Opinion piece: Better tax cuts with economic dividend

Australian Treasury

From July 1 this year, the Albanese Labor Government will reform the tax system to deliver tax cuts for every Australian taxpayer.

These tax cuts are better for cost-of-living, better for the workforce, better for women and better for the economy, because we’ve found a way to return more bracket creep, boost labour supply and improve incentives to work for those who want to in a way that doesn’t burden the Budget or add to inflationary pressures.

The Treasury advice I have released makes all of this clear.

We know cost-of-living pressures are being felt up and down the income scales but the ability of Australian households to deal with them has been unevenly distributed and these pressures disproportionately impact low and middle income households.

Our tax plan delivers a tax cut to all 13.6 million taxpayers with 11.5 million, or 84 per cent of those taxpayers, now receiving a bigger tax cut compared to Morrison’s plan from five years ago. This provides broader cost-of-living relief to taxpayers, including those on low and middle incomes who are more vulnerable to cost pressures.

Increasing the take home pay of more people will boost workforce participation. Treasury analysis shows that our tax cuts will do more to increase labour supply, particularly for women. Driven by an increase in hours worked and increased participation of women earning under $75,000, our tax changes are estimated to raise labour supply by 930,000 hours per week.

That’s more than double the positive impact of the old stage three tax cuts.

Our tax cuts deliver a bigger benefit to more than 90 per cent of taxpayers in in-demand occupations, including teachers, nurses, aged and disability carers and childcare workers. It will help increase labour supply in crucial industries, such as the care economy, that will need more workers in the future, with female labour supply expected to increase by around 0.4 per cent.

This is good for workers, good for business and good for the economy.

What’s more, we are returning bracket creep up and down the income scale and for every taxpayer. We’ve done it in a way that is more evenly distributed and that will return bracket creep to more people.

Under our plan the average wage earner will pay less of their income in tax for at least the next decade, meaning our tax cut plan reduces bracket creep more, for more taxpayers compared with both Morrison’s plan and if we made no change to the tax system.

Bracket creep hurts low and middle income earners the most as they will experience the fastest growth in their average tax rate as their income increases. Because we are delivering a bigger tax cut to low and middle income earners, they will be better protected from bracket creep, so they will continue to pay less tax even as they earn more over the next few years.

This will put more money in the pocket of middle Australia and support growth in our economy without impacting Treasury’s inflation outlook.

Treasury’s advice makes it clear our tax changes will not add to inflationary pressures because they are broadly revenue neutral. The tax cuts will also be provided over the course of the year, rather than in a lump sum so their effect is staggered.

The tax cuts will flow from the middle of the year when inflation is expected to have moderated further, and because they have already been factored into Treasury’s forecasts, our changes do not impact Treasury’s expectation for inflation to return to the target band by the middle of next year. Similarly, the RBA has made it clear that our changes are expected to have no implications for their inflation forecasts.

These tax changes are part of our broader tax reform agenda. Along with cutting taxes for middle Australia we are cutting taxes to support small business, including through the $20,000 Instant Asset Write Off. We’re also reducing taxes in other areas where it makes sense, including to take advantage of the shift to cheaper and cleaner energy – which we are doing through policies like the Electric Car Discount and the Small Business Energy Incentive.

We are building a better tax system that does more to reward and incentivise work, support investment and maximise the opportunities of the big shifts in our economy.

After delivering the first Budget surplus in 15 years, and with a second one in striking distance, our tax cuts announced this week provide more relief to more people in a way that is fiscally responsible and does not add to inflation.

For all of these reasons this is tax reform and economic reform which is more substantial and more beneficial than the tax cuts legislated five years ago.

/Public Release. View in full here.