- Treasurer confirms tax cuts are coming for low and middle-income workers, but they will start small.
- But it appears people at the top end of the tax scale will have to wait for years to get a tax cuts.
- Scott Morrison is still making optimistic noises about company tax cuts.
Tax cuts in tomorrow’s federal budget will be targeted at low and middle income workers, with the government likely to outline a plan to reduce incomes taxes for all workers over an extended period of six years or more.
Treasurer Scott Morrison has confirmed the budget will deliver some income tax relief for people earning up to $87,000, but cautioned they would not be “mammoth” in an interview with Channel Nine yesterday.
The government will also write a commitment into the budget to limit overall tax take at 23.9 per cent of GDP, and announce infrastructure spending plans worth over $24 billion.
News Corp reported on the weekend that “fundamental changes to the higher tax brackets” were expected in the budget, taking effect in 2024.
The Turnbull government appears to be taking an approach to income tax cuts somewhat similar to its phased approach to corporate tax cuts, which started by applying to smaller businesses but over a decade gradually reduce the rate and apply to businesses of increasing size.
Such an approach allows the government to replace some of the lost revenue as the economy grows over time.
Morrison is also hoping the income tax cuts will support growth in household consumption, which accounts for almost 60% of GDP and has been restrained by years of weak wages growth. The RBA has lately started saying in its monthly interest rate decisions that the outlook for household consumption is a “continuing source of uncertainty” in the Australian economy, because “household income has been growing slowly and debt levels are high”.
Morrison told the AFR there had been a “modesty” to consumption growth, and that “providing relief in that area particularly where there’s a high propensity to consume is also supportive of growth in the economy as well”.
“So there are good economic reasons for doing it, obviously, but there’s also very sound, I think, some relieving-pressures-on-household-budgets reasons to do it and the two actually work together,” the Treasurer said.
Morrison also said he remained optimistic that the extension of corporate tax cuts to the biggest companies — a contentious issue given the revelations about the behaviour of the major banks in recent weeks — would be legislated after the budget with the support of new South Australian senator Tim Storer.
“We will get these through the Senate,” Morrison said. “That’s my understanding and that’s my belief.”
Morrison would not be drawn on Channel Nine yesterday on whether there would be any change to the expected date of the budget returning to surplus, currently slated for 2020-21.
The government has seen a dramatic improvement in the budget position this year, thanks to a surge in corporate tax inflows, strong job creation, and expenses being lower than forecast.
NOW LISTEN: Business Insider previews the budget on this week’s Devils and Details podcast
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