If budgets are about choices, then this was one in which very few choices were made. But the one on tax cuts has made life rather difficult for Peter Dutton and Angus Taylor to match without massively increasing the deficit – or telegraphing huge cuts just weeks from an election.
The budget was not a horror. Austerity budgets always are about hitting low-income earners and cutting back on services that are largely unused by anyone earning more than the average full-time wage. So that is good. But to be honest, there just wasn’t any great ambition.
The Coalition’s 2022 budget, I suggested at the time, revealed a government with no ideas and showed the government in its death throes. It’s only real item of note was a $420 increase in the $1,080 low-middle income tax offset (LMITO) that bizarrely went from $420 to $0 the moment you earned a dollar over $125,999.
As far as election bribes went, it was dumb and pointless because it was for one year only. It was just an “oh gosh, our stage-three tax cuts are terrible, better bribe some people” response.
This time the government chose to deliver a tax cut. And that’s fine. It targets those earning less than $45,000 and it doesn’t give swags of money to the richest.
All good.
But at a cost of $7.7bn in 2028-29, that’s about 50% more than it would cost to have increased jobseeker by $200 a fortnight.
That is a choice. It’s a choice that might be politically good but it leaves a lot of people living 38% below the poverty line for no good reason, other than the government chose to do that.
And even were it to increase jobseeker by $200 it would merely restore the level back to where it was in the 1980s under Bob Hawke – still about 25% below the poverty line:
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The government chose not to touch the capital gains tax discount – which gives around $18bn in 2025-26 to the richest 10% while distorting the housing market.
So that’s a choice. Not an economic one; a political one.
But while the tax cuts do, in my view, have good economic cause (helping low-income earners), they also were one of the sharpest political moves of late.
Taylor has spent the best part of the month going around marginal seats throwing around the line that Australians on average are paying $3,500 more in tax than they were in June 2022 due to bracket creep.
At the same time, he has also been clear that there was no prospect of the Liberal party going to the election promising tax cuts – which research by my colleagues at the Australia Institute has found meant it would be the first time since 1972 the Liberal party had not offered personal tax cuts at an election.
Here was Taylor on Tuesday morning:
JOURNALIST: So maybe a stage-four tax cuts?
ANGUS TAYLOR: (Laughs)
Now Jim Chalmers has a tax cut and Taylor has currently nothing other than the weird suggestion that it is a hoax.
But what about Taylor’s claims of $3,500 more tax? Surely that overshadows the $268 tax cut?
First of all, you have to realise that Taylor’s $3,500 figure is dumb. Yes, people are paying more tax but they are paying more tax because they are earning more money! That is not bracket creep; that is the marginal tax system at work.
And people are not on average $3,500 worse off – they still have more money after tax than they did before.
But he is right – some people are paying more tax than in June 2022 – and the major reason, as I noted back in April 2023, was the decision in Josh Frydenberg’s March 2022 budget to end the $1,500 LMITO.
Oddly, Taylor has not mentioned that.
Bracket creep is also an issue that mostly affects those on low incomes, but the LNP’s preferred version of the stage-three tax cuts didn’t care about them at all.
Oddly again, Taylor has not mentioned that.
Let’s just recap the state of play, given these new tax cuts on top of the stage-three tax cuts (and compared to the old stage three).
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After these new tax cuts, everyone who earns less than $153,500 would be worse off if the government had decided to keep the old stage three.
But that does not account for the end of the $1,500 LMITO.
So let’s show what that looks like:
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Under the old stage three, anyone earning less than $96,900 was going to be worse off after the tax cuts and losing the LMITO. Now mostly everyone earning under $31,700 will be better off.
It shows the huge impact of removing the LMITO, and also the problem for Taylor and Dutton given they have rejected the tax cuts.
It is pretty much impossible to do their own version of a tax cut in a way that will make things better for those earning around the median wage of $62,500 – let alone those on average full-time wage of $106,000 – without spending more money.
For example, they could lower the 30% tax rate for incomes between $45,000 and $135,000 to 29%. That would cost roughly the same – but everyone who earns less than $98,500 would be worse off than under the government’s changes, and those on $106,000 would be only $74 better off.
As soon as you lower that rate to say 28%, yes people are better off, but you are spending almost double the amount – so you need to find about $25bn in cuts over the next four years. Have fun selling that.
Who knows, maybe Dutton will announce a tax cut tonight in his budget reply. He could reintroduce a version of the LMITO around $550. That might cost much the same but would be better targeted by not giving anything to high-income earners. Will that happen? The odds are unlikely.
Either way, tax is now a major part of both the ALP’s and LNP’s election campaigns. And many of the other choices that would help the unemployed or reduce tax breaks to the rich will be likely left for someone else to worry about.