Budget tax reforms target wage-investor disparity as real wages fall

The Australian government has introduced tax reforms in the recent budget designed to address the widening gap between wage earners and investors, following data showing that private sector wage growth has slowed to 3.2 per cent. This rate of growth lags behind the current inflation figure of 4.6 per cent, resulting in a decline in the real value of wages for many workers. The reforms include the introduction of the Working Australia Tax Offset (Wato), a reduction in the capital gains tax (CGT) discount, and the imposition of a 30 per cent tax floor on discretionary trusts.

Greg Jericho, chief economist at the Australia Institute, noted that the tax system has historically favoured non-wage earners. He pointed out that the CGT discount not only increased benefits for those earning investment income but also incentivised investing in rental properties rather than shares. This dynamic has contributed to housing affordability issues, with fewer than half of people in their early 30s owning a home for the first time since the Second World War.

Research by the Treasury department highlights the scale of the disparity. An individual on median lifetime earnings receives approximately $12,356 in benefits from the CGT discount, negative gearing, and discretionary trusts. In contrast, the richest 1 per cent of Australians receive $732,253, which is nearly 60 times more. When focusing solely on capital gains, the richest 1 per cent capture 36 per cent of all benefits, while the richest 10 per cent capture 56 per cent, exceeding the total benefits received by the other 90 per cent of the population.

The budget also addresses the difference in average tax rates between wage and non-wage income. Treasury data indicates that an individual earning $150,000 from wages pays an average tax rate of 29 per cent. However, someone earning the same amount but deriving a significant portion from non-wage sources pays an average rate of 27.5 per cent, effectively paying $2,250 less due to tax minimisation schemes. The new measures aim to ensure investors pay a tax rate more comparable to wage earners.

The only new tax cut in the budget is the Wato, a $250 offset applicable only to wage and salary earners, excluding investment income. This follows data showing that private sector wage growth was just 0.76 per cent in the March quarter, the slowest since the end of 2024. Reserve Bank of Australia Governor Michele Bullock had previously expressed concern about a potential wage-price spiral, but the latest figures suggest wage growth remains well below inflation.