The budget will provide tax 'relief' rather than 'cuts'

PAUL BUCK/AFP/Getty Images

When Australian Treasurer Scott Morrison announces income tax cuts in tonight’s federal budget, the chart below underlines why it should be regarded as tax relief rather than outright tax cuts.

Source: Macquarie Bank

From Macquarie Bank, it shows Australian income tax payments expressed as a proportion of gross household income going back to 1970.

After benefiting from income tax cuts delivered at the height of Australia’s commodity price boom, Australians, on average, have been paying a greater share of their pre-tax incomes to the government since 2012.

And, based on the government’s mid-year economic and fiscal outlook (MYEFO) last December, that trend was set to continue without some form of income tax relief.

It looks like we’ll get some in the budget, the only real question is how much?

“Modest” appears to be a word that has been used frequently ahead of Morrison’s budget address.

And as income tax receipts have increased as a percentage of household income over recent years, the government’s overall tax revenues as a percentage of Australian GDP have also climbed over the same period, pushing towards its arbitrary cap of 23.9% in its December MYEFO projections.

Source: Macquarie Bank

The ratio currently sits just shy of the average of the 1980/81 fiscal year.

And with more revenues being collected as a percentage of GDP, government spending on payments has also increased in the years following the global financial crisis, regardless of which political party was in power.

Source: Macquarie Bank

Scott Morrison will deliver Australia’s budget from 7.30pm AEST tonight.

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