Policy and Practice in Australia: Personal Income Tax Analysis Report

This report provides a comprehensive analysis of Australia's Personal Income Tax Policy, focusing on the 2019/2020 budget. It examines the policy's formulation process, which involves public opinion, legislative discussions, and government implementation. The paper delves into policy problems, instruments, actors, and consequences, highlighting the aim of equity and fairness through tax reductions for low-income earners. It discusses relevant theories like Surrey's Expenditure Theory and Professor Kelman's Personal Tax Deductions Theory, presenting an argument for the policy's benefits in promoting better living standards and economic growth. The report also considers evidence-based policy, balanced policy impacts, and offers recommendations for improved revenue collection and public participation. The conclusion emphasizes the potential economic gains and the importance of effective implementation for the policy's success. The report also discusses the role of various stakeholders, including the government, citizens, and civil societies.

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Policy and Practice in Australia: Personal Income Tax
Name
Course
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Table of Contents
Contents
Introduction.................................................................................................................................................3
Policy Analysis.............................................................................................................................................4
Policy Formulation Development............................................................................................................4
Policy Implementation.............................................................................................................................5
Policy Problem, Instruments, Actors, Consequences...............................................................................6
Theories...................................................................................................................................................7
Surrey’s Expenditure Theory...............................................................................................................7
Professor Kelman’s Personal Tax Deductions Theory..........................................................................7
Argument....................................................................................................................................................8
Evidence-Based Policy.............................................................................................................................8
Balanced Consideration of Policy Impacts...............................................................................................9
Recommendations...................................................................................................................................9
Conclusion.................................................................................................................................................10
Bibliography...............................................................................................................................................11

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Introduction
The reading of the Australian Federal Budget for the 2019/2020 in April instigated mixed
feelings on the Australian Republic. The 2019/2020 financial year budget comprised of various
critical areas that would greatly impact the Australian citizens. As usual, many people and
stakeholders in Australia were mainly interested in the country's planned taxed rates within the
country's boundaries in the year. In the 2019/2020 budget, some of the key issues that were
announced by Federal Treasurer Josh Frydenberg included: the expansion of instant asset write-
offs for small and medium businesses (SMEs), fund tax reliefs and superannuation reductions.
Moreover, the country planned to have minor variations in the indirect tax charged by the
country. However, the issue that raised mass public concern was the popular personal tax reform
that would see new personal income reductions to the lower-income earners. The tax reduction
meant that Australians who belonged to the lower income bracket would pay a lesser proportion
of their incomes as tax to the government. The new policy demanded only 19 cents for an extra
Australian dollar earned above 18,200 Australian dollars. This paper attempts to conduct a
critical analysis of the Personal Income Tax Policy in Australia. The paper will describe the
methodologies used for the policies formulations as well as the criteria to be employed for the
policy's implementation. Policy problems, policy instruments employed, actors involved and the
policy's intended purposes will also be discussed. Relevant literature concerned with the
theoretical frameworks surrounding the concept of policy formulation and implementation will
also be discussed. An argument inquiring on the appropriateness of the policy will also be
discussed. Possible recommendations of the policy will also be suggested. A conclusion will
serve as the policy’s summary.

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Policy Analysis
Policy Formulation
In Australia, policy development and implementation is a highly contested democratic
process. In many democratic countries, policy development involves many stakeholders
including the public, the government, civil societies, and other relevant stakeholders.1 Contrary
to many peoples’ thinking, policy development is not a government affair. In Australia, for
example, the formulation of the Personal Income Tax policy started at the grassroots level. For
any policy adopted in a democracy like Australia, its first stages of policy formulation start at the
grassroots where the public give their personal opinions about what they would wish the
government would do for them.2 In its preliminary stages, the government, under the ministry of
Treasury, sends envoys to all areas in Australia. The emissaries are obligated to collect the
public’s opinion on what should be included in the budget. This process happens in the early
stages of a financial year. For instance, for the 2019/2020 budget, data about the public's opinion
and demands were collected in 2018. By this, the government ensures that it involves its public
in making important future decisions. In Australia, sections of members of the public had
proposed tax rate cuts for the low-income earners. Public participation is very fundamental for
any government that aims to have a successful regime.3 Scholars assert that public participation
instills trust in the citizens' perceptions of the government. Moreover, it is a sign of transparency
and accountability by the government.
1 Yang, Comparing policies. In Comparative Education Research, 287.
2 Smith, Fressoli, and Thomas, Grassroots innovation movements: challenges and
contributions,117.
3 Harrison and Sayogo, Transparency, participation, and accountability practices in open
government: A comparative study, 520.

