Joint Statement:
Australian Industry Group; Australian Chamber of Commerce and Industry; Business Council of Australia; Minerals Council of Australia
Australia’s major employer organisations – representing the employers of millions of workers across the economy – call on the Federal Government to stick to its promise of implementing the Stage 3 tax cuts in full from 1 July.
These tax cuts will be the last instalment of a program of personal income tax changes that has been delivered in stages since first announced in 2018. The Stage 3 tax cuts have not only been legislated: they have won support at two general elections.
Business calls on the Government not to break the promise it took to the last federal election just over 18 months ago. Tinkering at the edges would mean a promise has been broken. Delivering these tax cuts in full would help demonstrate that governments can make and keep promises.
To not do so would undeniably dent the Government’s credibility and damage the prospect of the fundamental phased revamp of taxation arrangements that the IMF has recently reminded us is so important for our future.
Our tax base is eroding and with an unhealthy reliance on taxing incomes as well as a raft of inefficient taxes, especially at state and territory level, we are increasingly ill-equipped to meet our society’s needs.
Fixing this mess requires not only political will and cooperation from across the federation, it will require public confidence that a program of reforms will be delivered as promised.
The microeconomic arguments in favour of staying the course with the stage three tax cuts are compelling.
At a time when we lament our low productivity growth and the snail’s pace of improvement in living standards that goes with it, the reduction in marginal tax rates on personal income will be positive for economic incentives and real living standards.
Most middle-income earners will pay no more than 30 cents of personal income tax for an extra dollar earned. That is a plus for workforce participation, work incentives, investment by businesses large and small, and it will raise national saving. Improving these incentives is positive for productivity, growing the tax base and helping finance our public services.
A further boost will come from the sharp reduction in the difference between personal income tax rates and the rate of income tax paid by companies. This is particularly important for small and family-owned businesses where effort will be redirected towards business (and employment) expansion rather than on navigating between different rates of tax applying to income flowing from different forms of business organisation.
The macroeconomic question is centred around the impact these tax cuts will have on the sought-after ‘soft landing’ from the post-COVID surge in inflation. Not proceeding with the Stage 3 tax cuts would significantly add to the risk of an excessive slowing. Honouring them is an important step in achieving the soft landing.
Both the Commonwealth Treasury and the RBA expect inflation to continue to ease and to land in the target range of between two and three per cent in 2025. These expectations take account of the Stage 3 tax cuts.
On the issue of fairness, these tax cuts are part of a package and should not be viewed in isolation. It is easily forgotten that the first and second stages of the 2018 reform package were skewed towards lower- and middle-income taxpayers and that the full package is much more balanced.
As has been pointed out many times, the package of income tax changes also deals with the return of fiscal drag to personal income taxpayers and the impacts of fiscal drag are much larger for higher income taxpayers.
JPMorgan recently said stage three tax cuts would have a ‘negligible’ effect on inflation.
It remains open to the Government to provide additional cost of living relief to a wider range of households. Naturally, the inflationary impacts of any such measures would need to be monitored very closely.
On behalf of Australia’s employers and their workforces, we reiterate that the tax cuts as proposed through two election cycles be delivered in full and as promised for the sake of the economy now and into the future.
Innes Willox Chief Executive, Australian Industry Group
Andrew McKellar Chief Executive, Australian Chamber of Commerce and Industry
Bran Black Chief Executive, Business Council of Australia
Tania Constable Chief Executive, Minerals Council of Australia
