Stage 3 tax cuts

What does everyone think about the likelihood of ALP backpedaling (or significantly tweaking) the Stage 3 cuts?

Already there is a build-up of noise from the Fairfax media against “tax cuts for the rich”, a claim which in of itself doesn’t stack-up given the higher rate band would start at over $250k rather than $180k today were it indexed to CPI (as arguably it “fairly” should be).

Personally, I think a significant tweak is on the cards. That way, Albo can claim the ALP’s election promise to see Stage 3 through hasn’t been abandoned - but equally, he’s able to mollify the left wingers.

 

Channel 9 / Fairfax make their money through property (Domain). Stage 3 tax cuts will be inflationary, it will give a lot of people more money to spend on goods and services. This will mean higher mortgage rates for longer, and hence lower property prices - something the Domain mouth piece wouldn't like.

 

I have noticed the media seem to be peddling regular stories in an attempt to push the government to dump the tax cuts. While I have been a Lib for a while now I am actually impressed with Albo so far. Hopefully he doesn't ruin that with a backflip on this policy that he clearly said will not be changed if he wins.

The tax cuts dont kick in till July 2024, surely the inflation problem will have been sorted by then and the property market / cycle would be different to today. If we are still battling high inflation by mid 2024 then tax cuts will be the least of the property markets problems.

 

I am biased - I would only like to pay 30c instead of 47c in the dollar.
There is more chance of me spending the difference and supporting the economy if they do this because I'll likely spend some of it instead of squirreling it away.

 

Don’t forget the Medicare levy. It’s annoying how they don’t just change the tax rate to include the base level Medicare levy. They use a fancy term like levy rather than tax to make it sound better.

Yes I am also looking forward to the stage 3 tax cut and will be annoyed if it’s dumped.

 

Would be political suicide to drop it me thinks. 200k isn’t a lot these days and as you alluded, the bracket should actually be at 250k.

I would be happy for them to scrap the cuts if they then allowed high income earners to have the same level of services as everyone else. Makes no sense that we get taxed at essentially 50%, our taxes are used to fund services such as child care rebates, which push the price of childcare up and then we have to pay the inflated prices with zero rebate.

….If you’re going to rob us like that at least make the services available to us with no means testing.

 

Of course I want to take home more of my income!

 

Taxes wouldn't have to be so high on wage earners if they weren't so low on others who use trusts, companies and super funds to house their income. The nuance between equality and equity in taxation is always lost.

It's also always lost in the media debates that the benefits of stage 3 go to high wage earners, not the true high-income households that engage in financial shenanigans to split income however which many ways through trusts. You can see it through some of the cheeky posts here on this forum where people ask if they can employ their non-working spouse as a "bookkeeper" and pay them a lazy $50k.

Give the wage earners their tax cuts please. But no politician seems to have the balls to go after the real high income earners.

 

We better be smart and change tact on the tax cuts.

It hands the upper income people more money to spending...personally some it should be spent on health care...more training...and climate related initiatives. We should not **** this up like what Howard did.....

 

The efficient way to target wealth is land tax with no exemption for any structure but maybe a capped exemption for Primary residence. Could get states on board by abolishing Stamp Duty. Honoring Income tax cuts actually makes sense as our income taxes are uncompetitively high on a global peer level plus bracket creep pretty much warrants it by 2024 anyway.

A land tax though would consume lots of their political capital - wonder if they are game for real reform.

 

I'm still assuming they'll reneg and take them back.

When battlers are pulling back on groceries due to inflation, it's hard to give us at the top end of town a big tax break.

That said, it would suck if they did reneg. This is just undoing part of the bracket creep.

 

If it were starting on 1 Jan 2023 then yes it would be pushed back or canned. The current inflationary environment doesn’t really allow for more fiscal expenditure. Tightening only really is the name of the game.

Nonetheless a tax system that is too punitive on workers, and doesn’t adjust for inflation on wages in ~15 years (and one that creates so many distortions to behaviour that is ideally promoted) isn’t really one conducive to ‘growing the pie’. Rebalancing the tax system is likely overdue and may eventually become fairly low hanging fruit to meaningful productivity reform. So many reviews over the last 2 decades since the GST introduction but fairly minor changes taken from those reviews and put into reality.

Perhaps inflation and some proper political capital (Labor have this) may be the drivers to do productivity enhancing reform. That will almost certainly require the taxation rates on medium-to-high income workers to come down significantly. Other more pressing rebalancing away from work is likely high on the agenda here too.

