Workers earning less than $87,000 look set to receive cuts of as little as $5 to $10 a week from Scott Morrison’s third federal budget, with bracket changes for incomes above $180,000 kicking in from the mid-2020s.
The Coalition has talked up the benefit of personal income tax cuts for low- and middle-income earners, part of what is expected to be a pre-election budget on Tuesday designed to improve the government’s standing with the electorate.
KPMG partner Grant Wardell-Johnson said about a quarter of taxpayers had incomes of above $80,000 and changes in 2016 to lift the threshold for the 37 per cent tax rate to $87,000 had impacted about 500,000 people.
Tax Office figures from 2015-16 put the figure at 21 per cent.
The budget is expected to take advantage of a revenue surge and savings from reduced spending, seeing tax cuts paid for immediately and allowing the government to meet its commitment to returning the budget to balance in 2019-20 and to surplus a year later in 2020-21.
Over 10 years, the tax cuts are expected to grow as the government hits its cap of tax revenue being no more than 23.9 per cent of the economy, forecast for 2022-23.
Tax thresholds were kept fixed between 2012 and the 2016 federal budget, with the only change a lift to the 32.5 per cent tax threshold from $80,000 to $87,000.
Lower wage inflation
Mr Wardell-Johnson said bracket creep affected lower-income earners more than higher earners.
“In terms moving it from 80 to 87 as they did a couple of years ago or moving it from 87 further up, it will benefit those at the top end.
“I think when they did it last time in 2016 it was set to benefit about a quarter of taxpayers as against three-quarters who would actually miss out.
“In an environment with lower wage inflation you’ve got less of a bracket creep problem. We at the moment, in the past few years, have had lower wage inflation.”
December’s mid-year budget update put wage inflation at 3.5 per cent by 2021, while the Reserve Bank expects it probably won’t lift beyond 2 per cent for some period time.
“The wage inflation helps pay for the budget because you pick up a stack of revenue from wage inflation and two, bracket creep is more acute in higher wage inflation,” Mr Wardell-Johnson said.
“As soon as you lower the wage inflation, you lower the problem.”
He called on the government to address female participation rates and the interaction between the transfer system and tax.
Labor’s tax relief pledge
Opposition finance spokesman Jim Chalmers said Labor put a higher priority on people on low and middle incomes than the Coalition.
“We’ve said all along we look more favourably on a tax cut for low and middle-income earners in Australia than we would for yet another Malcolm Turnbull tax break for the top end of town.
“But we have the capacity – because of the difficult decisions we’ve taken elsewhere in the budget – to deliver tax relief to working Australians in a far more responsible and sustainable way than the government does,” he said.
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