in 2010-11 will have an income in that range, while only 3% of families will have an income-earner in that range.
  • This means that the richest 1% of families get 7% of the Howard tax cuts, but only 4% of the Rudd tax cuts. The richest 10% get 28% of the Howard tax cuts, but 25% of the Rudd tax cuts.
  • The education credit is fairly evenly distributed across the income spectrum (as Labor pointed out on Friday, 2/3rds of families with children are eligible for it). So the Rudd package looks more even – but only a little – if you take account of it.

Boring methodological details over the fold.

  • The ALP tax proposal is here. The Coalition tax proposal is here.
  • The analysis is for 2010-11. I use microdata from the 2005-06 wave of the HILDA survey, with incomes indexed by 4% per year (same rate as Treasury has been using for wage growth in recent budget papers).
  • The analysis compares current tax scales (those applying in 2007-08) with the tax scales that both parties propose for 2010-11.
  • It takes account of the low-income tax offset, but not the senior Australians tax offset.
  • It is based on family income. Things look more unequal if you only look at individuals.
  • Incomes are not adjusted to account for economies of scale in larger families.
  • The analysis does not take account of the possibility that incomes may respond to the tax changes. This would probably make the distribution look more unequal (though it would also have efficiency implications).
  • The analysis assumes that all families claim the full amount of the education tax credit, and takes account of the fact that the credit is refundable (ie. those who pay no tax get it as a transfer payment).

For the full post visit Andrew’s blog here.

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