Phase three tax cuts should be bolstered with $60 billion in cuts for low and middle income earners

Treasury Secretary Steven Kennedy said recently that the government will have to make tough policy decisions to reduce its debt.

“For the near term, budgetary pressures are greater and a combination of spending cuts and tax increases will likely be needed to reduce deficits and reduce debt,” he said in a statement to the Senate Estimates earlier this month.

The Budget Office found that the tax burden borne by the top 10 percent of income earners is expected to decline over the rest of the decade, with or without the Phase 3 tax cuts.

Right now, top earners pay about 52 percent of all income taxes, slightly less than in the past decade. By 2032-2033, their share will drop to 47 percent as the group creep grabs a larger share of the income of the lower income earners.

The budget office found that if personal income taxes fully offset the impact of bracket creep, it would cost $310 billion by 2032-33.

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“The legislated Stage 3 tax cuts in 2024-25, which cost approximately $250 billion over the period to 2032-33, offset some of the impact of bracket creep, but do not completely eliminate it – bracket creep will still continue. , even after taxes are reduced. cut,” he said.

“Gross debt is expected to largely stabilize around 2032-33, but would continue to increase with no creep and no other policy changes.”

One of the reasons why the share of high incomes in the national tax burden is expected to fall is the end of low and middle income tax deductions.

The compensation, which provided up to $1,500 to people earning less than $126,000, was introduced as part of the previous government’s changes to the tax system. Extended and increased, the offset ended with fiscal year 2021-22. Up to 10 million people will face an increase in their overall tax this year.

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This week, the International Monetary Fund used its assessment of Australia’s economy to advocate tax reform. It said Australia was overly dependent on personal income taxation, arguing that the federal government should index tax thresholds to reduce the burden caused by bracket creep.

“Phase 3 personal income tax cuts will reduce personal income tax pressures, and tax bracket dispersion should be addressed by periodically increasing tax brackets, including to reduce benefit costs.
implications for low-income households and women,” it said.

The last government to link tax brackets to inflation or wage growth was Malcolm Fraser’s government in the late 1970s. The policy remained in effect for only 18 months.

Since then, federal governments have periodically reimbursed taxpayers through specific changes to income thresholds or tax rates.

The budget office noted that crawl space was a way to fix the budget, but that the burden would increasingly fall on the low and middle income earners.

“It would come at the cost of reduced efficiency and fairness in the tax system, with personal tax as a share of tax receipts rising to historic highs, and the top 10 percent of earners paying a lower share of tax,” it said. .

“Other approaches would be to cut costs, expand other sources of income or rely on strong economic growth.”

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