Canberra Report: Australians deserve a tax cut

26 June 2019

Income tax cuts are a good thing.

Indeed, bracket creep makes them a must. Bracket creep describes the way wages growth (as low as that has been recently) pushes workers into higher marginal tax rates and therefore, increases their tax burden. Reducing tax rates from time to time is important.

The biggest policy debate since the election has been around the merits or otherwise of the government's $158 billion tax cuts package. There is no argument Australians don't deserve a tax cut, they do.

The government's tax reduction package has three stages. Stage one makes an existing tax rebate for low and middle income earners more generous and extends it. It has immediate effect when the legislation passes. Stage one will cost $15 billion. Under the current arrangements taxpayers move from the 19 per cent tax rate when they earn more than $41,000. That threshold will become $43,000 under stage two. Further, the threshold where the 32.5 per cent rate transitions to a 37 per cent rate will rise from $90,000 to $120,000. Stage two will cost the budget $48 billion. The changes will come into effect in three years' time. Labor has made it clear it will support stages one and two in the Parliament.

The contentious part of the package is stage three. At a cost of $95 billion, stage three further pushes-up the threshold for the 32 per cent rate and completely removes the 37 per cent rate. That's a flattening of the tax scales which make them less progressive and therefore, less fair. The change does not take effect for five years. It's on the never-never. Labor wants the government to split the package so that we can vote for stages one and two, but against stage three because we think it's too heavily weighted in favour of high-income earners and with the economy deteriorating, may be unaffordable without cutting funding to other important areas of government investment like health, education and pension payments.

But the government has made it clear that it will not agree to split the package. So if Labor decided to oppose the package it would deny near-term tax relief for those who need it most. I don't believe that to be an acceptable option. Labor would also risk being blamed for denying a spending stimulus for an increasingly poor economy, an economy which has turned bad on the government's watch.

After six years in government, the Liberals and Nationals must wear the responsibility for its poor economic management.