Income tax cuts are coming.
Scott Morrison will announce “modest” cuts through adjustments to marginal rate thresholds in his first budget on May 3, according to reports in News Corp papers today.
Since becoming Treasurer late last year Morrison has argued that Australian workers need income tax relief, especially from the impact of bracket creep the process through which wage inflation steadily results in workers moving into higher marginal tax rates.
In January he told Sky News:
the thing we have to do is get the income tax monkey off peoples’ backs and that is what is going to hold them back this year. We don’t want them to be held back because we are in a more globally volatile environment; there are further pressures in the global economy – which are not things we can do anything about. But what we can do about things back here in Australia is ensure our tax system is up the task of the 21st century.
The threshold increases and the dropping of the 2% deficit levy imposed on higher income workers by the Abbott government next year mean almost all middle and higher income earners in Australia are in for tax relief over the coming two years under the Turnbull government, as the prime minister prepares to announce an election expected to be held on July 2.
Earlier this week the federal government signalled it would introduce further reductions on tax breaks for multinationals – the so-called thin-capitalisation rules – which should result in a multi-billion-dollar addition to the budget bottom line.
The Australian, meanwhile, reports today that changes to superannuation tax concessions will introduce more flexibility for people on lower and middle incomes at the expense of higher earners.
The Telegraph also reports there will be a cut to the corporate tax rate for larger companies of 1.5 percentage points to 28.5%, the rate that currently applies to small business.
This will be at a modest cost of $2.5 billion to the budget while the Telegraph says some economists believe it will add $1.5 billion to the economy every year. Business Insider reported previously that the government was considering reductions in the corporate tax rate, possibly by setting a long-term target rate delivered through gradual cuts over time.
The Daily Telegraph reports that the government believes some 300,000 workers currently in the 32% bracket will be pushed into the 37% bracket within the next two years.
In an interview on Sydney’s 2SM radio this week prime minister Malcolm Turnbull said: “People will look at that budget and they’ll say this is a fair budget. But it will also be one that encourages enterprise and people to have a go and to invest.”
Economic conditions both global and domestic over the past six months may also be adding some favourable conditions ahead of Morrison’s first budget. The Australian economy turned in a surprisingly strong performance in the December quarter, and the iron ore price has recovered spectacularly after falling below $US40 late last year.