Morrison and Shorten’s budget battle to lower taxes

Mr Frydenberg, who will use Tuesday’s budget to hand out $285 million worth of one-off payments to pensioners, carers and single parents to cover the cost of electricity bills, signalled broader relief for working families was on the agenda.

He also refused to rule out further handouts to particular voters.


«In terms of taxes, they will always be lower under the Coalition and what we delivered in last year’s budget was $144 billion of tax cuts which will see 95 per cent of taxpayers better off,» he told Nine.

The second round of tax cuts are due to begin from mid-July 2022. Under these, the $90,000 threshold for the 37 per cent tax rate increases to $120,000 while the 19 per cent threshold increases to $41,000 from $37,000.

The changes, however, deliver relatively little to workers on between $50,000 and $90,000 a year who form the bulk of working Australians.

Moving on the tax cuts in the budget, however, gives Mr Shorten the opportunity to mimic the measures.

In his budget-in-reply speech last year, Mr Shorten bettered the government’s tax cuts to low and middle income earners, drawing on some of the revenue Labor is banking to gain from its reforms in areas such as capital gains tax and negative gearing.

Labor’s Chris Bowen, who on Sunday confirmed if Labor wins the election he will hand down his own budget update in the second half of the year, signalled the ALP was open to further tax cuts if they were affordable.

«Certainly, you can afford tax cuts when you’ve made the right decisions elsewhere in the budget, like we have,» he said.

«We recognise the need, particularly in the era of low wages growth and cost of living pressures, everything going up, except for people’s wage, carefully targeted tax relief for low- and middle-income earners is important for the economy.»

The argument over tax cuts comes as new research from the left-leaning Australia Institute shows a lift in wage rises would deliver far more to ordinary workers than changes to tax rates.

The government has claimed that tax cuts can make up for slow wages growth which the Reserve Bank has identified as a key issue facing the overall economy.

Based on modelling a plan to bring forward the government’s already legislated tax cuts, the Australia Institute found across all pay scales people would be substantially better off with a pay rise of 3.5 per cent.

A person on $60,000 a year would gain $210 if the tax cuts were brought forward. But if wages grew by 3.5 per cent, the same person would enjoy a $966 pre-tax increase.

Over three years, that person would save $$630 in tax benefits but if wages grew at 3.5 per cent per year they would get a $4305 pay increase.

For someone on $100,000, earlier tax cuts would give them $610 while a 3.5 per cent wage rise would boost their wage by $2153.

Report authors Jim Stanford and Troy Henderson said if wages grew at 3.5 per cent, which is what they averaged in the 15 years up to 2013, workers would be far ahead of anything that could be delivered via a tax cut.

«The government claims that pre-election tax cuts, instead of regular, normal wage increases, can somehow address the crisis in household finances faced by millions of working Australians. That claim is mathematically false,» they found.

The Australian Council of Social Services said rather than cutting income taxes, the government should look to boost Newstart by $75 a week to deliver relief to some of the poorest people in the country.

Council chief executive officer Cassandra Goldie said just bringing forward the government’s planned tax cuts would do nothing for the 30 per cent of the population that does not pay income tax.

While tax cuts will be a key feature of the budget, the government will also announce the inclusion on the Pharmaceutical Benefits Scheme of the medicine Bavenico for the treatment of metastatic merkel cell carcinoma, a rare type of skin cancer, as well as Ibrance which will assist people suffering from breast cancer.

Without the listing, Bavenico would cost a patient $150,000 a year while Ibrance would cost $55,000.

Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.

Eryk Bagshaw is an economics correspondent for The Sydney Morning Herald and The Age.

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