Yahoo Finance Aussies could score $2.6k tax cuts as savings question looms
Prime Minister Scott Morrison has all but confirmed more tax cuts will be included in next Tuesday’s budget, as the country battles its first recession in 30 years.
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“We’re delivering lower taxes for businesses and individuals. Australians are already benefiting from the tax cuts made in the last two budgets,” Morrison said while speaking at the National Press Club on Thursday.
The Coalition in 2019 locked in three stages of income tax cuts. The first round last year delivered average income earners tax offsets of $1,080.
The second stage, which was scheduled for July 2022, will see the 19 per cent tax threshold jump from $41,000 to $45,000 and the 32.5 per cent threshold from $90,000 to $120,000.
The third stage, due to come into place from July 2024 will see the 32.5 per cent tax threshold increased to include those earning as much as $200,000.
Morrison said efforts to stimulate the economy through the manufacturing sector will only fall short if taxes are too high.
“That is why... correcting all those things is important.”
Treasurer Josh Frydenberg has also been hinting that the Budget will see tax cuts brought forward, saying in early September that the government is considering the timing of the cuts with announcements to be made in the Budget.
“But it is fair to say these are very substantial reforms to our tax system,” he added.
Bringing the 2022 cuts forward would cost $12.35 billion, according to Deloitte Access Economics analysis. Those earning $90,000 would receive an extra $1,215 back compared to 2017-18, while those earning $120,000 or more would see an extra $2,565.
Critics blast tax cut plan
However, the tax cuts are not universally supported, with former Reserve Bank of Australia governor Bernie Fraser blasting them as ill-considered.
“The unfolding Covid-19 pandemic is a stark reminder to all policy makers of two fundamental truths: that while many of us work and spend in economies, we all live and die in communities; and, secondly, the most vulnerable groups in those communities are always hit the hardest in major crises like this pandemic,” Fraser said, as part of a campaign organised by The Australia Institute to prevent the cuts in September.
The Australia Institute analysis found that the stimulatory effects of bringing forward the tax cuts would be minor, and that the cuts will instead increase inequality.
“The policy fails both in terms of fairness and efficiency. We need a far more progressive income tax, and one based strictly on individual incomes,” added University of Sydney Law School professor Patricia Apps.
The Australian Council of Social Services has also called for the tax cuts to be foregone in favour of an increase to JobSeeker payments.
The savings question
The plan comes as Australia’s savings rate hits record highs, with IBISWorld research showing the household savings rate has jumped from 2.7 per cent to 7.9 per cent since 2019-20, as measured as a share of gross disposable income.
And according to IBISWorld’s senior analyst Matthew Reeves, it will take at least three years for this rate to fall.
Former prime minister Kevin Rudd described this as a cause for concern, but the Reserve Bank of Australia and AMP senior economist Diana Mousina believe the higher savings rate could be a benefit as Australians are weaned off income support measures like JobSeeker and JobKeeper.
Responding to questioning on whether Australians will simply pocket any tax cut rather than injecting it into the economy, Morrison said he won’t tell Australians what to do with their money.
“When you are talking about income tax cuts, they're just getting to keep more of what they earn,” Morrison said.
“I'm not going to get into giving an edict to Australians about how they should spend their money.”
The 2020-21 Budget will be handed down next Tuesday 6 October at 7:30pm.
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