From a politics perspective, I imagine it’s stupidly dangerous labelling 120k+ income workers ‘top end of town’ or treating them in that way. There may be scope to tighten the measure to appease people to cap out benefits from top end of town to nil (eg add a % to above 200k tax bracket). This would reduce some of the simplicity productivity benefit of the current legislated changes but offers scope to save a bit of money ensuring those that make a mill a year aren’t contributing 10k less than the previous year.

 

Perhaps a politically expedient solution here is to go with the US model and introduce a $539+ band (equivalent to cA$800k+) to capture the much smaller number of very high income earners - but for international equivalency, leave that at the US rate of 37% instead of 45%?

 

People in country need to look at the bigger picture. It is utter stupidity to cut taxes as it will increase spending as IR and inflation is falling. Blind Freddy can see this coming. The tax cuts needs to balance revenue vs expenditure
..

My thoughts would be to:

1. Set the tax free threshold to 20k only for people earning less than 50k. Everyone else gets the current 18.7k

2. Extend the 32% tax band to 120k from 90k.

3. Then set the 37% from 120k to 200k

4. All incomes over 200k pay 45% tax

5. Increase GST to 11%

 

1. is too messy and introduces perverse >100% marginal rate which disincentivise those just over 50k.

Ultimately after the reckless spending of Morrison, we are going to need significant budget repair - mainly via increased tax receipts.

IMHO they should be looking at cutting tax loopholes and deductions and holding off any tax cuts until inflation is dead, buried and cremated (which hopefully will be in 2024 when stage 3 was due to kick in anyway). So LAB can sit on their hands and leave tax cuts announcement unchanged for now and would be wise to tighten up business deductions.

I'd also like to see tax returns automated so that your average PAYG is disincentivised to lodge a return but instead just gets say a nominal 1k refund (provided employer has properly held PAYG taxes and they don't claim any deductions) and those who do want to make deductions etc become ineligible for this 1k and also face more regular audits with more significant fines for non compliance - say 5k or 10k for first offence. Tax agents would also face bigger fines for any non compliance on part of their clients. Make claiming deductions the exception rather than the norm. Politically this will then make it easier to go after business and other deductions down the track.

 

On a separate note, and one bigger than politics but for every Aussie to celebrate:
A $50bn dollar improvement to the budget in 6 months. After a $60bn dollar one in the last budget.

They can't do a sign and dance about it because its a new government, they basically brushed it under the carpet --> but that is one amazing story (especially for fiscal nerds!)

Literally ALL of job keeper, every cent, has been paid back inside a year. No long term we need to raise taxes to pay for it - just done on the back of full employment and then some.

$20-30bn from pure economic dividend of having basically a version of economic nirvana about 6 months ago (3 handle inflation, 3 handle unemployment, 3+ handle growth). The rest from commodity dividends.

Wow.

I never realised that running an economy to full employment + a commodity price boom could drive a budgetary outcomes to $100bn swing!

I think this is probably going to reverse over 2023 on a slowing economy, but its nice that the starting deficit is tiny (~<1% of GDP comfortably).

They'll need to be very disciplined here - bank it, and then take some action to take further government spending/tax rises to slow down the economy.

From here, growing the supply of people and perhaps a higher structural commodity price vs budget will probably fix the structural deficit over time. The experts at treasury have been lowballing commodity prices intentionally after the 2010s - 2015s overshooting, hence we keep underreporting incomes in budgets now.

Not sure about how to run adequate surpluses to repay debt though...that probably requires discretionary action via higher taxes or lower expenditures.

 

Only reason the budget is in surplus is libs purposely did not increase any spending on NDIS and Aged Care. They purposely delayed people getting the right care. This was all done to shore up cred they were better fiscal managers.

I reckon if Labor is smart they will cut back the stage 3 tax cuts...still give it but less targeted to higher incomes.

If the Labor market craps itself like what I reckon is going to happen and we get 6-7% jobless it will get interesting.

Either way I have pulled levers to ensure I am ok

 

The budget isn’t in surplus. Those social spending programs are a large part of the structural and previous deficits though.

 

Well a 2.5% deficit vs 4%

It will be in surplus if tax cuts don't go through within 3 years so long as unemployment does not rise past 6-7%

 

Australia taxes workers and business more than other countries: OECD

Full article here (behind paywall)

Cheers,
Oracle.