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The second stage of policy development involves legislative participation. the House of
Representatives (the lower house) engages in discussions about the policies suggested.4 For the
Personal Income Tax policy in 2019/2020 budget, the policy was critically discussed in when
discussing the budget in Australia’s House of Representative. This stage filters the policy as
Australian Representatives engage in debates concerning the proposed policy. Policies that pass
this stage are later reviewed. After review, the policy is ready to be adopted.
Policy Implementation
The government plays a vital role in policy implementation. Once a policy seems fit to be
adopted, the remaining task remains for the relevant stakeholders to implement the policy.
Resources are allocated by the government to the relevant actors of the policy.5 For instance, the
Treasury releases the resources needed in the implementation stage. For instance, for policies
involving tax, the government, through the treasury, releases funds that may enable would enable
tax collectors to carry out their part.
The public is further involved in this process. Each citizen is obligated to ensure that the
implementation of the policies adopted takes place. The public is allowed to question its
government in case the government is seen failing in its implementation stage. Other key players
in monitoring and evaluating the stage of policy implementation are civil societies and
advocacies. This group joins the public in holding the government into account. Successful
government regimes usually pass monitoring and evaluation step of its policies’ implementation
4 Skinner, Christine, Kay Cook, and Sarah Sinclair, The potential of child support to reduce lone
mother poverty: Comparing population survey data in Australia and the UK, 83.
5 Jann and Wegrich, Theories of the policy cycle. In Handbook of public policy analysis, 74.

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stages. 6 In the case of the Personal Income Tax policy in Australia, the Coalition Party's success
depends on whether the Australian government will successfully implement the policy by cutting
the income taxes of low-income earners as they promised. If the implementation would not be
effective, the Coalition Parties' regime would be seen to have failed. Fortunately, the Personal
Income Tax policy is being implemented.
Policy Problem, Instruments, Actors, Consequences
The Personal Income Tax policy was set to solve the problem of equity and fairness in
Australia's income tax system. The Treasury found out that the low-income earners in the
country were unfairly charged. By reducing their income tax requirements, the low-income
earners would get some sort of fairness. To successfully implement the policy, the treasury will
have to employ a few policy instruments. The government will lose some of its revenues due to
this cut-rate. To recuperate this effect, the Australian government will be tasked to erect new
infrastructure in the country as well as readjust the country’s pricing policies. For policies
involving taxation, the main actors involved in policy formulation and implementation include
the government, the citizens, the private sector, unions, foreign financial bodies, and other
relevant stakeholders. 7Non-governmental organizations and civil societies are also key
participants in policymaking and practice because they monitor and evaluate the government's
practices and thus promoting accountability. 8 However, the personal income tax rate cut may
6 Newig and Koontz, Multi-level governance, policy implementation, and participation: the
EU's mandated participatory planning approach to implementing an environmental policy, 253.
7 Gleckman, Multi-stakeholder governance: A corporate push for a new form of global
governance, 96.
8 Bhandari, Civil society and non-governmental organizations (NGOs) movements in Nepal in
terms of social transformation, 184.

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lead to some unintended consequences. For instance, many Australian citizens belonging in
upper-income brackets may forge their payslips to exploit the tax cuts.
Theories
Surrey’s Expenditure Theory
This theory suggests that for a personal income tax deduction, the normal tax rate is
equivalent to government expenditures.9 According to this theory, tax expenditures and direct
government outlays should use a synonymous tool to measure their standards. The theory argues
that relatively, income deductions for the poor end up to be less desirable than for the rich due to
the latter's high marginal rates that enable them to effectively use these deductions.
Professor Kelman’s Personal Tax Deductions Theory
According to this theory, the personal income tax deductions are poorly suited to help the
poor. 10 The professor investigates the relationship between tax deductions and incomes and like
Surrey, concludes that tax deductions to cover medical and charitable reasons are not appropriate
for the poor.
Argument
The Personal Income Tax policy as read in the 2019/2020 was a tool fashioned by the
Australian government aiming to help the people from the lower-wage bracket. By reducing tax,
9 Van Kersbergen, What are welfare state typologies and how are they useful, if at all? 119
10 Riza, In Retrospect of 40 Years, Another Look at Andrews' Deductions Argument: A
Comparison of Charitable Contributions and Child-Care Expenses, 55.

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low-income earners would save some money to use in satisfying their immediate basic wants.
For instance, if a person earning 12, 000 Australian is taxed, reducing the tax significantly
improves his living conditions. A citizen earning this relatively low amount could use the money
in increasing the amount of money he/she spends on food or decide to use the tax differentials to
secure a health insurance cover. Therefore, the tax policy would promote better living standards
for the low-income earners, which was the reason for establishing the policy.
Evidence-Based Policy
Although it may be tempting to think that the tax deductions would lead to a significant
loss for the Australian economy, the loss is only projected in the short run. However, in the long
run, any Keynesian economist would argue that the tax deduction will eventually boost
Australia's economy in the long run. When a country reduces the tax to its citizens, the respective
citizens' disposable incomes are increased. 11Mathematically, disposable income is the difference
between personal income and tax. Therefore, decreasing tax functions by increasing disposable
income. An economist can argue that the more an individual has as his/her disposable income,
the more the individual is likely to spend. Economies thrive due to increased expenditure from
both its public and the government. Keynesian economics suggests that countries' economic
growths are increased when the expenditure from its government as well as its citizens is
increased. 12In a nutshell, increased expenditure translates to increased economic growths.
Increasing Australians personal disposable income will increase the amount they can use on
expenditure, which in the long-run, will boost Australia's economic growth.
11 Saqib, et al., Taxation effects on economic activity in Pakistan, 216.
12 Kapeller and Schütz, Conspicuous consumption, inequality, and debt: the nature of
consumption
‐driven profit
‐led regimes, 56.

