The recently elected Labour government in Australia had agreed to stick with the stage 3 tax cuts proposed by then Coalition government. Now, one of the proposed feature of the stage 3 tax cuts was that the marginal tax rate would be reduced and be flattened to 30% for all workers earning between $45,000 and $200,000. Why is such reduction in marginal tax rates reduction at the upper end of the income distribution desirable? Explain the economic rationale with the help of a well-labelled diagram.

5 marks for diagram, 5 for explanation