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August, 2018 8:21 PM



Income tax plan to be put to the test

Income tax plan to be put to the test

A series of opinion polls and consumer confidence readings next week will gauge how the Turnbull government's budget went down with the public.

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By AAP 10.05.2018 12:52 PM

Malcolm Turnbull wants the by-elections triggered by the seemingly never-ending citizenship debacle that has engulfed all sides of parliament to be a referendum on the major parties' tax differences.

But the prime minister won't have to wait that long to get a feel for how his government's latest budget went down with the public with a series of opinion polls and consumer confidence readings released next week.

Consumer confidence rose for four straight weeks heading into Treasurer Scott Morrison's third budget in anticipation of there being the much-promised personal income tax cuts.

And they shouldn't be disappointed on that score with Morrison returning $140 billion to taxpayers over the next decade through a three-part, seven-year plan in what Turnbull has described as a "huge reform".

It sounds like a lot of money, but it remains to be seen whether voters will be satisfied when this mountain of cash is broken down at a time of slow wages growth.

For example, a single person on $30,000 will get a tax cut of $200 in the financial year starting on July 1, while someone on an average wage of around $85,000 would get $530 and a $200,000-a-year salary earner would get just $135.

However, due to the structure of the changes, by 2024/25 the low-income earner would still be only $200 better off, the middle-income earner will be getting a slightly higher $540 but the higher income earner will get $7225.

That's if the legislation passes parliament.

Labor said it would support only the initial stage of the deal, a new low and middle-income offset, but Morrison said it would only be voted on as a package.

It's already sounding like the debate surrounding Morrison's other tax plan - the 10-year company tax reduction package - a large proportion of which remains stuck in the Senate.

There were mixed reviews over the new tax plan and the budget more generally from industry and advocacy groups, tax experts and economists.

The budget, which is also predicting an earlier return to surplus, delivering a pile of cash for infrastructure and a bucket of incentives for older Australians, was clearly seen as a pre-election budget.

If anything, some economists were surprised there wasn't an even bigger spend-up.

Although with Turnbull insisting an election is a year away, there is still time for more sweeteners to be delivered.

Professor Robert Breunig from the Australian National University's tax and transfer policy institute welcomed the move to give money back to taxpayers but thought it was a stretch to call it tax "reform".

"The new tax offset adds complexity to an overly complex system," he said.

"Nothing has been done to address the problems with GST or the complexity of the system or to reduce the number of taxes."

Australian Retailers Association executive director Russell Zimmerman said the tax cuts will provide relief for his struggling sector.

However, he would like to have seen cuts across all tax brackets and implemented faster to drive discretionary spending.

Figures this week showed retail spending growth stalled in March and grew by just 0.2 per cent in the first three months of the year after a downwardly revised 0.8 per cent rate in the December quarter.

The data will feed into the economic growth result in national accounts for the March quarter on June 6.

On the economic growth outlook, Morrison remained even more conservative than the Reserve Bank but economists still questioned predictions of wages growth of 3.5 per cent in a few years time when it is stuck near a two-decade low of 2.1 per cent.

This is particularly the case when Treasury is projecting the jobless only falling to five per cent in four years time.

It was 5.5 per cent in March.

"If the unemployment rate only falls to five per cent by 2021/22 then that should be seen as a policy failure," Macquarie Securities economist Justin Fabo said.

The latest wage price index for the March quarter - the Reserve Bank and Treasury's preferred measure of wage growth - is also due next Wednesday.

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