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Balanced Consideration of Policy Impacts
For sustainability, policymakers ensure that their policies consider the relevant factors of
the economy. In the implementation of Australia’s Personal Income Tax policy, the government
aims to improve the lower-income earner’s economic conditions by simultaneously improving
the country’s image in the light of equity and fairness. Metaphorically, the policy would enable
the country to kill two birds using a single stone.
Recommendations
For Australia to achieve its intended results, some alignments need to be done in the
Treasury. Although the Personal Income Tax policy has already been adopted, the effectiveness
of the policy is yet to be known. If the economy would improve after the implementation of the
policy, we will conjecture that the policy has been a success. However, if the Australian
economy plummets, then the economy would be a failure. For the policy to be considered a
success, then there must be improvements in the peoples' standards and Australia's economy at
large. Firstly, the revenue collection agency in Australia is asked to mobilize and improve its
revenue collection strategies. This would reduce cases of tax evasion from citizens. Individuals
who will attempt to forge their records to have lower taxes should face legal actions. Secondly,
the government is also recommended to increase its efforts in ensuring public participation
during policy and budget making and formulation process. Hitherto, many people in Australia
still perceive policy making as an entire government affair. This would reduce cases where the
public does not feel incorporated in the decision-making processes of the government.
Conclusion

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To conclude, this year's Personal Income Tax is aimed at improving the living conditions
of Australians in the lower-wage bracket. Although the theories about income tax reduction are
against personal tax reduction for the poor, this paper posits that tax deductions may lead to
economic gains for both the individuals and the country. The paper stipulates that income tax
deductions will channel the money previously used up in tax to other alternative uses. Moreover,
tax reductions would mean increased disposable income. Disposable income has a positive
relationship with expenditure which also postulates a positive relationship with economic
growth. The paper also takes us through the processes of policymaking and implementation in
the Australian context. Major players involved in the development of a policy are the public, the
government, private sector, employee unions, international organizations, civil societies, non-
governmental organizations, and other relevant stakeholders. The paper further suggests various
recommendations that could help to improve the effectiveness of the Personal Income Tax policy
in Australia.
Bibliography
Bhandari, Medani. "Civil society and non-governmental organizations (NGOs) movements in
Nepal in terms of social transformation." Pacific Journal of Science and Technology 15, no. 1
(2014): 177-189.

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Gleckman, Harris. "Multi-stakeholder governance: A corporate push for a new form of global
governance." Democracy, sovereignty and resistance (2016): 90.
Harrison, Teresa M., and Djoko Sigit Sayogo. "Transparency, participation, and accountability
practices in open government: A comparative study." Government information quarterly 31, no.
4 (2014): 513-525.
Jann, Werner, and Kai Wegrich. "Theories of the policy cycle." In Handbook of public policy
analysis, pp. 69-88. Routledge, 2017.
Kapeller, Jakob, and Bernhard Schütz. "Conspicuous consumption, inequality and debt: the
nature of consumption‐driven profit‐led regimes." Metroeconomica 66, no. 1 (2015): 51-70.
Newig, Jens, and Tomas M. Koontz. "Multi-level governance, policy implementation and
participation: the EU's mandated participatory planning approach to implementing environmental
policy." Journal of European Public Policy 21, no. 2 (2014): 248-267.
Riza, Limor. "In Retrospect of 40 Years, Another Look at Andrews' Personal Deductions
Argument: A Comparison of Charitable Contributions and Child-Care Expeneses." DePaul Bus.
& Comm. LJ 15 (2016): 55.
Saqib, Saima, Tariq Ali, Muhammad Faraz Riaz, Sofia Anwar, and Amir Aslam. "Taxation
effects on economic activity in Pakistan." Journal of Finance and Economics 2, no. 6 (2014):
215-219.
Skinner, Christine, Kay Cook, and Sarah Sinclair. "The potential of child support to reduce lone
mother poverty: Comparing population survey data in Australia and the UK." Journal of Poverty
and Social Justice 25, no. 1 (2017): 79-94.

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Smith, Adrian, Mariano Fressoli, and Hernan Thomas. "Grassroots innovation movements:
challenges and contributions." Journal of Cleaner Production 63 (2014): 114-124.
Van Kersbergen, Kees. "What are welfare state typologies and how are they useful, if at all? 1."
In Routledge Handbook of the Welfare State, pp. 115-123. Routledge, 2018.
Yang, Rui. "Comparing policies." In Comparative Education Research, pp. 285-308. Springer,
Cham, 2014.