*(Image: Soofia Tariq)
Federal Parliament has passed the Morrison Government’s tax cuts, which brings forward the second stage of bracket changes for 11 million Australians.
Treasurer Josh Frydenberg said in his budget speech on Tuesday October 6 that “Australians will have more of their own money to spend on what matters to them, generating billions of dollars of economic activity and creating 50,000 new jobs.”
However, some economists doubt that the cuts, costing $12.5 billion in 2020-2021 and $6.5 billion from 2021-2022, will be as effective as the Government claims.
“Lower and middle-income earners will this year receive tax relief of up to $2,745 for singles, and up to $5,490 for dual income families compared with 2017-18,” Treasurer Frydenberg told the nation.
“We will also retain the Low and Middle Income Tax Offset for an additional year.
“We will achieve this by bringing forward Stage Two of our legislated tax cuts by two years, lifting the 19 per cent threshold from $37,000 to $45,000, and lifting the 32.5 per cent threshold from $90,000 to $120,000.”
Our Economic Recovery Plan will create jobs, rebuild our economy & secure Australia’s future.
Together, Australia will come back.
You can read my speech here➡️ https://t.co/KikG2Hp6eZ#Budget2020 pic.twitter.com/djuEEC0mkh
— Josh Frydenberg (@JoshFrydenberg) October 6, 2020
Associate Professor Xiaodong Gong, from the School of Politics, Economics and Society at the University of Canberra, disagrees.
“These two stages [are] not that big of a change,” he told Central News.
“The bracket changes a little, but the biggest change will be the stage three. These two stages were already legislated and only bought forward because of the extreme circumstances. So I wouldn’t think that these two stages effects will be very big because the changes are not that big.”
Assoc. Prof. Gong noted that tax cuts were just one way to kickstart a floundering economy.
“Typically, the government can do two things to stimulate the economy. One is to increase spending – so, introducing infrastructure projects,” he said. “Reducing tax is another way.”
Peter Davidson, Principle Advisor to the Australian Council of Social Services (ACOSS), doesn’t think the tax cuts will be effective in providing tax relief to lower-income earners.
“It will mostly benefit people from $50,000 to $90,000 a year, which is middle income earners,” he said.
“Of course it won’t benefit at all those whose incomes are too low to pay tax, and that is the bottom one-third of households – people who have become unemployed, pensioners and others.
“Increasing JobSeeker payments, putting money in the hands of those who really need it, and will spend it immediately, is far more effective. As is expanding essential services; aged care, childcare, health service and community services. The cost per job created is far less if you do it that way”
Professor Alan Fenner from the John Curtin Institute of Public Policy, is more optimistic. He pointed out that tax cuts will be effective when considering other budget measures.
“I think there’s a good balance here because they’re doing a lot of direct spending and other forms of subvention, it’s not as if this is the only instrument that they’re using.”
However, Peter Davidson disagrees, saying more could be done.
“We’ve advocated a $7 billion spend on investment in new social housing homes, which would help reduce homelessness and would generate lots of jobs in housing construction,” he said.
“A bigger investment [should have been put into] in aged care, especially home care services where there’s around a million people waiting for those services. That would have helped and would have generated jobs (which) would have closed the gap in services. Childcare needs a big investment to assist women in particular to return to the paid workforce.”
In his Budget Reply, Opposition Leader Anthony Albanese committed to increasing the maximum childcare subsidy to 90 per cent and planned to remove the annual cap on the childcare subsidy, if elected.
This is why I want to be your Prime Minister. #BudgetReply pic.twitter.com/SpFIcs9uIv
— Anthony Albanese (@AlboMP) October 8, 2020
“Right around Australia, instead of childcare supporting families where both parents want to work; the costs, and the tax system, actively discourage this,” he said.
Despite Labor’s objections to the Coalition’s budget, the tax cuts passed Parliament with Labor’s support.
Taxpayers should be begin to see the money immediately.
— Soofia Tariq @soofiatariq