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The 2005 federal budget caused a storm of protest from the Labor Party, the trade unions and the welfare lobby when the Coalition government announced it was reducing income tax by significantly raising the top rate thresholds and lowering the bottom marginal rate. It might seem strange that a package of tax reductions should have led to so much controversy (Labor even vowed to block the tax cuts in the Senate). With a 48.5 percent top marginal rate on incomes above A$70,000, Australia was taxing higher earners much more harshly than almost any other OECD country, so there seemed to be a compelling comparative case for lowering the top rate and/or raising the threshold at which it applies. But rather than welcoming the government’s promise to leave a little bit more money in people’s pockets and purses, critics attacked the budget tax cuts as ‘unfair’. The basic criticism was that some taxpayers were going to receive more relief than others. Labor leader Kim Beazley, for example, saw it as ‘blatantly unfair’ that the taxes paid by high earners were to be reduced by a bigger proportion than the taxes paid by those on low incomes, and his party offered an alternative which would have increased the tax cuts for those nearer the bottom while watering down the tax cuts for those higher up. This, we were told, was ‘fairer’.
