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PM hints at imminent change to tax cuts to make room for cost-of-living relief

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Back in 2022, Labor said it is prepared to re-evaluate stage three tax cuts if inflation remains an issue in 2024.

Labor is expected to announce changes to the already legislated stage three tax cuts as soon as this week to make room for cost-of-living assistance for middle Australia.

Speaking on Sydney radio KIIS FM on Tuesday, Prime Minister Anthony Albanese said: “I support tax cuts and everyone will be getting a tax cut”.

“What we need to do across the board, what we’re doing is looking at how we can help low- and middle-income earners, middle Australia particularly is doing it really tough.

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“We’re looking at ways at which we can provide assistance to them.”

Mr Albanese’s radio appearance precedes a cabinet meeting on Wednesday, during which tax cuts are expected to be evaluated to create room for relief for a broader group of Australians.

According to media reports, the PM has called his federal cabinet colleagues to Canberra two weeks ahead of schedule for an emergency meeting on the cost-of-living crisis. However, the PM denied these claims, telling KIIS FM that the cabinet meeting is routine and that mounting economic issues have not triggered an emergency sit-down.

Stage three tax cuts, due to kick in on 1 July 2024, are set to abolish the 37 per cent tax bracket applied to income between $120,000 and $180,000 and reduce the 32.5 per cent tax rate to 30 per cent for all incomes between $45,000 and $200,000.

In the lead-up to last year’s May budget, Treasurer Jim Chalmers said the government would push ahead with stage three tax cuts, while opting not to extend the low- and middle-income tax offset. This meant that individuals earning less than $126,000 were pocketing $1,500 less in the 2022–23 financial year compared to the previous year.

“One of the defining influences on the budget in May will be the uncertain global conditions and what that means for inflation and cost of living and interest rates here at home. We know that people are under pressure, the budget is under pressure as well, and we’ll strike the right balance as we go about dealing with those challenges,” the Treasurer said at the time.

Speculation is rife regarding what the government will choose to do with the stage three tax cuts. On Monday, 2GB reported that it would keep the 45 per cent tax rate for those earning between $180,000 and $200,000, which would trim the tax cut from $9,075 to $6,075 for those individuals and raise the tax-free threshold.

The opposition didn’t wait long to weigh in on the debate, with shadow treasurer Angus Taylor blasting the PM on Tuesday over what he said is a “broken promise”.

“Media reports this afternoon make it clear Labor look set to break their promise on stage three tax cuts,” the shadow minister Tweeted.

“This is the mother of all broken promises.” In a subsequent statement, Mr Taylor said the PM is “out of touch with the issues that matter to Australians”.

“Australians have voted for these tax cuts twice. Any change to the legislated tax cuts is an absolute betrayal of the trust Australians have placed in this government,” he said.

“If the Prime Minister is going to break this promise, he needs to front up and be honest with the Australian people rather than relying on whispers through the media.”

Accusing Labor of waging a “class warfare”, Mr Taylor opined that “no one has ever solved an inflation crisis by using class warfare”.

“It’s clear Labor wants to tax its way out of inflation and Australian families are paying the price.”

Last week, the International Monetary Fund (IMF) called for “comprehensive tax reform” in Australia and highlighted that rebalancing the tax system from direct to indirect taxes, while addressing regressive impacts, would promote greater efficiency.

“Comprehensive tax reforms remain indispensable to long-term fiscal sustainability and productivity,” the fund said.

“High reliance on direct taxation is amplifying challenges of financing health and aged care as population ageing lowers the share of workers and declining productivity growth puts a drag on wages.”

Referencing the government’s 2023 Intergenerational Report, the IMF underscored the growing dependence on bracket creep in the absence of tax reforms.

“Addressing these challenges heads on will avoid costly delays in tax reforms needed for sustained and shared prosperity.”

The IMF also suggested that Australia’s inflation remains too high and that it won’t return to the RBA’s target until 2026, a year later than the RBA’s projections.

According to the latest monthly consumer price index (CPI) data, inflation rose by 4.3 per cent in the 12 months to November, down from the 4.9 per cent rise in October and marked the smallest annual increase since January 2022.

Despite an apparent ease in inflation, the IMF believes that the RBA will need to hike rates further to ensure inflation stays down.

Employer groups call on government to stick to word

In a joint statement issued on Tuesday afternoon, the Australian Industry Group, Australian Chamber of Commerce and Industry, Business Council of Australia, and Minerals Council of Australia urged the government to proceed with the stage three tax cuts.

Business calls on the government not to break the promise it took to the last federal election just over 18 months ago. Tinkering at the edges would mean a promise has been broken. Delivering these tax cuts in full would help demonstrate that governments can make and keep promises," the groups said.

To not do so would undeniably dent the government’s credibility and damage the prospect of the fundamental phased revamp of taxation arrangements that the IMF has recently reminded us is so important for our future.”

The employer groups added that there are compelling” microeconomic arguments in favour of staying the course with the stage three tax cuts.

At a time when we lament our low productivity growth and the snail’s pace of improvement in living standards that goes with it, the reduction in marginal tax rates on personal income will be positive for economic incentives and real living standards,” they said.

A further boost, the groups noted, will come from the sharp reduction in the difference between personal income tax rates and the rate of income tax paid by companies”.

This is particularly important for small and family-owned businesses where effort will be redirected towards business (and employment) expansion rather than on navigating between different rates of tax applying to income flowing from different forms of business organisation.”

The groups also argued that not proceeding with the planned tax cuts would significantly add to the risk of an excessive slowing” in economic activity.

On behalf of Australia’s employers and their workforces, we reiterate that the tax cuts as proposed through two election cycles be delivered in full and as promised for the sake of the economy now and into the future,” they concluded.

PM hints at imminent change to tax cuts to make room for cost-of-living relief

Back in 2022, Labor said it is prepared to re-evaluate stage three tax cuts if inflation remains an issue in 2024.

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Maja Garaca Djurdjevic

Maja Garaca Djurdjevic

Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.

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