Good economics or populism? Is there an economic case for income tax cuts?

The Federal Treasurer, Scott Morrison, is a strong advocate of both cutting income taxes and reducing the budget deficit. These two goals appear contradictory, since reducing government revenue would lead to a larger budget deficit. The Treasurer gets around this by making exaggerated claims about the economic benefits of income tax cuts. While there may be large political benefits to cutting income tax, the economic case for lower income taxes is very weak. It is made even weaker when we look closely at the types of income tax cuts that the Treasurer is considering. The two most likely income tax cuts in the upcoming budget is allowing the budget repair levy to lapse (a cut of 2% to the top income tax rate) and a cut to compensate those on high incomes for bracket creep. Tax cuts to high income earners are highly unlikely to produce any growth dividend. This paper looks at five reasons why people should be deeply suspicious of claims that income tax cuts will increase economic growth