Professor Patricia Apps, the professor of public economics at Sydney University, says middle income earners will be paying higher effective marginal tax rates than the Government claims.
While middle income earners will get a tax saving of around $33 a week over three years from next July, it is only a fraction of what the rich will get.
Professor Apps’ analysis of the tax cuts announced on Monday shows wealthy people earning $180,000 are getting tax cuts fives times higher than those on average earnings of $60,000.
“This ultimately means the middle is being given an increasing tax burden,” she said.
“The Government is using bracket creep to get this revenue off the middle and giving it disproportionately to those at the top.”
Her analysis shows that the way the Government has structured the tax cuts is deceptive.
The Government’s tax scales show people earning between $30,000 to $60,000 will face top marginal rates of 15c or 30c.
She says in reality their marginal tax rates will be 4c in the dollar higher.
This is because of the withdrawal of a tax subsidy to low income earners, the low income tax offset, once a person earns more than $30,000.
This problem arises because the Government has refused to raise the tax-free threshold, set at $6000 for all taxpayers.
Instead, it has effectively raised the tax-free threshold of low income earners by raising the low income tax offset, allowing them to earn $16,000 before they pay tax by 2010.
The Government starts withdrawing the low income tax threshold once someone earns over $30,000 at the rate of 4c in the dollar.
Professor Apps says this has the effect of raising their marginal tax rate by 4c.
The low income tax threshold withdrawal applies to everyone earning between $30,000 and $60,000 in 2008-09, and by 2010 will extend to people earning up to $67,500.
“The only reason for using the tax offset is to take it away from the middle and shift the relative tax burden to average working families,” she said.