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‘Massively favour the rich’: Experts take on tax cuts

Lucy Dean
·3-min read
Pictured: Josh Frydenberg, Scott Morrison. Blurred image of pedestrians. Images: Getty
The Government's suggestion to bring forward tax cuts has been criticised. Images: Getty

Australian economic experts including senior bureaucrats and a former Reserve Bank of Australia governor are calling for the Government to reconsider its touted plan to bring forward tax cuts, claiming the cuts will be saved and not spent.

Treasurer Josh Frydenberg has flagged that major tax cuts scheduled for 2022 could be brought forward as part of the Federal Budget to be handed down on 6 October.

“We are looking at that issue and the timing of those tax cuts because we do want to boost aggregate demand, boost consumption, put more money in people’s pockets, and that’s one way to do it,” Frydenberg said in July.

He reiterated the suggestion in September as Australia officially entered its first recession in 30 years.

Frydenberg was referring to the second stage of the Government’s tax cuts plan which would see the 19 per cent tax rate threshold increase from $41,000 to $45,000, while the 32.5 per cent threshold increases from $90,000 to $120,000.

Then, from 1 July 2024, the third stage of the cuts sees the 32.5 per cent threshold increased to include those earning as much as $200,000.

Last year, the Government introduced the first stage of its tax plan which included a $1,080 tax offset delivered to around 4.5 million Australians.

‘Most low income earners get nothing’: Experts criticise plan

However, former RBA governor Bernie Fraser said any move to bring forward the tax cuts is 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.

The Australia Institute will air a television advertisement on the topic this week.

Fraser was joined by former deputy RBA governor Stephen Grenville who said cutting the top-rate income tax will only offer weak stimulus, while simultaneously undermining the “equitable and progressive tax structure”.

Former Liberal opposition leader John Hewson described the LNP as “naively” hoping the cuts are good politics, but won’t help Australia escape recession.

The discussion comes days before JobSeeker payments are set to fall by $300 a fortnight from Friday. That means that the maximum fortnightly rate for a single household will fall from $1,100 to $810.

The Australian Council of Social Services (ACOSS) added its voice to the call to reconsider the tax cuts, arguing the cuts were inequitable.

“More tax cuts today mean service cuts tomorrow. The next stage of legislated tax cuts costs $12 billion a year and reduces tax for people on $130,000 or more by $47 per week. Most low and middle income earners get nothing,” Cassandra Goldie, CEO of ACOSS, said.

“Yet it’s only low income-earners that will spend most of any Government stimulus. Instead, it’s time to #RaisetheRateforGood by permanently increasing Jobseeker payments.”

Former secretary to the department of the prime minister and cabinet Michael Keating echoed her words, saying the tax cuts “massively favour the rich”.

The Federal Budget will include more support for Australian pensioners, but the social housing and construction sector has also called for massive investment into affordable housing, claiming it will benefit both tradies and vulnerable Australians.