Article by Adam Creighton, courtesy of The Australian
20.02.2026
Tim Wilson has burst out of the starting blocks as Liberal shadow treasurer with a brave and accurate analysis of one major source of Australia’s economic malaise.
While other Liberals have recoiled from the politics of cutting the top income tax rate, Wilson has rightly slammed this week it as “punitive”, calling for a “complete reset”.
It’s hardly a radical position, given Paul Keating has repeatedly claimed any rate above 40 per cent is “confiscatory”. Keating’s phrasing points to the moral iniquity of government taking almost half of taxpayers’ earnings. But the economic damage is at least as great.
The 47 per cent rate pushes up house prices by drawing ever more investment into housing, raises little revenue and throttles immigration of genuinely high-skilled workers from the US, which attracts the lion’s share of the world’s best and brightest.
Leftist economists might mock the idea that salary earners on more than $190,000 – where the top threshold presently cuts in after the government’s risible “tax cut” package – can easily adjust their effort, a supposed knockout blow to traditional arguments about how income tax saps effort.
But that’s largely irrelevant – and totally untrue for sole traders. The top rate fuels a massive tax-avoidance industry, sucking intelligent workers into occupations that offer little economic value. Our use of tax agents, by well over 50 per cent of taxpayers, has long been among the highest in the world.
And as Sydney University economist Christian Gillitzer recently pointed out, the top rate is a driving force behind the nation’s infatuation with negatively geared property, as high earners rationally flock to what is practically the only tax strategy left to reduce their taxable income.
The top rate also snuffs out opportunities for foreign investment, as big multinationals learn what their highly skilled staff would face if they relocated.
When I lived in Washington DC, Americans were shocked when I explained that not only was our top marginal income tax rate 47 per cent but it applied for every dollar above $US125,000 ($177,280) a year. A similar earner in high-tax DC faces around 34 per cent marginal rate, and only 24 per cent in zero state income tax Florida and Texas. The top US federal income tax rate of 37 per cent doesn’t apply until income reaches $US609,000.
As a measure of redistribution it’s a fool’s errand. “Many of the wealthy don’t pay the top rate, it’s actually mainly the wage earners who can’t manage their tax affairs to reduce their taxable income,” Robert Breunig, an economist at ANU, tells me.
And it doesn’t even raise much money. “If you cut the top rate you’d actually raise more tax from around 15 per cent of taxpayers who are currently on the top rate on our estimates,” Breunig adds.
One of many empirical examples; the British Labour government increased its top income tax rate on capital gains to 24 per cent in 2024, only to see receipts tumble more than 20 per cent.
The federal government will attack Wilson’s suggestion as “looking after the big end of town”. If it is, the town is now an entire city. The number of top-rate taxpayers has exploded from fewer than 300,000 in 2008, when the top rate first settled at $180,000, to around a million last financial year. And inflation near 4 per cent is pushing tens of thousands of additional taxpayers into the top bracket every year. If the top threshold had been indexed to inflation since 2008 – a dignity many Western governments afford their voters – it would sit around $280,000 today.
The government will trot out the tired claim that Australia’s top rate is reasonable by OECD standards, which tendentiously includes numerous economically sclerotic European nations in the list that should, economically, be treated as one. That same list of nations also reveals the federal government’s reliance on income tax is, alongside Denmark, the highest in the world.
In the Asia-Pacific region, which matters to us, Australia’s top rate is the highest, embarrassingly even besting supposedly communist China’s 45 per cent. New Zealand has a top rate of 39 per cent and doesn’t even tax capital gains.
Loosening the income tax noose doesn’t require lifting the GST, among the most annoying refrains in Australian public debate. Cutting federal government expenditure, the fastest growth since the 1970s outside the pandemic, offers plenty of scope to entirely “pay for” income tax cuts, including streamlining the out-of-control NDIS, which Wilson admirably noted.
IPA research last year found emissions reductions-related programs were chewing up at least $9bn a year, alone enough to fund sizeable cuts to the top rate, and surely a ripe political target for a Coalition that has recently disavowed “net zero”.
The traditional definition of recession – back-to-back quarters of declining GDP – isn’t relevant in a nation that annually floods its labour market with hundreds of thousands of new workers. GDP per capita has shrunk in 10 of the past 13 quarters: this is a severe recession already, on the measure that actually matters.
Revelations this week that real wages have fallen “for the first time in two years” hide the true extent of the decline. The CPI doesn’t include the cost of bracket creep, home loan interest rates or even the price of dwellings.
If the government wants to improve living standards and encourage more productive investments, the most obvious lever it has is trimming the top rate of income tax.
Not many Liberals have had the guts to start a fight over the top marginal tax rate. Wilson has admirably helped defeat proposals to increase tax on super and dividends; his arguments to cut income tax are even stronger.
