Expectations are growing for additional income tax cuts in Treasurer Josh Frydenberg’s first budget as the Morrison government tries to win back ground ahead of a likely May election.
“The economy is getting worse, but the Budget’s getting better,” said Deloitte Access Economics economist Chris Richardson.
A temporary surge in commodity prices driven by stimulus from China and supply shortages out of Brazil mean the budget is $13.1 billion better off, according to Deloitte.
Swelling tax revenues also mean the government will hit its 23.9% tax-to-GDP cap in 2021-22, unless more tax cuts are implemented. Richardson warned against legislating “permanent promises paid for with temporary revenues,” but noted history tells us tax cuts are coming.
“The twenty cents in the dollar of wages and salaries set to be paid in tax in 2021-22 has only been beaten once before in history – in 1999-00, just before the GST first came in,” said Richardson. “That suggests we haven’t heard the last of tax cuts ahead of the coming election.”
AMP chief economist Shane Oliver agrees tax cuts are probably on the way. “Overall though it looks like there is scope for around $6 billion in extra fiscal stimulus in 2019-20 that would basically leave the budget projections into a surplus unchanged,” said Oliver.
The government is already phasing in $144 billion in personal income tax cuts in three stages.
One option being talked about is to bring forward the tax cuts slated for mid-2022. This includes lifting the bottom threshold for the 32.5% tax bracket from 90,000 to $120,000 and the top threshold of the 19% bracket from $37,000 to $41,000.
But Mr Richardson said such a move would provide most taxpayers with an early tax break of just 20 cents per week.
Business Insider Emails & Alerts
Site highlights each day to your inbox.