Australians across the economic spectrum would suffer if Anthony Albanese were to drop tax cuts promised by both the previous government and the Labor Party, amid speculation the country simply cannot afford to implement the policy.
The plans for tax cuts in 2024/25 would see the 37 per cent rate on those earning between $120,000 and $180,000 replaced by a 30 per cent rate for anyone earning between $45,000 and $200,000.
This would mean more money in the pockets of workers earning anywhere between $45,000 and $200,000, as those at the bottom end of the scale currently pay 32 percent and those at the top end pay 37.5 percent.
Treasurer Jim Chalmers on Tuesday kept his promise to cut taxes while making remarks suggesting the changes may not materialize, calling a similar policy in Britain – which caused financial chaos – a ‘cautionary tale’.
But Labor heavyweight Wayne Swan, president of the ALP, said any government should definitely look at dumping the cuts in the face of rising national debt and the looming threat of recession.
Sources have also suggested that the costly cuts, which are expected to come in on July 1, 2024, could be modified to shave some of the cash given back to those at the top end of the earnings scale.
This would mean that middle income earners still benefit from the planned tax cuts.
The Albanian government’s promised tax cuts appear to be under threat, with ALP president Wayne Swan saying not to reconsider them was “burying your head in the sand”
Under the changes in their current form, the top marginal tax rate of 45 percent would only apply to those earning more than $200,000.
This would put $11,640 dollars back in the pocket of those earning $200,000, while those earning $50,000 would win $1,205.
Those making $30,000 or less would gain nothing from the cuts because their taxable income is too low to pay taxes at all.
“I don’t think the government can ignore the threat of a global recession and rising interest rates,” Swan told Nine’s Today show.
‘I don’t know if they will change their view, but any government that sat down in this environment and said they weren’t going to review all the policy options in the light of what’s been going on would stick to that. head in the sand.’
ALP president and former treasurer Wayne Swan says the government would be ‘burying its head in the sand if it didn’t pass tax cuts
In Britain, the new prime minister was forced to reverse at the weekend after her announcement that the top tax – 45 percent – would be abolished caused chaos in financial markets.
Investors quickly lost confidence in the nation because the tax cut would involve greater national borrowing, threatened to worsen inflation and went much further than economists had expected.
Fearing a similar event, Mr Swan compared the current international situation to the one he faced in 2008, when the global financial crisis saw world economies fall into a prolonged recession.
“If the critics of the government here will say, don’t pay attention to international conditions, don’t change any particular attitude, then we will have a repeat of what happened in 2008,” he said.
Australian tax brackets as they currently sit with proposed changes due from 2024
What the proposed Albanian government’s tax structure, set to come in for the fiscal year starting in 2024, will look like
‘What I am saying is that it is sensible to say that you will review your settings in light of a global recession.’
A source told the AFR that ‘everyone agrees we can’t afford this’.
The Australian Parliamentary Budget Office estimated that phase three tax cuts would cost $243 billion over 10 years from 2024-25.
While the Liberals have vowed to fight any move to scrap the tax cuts, the government would likely have support from the Greens and blue-green independents.
The former treasurer, who argued for the policy to be overhauled, pointed to the fact that Britain had just dumped similar tax cuts.
“It’s the only sensible thing to do, especially in light of what’s happened in the UK, where the UK government was basically described as crazy and dangerous for continuing with policy options that even the IMF couldn’t handle,” said Swan.
The IMF is the International Monetary Fund, the global lender of last resort that countries turn to when they are heavily in debt for loans that usually come with strict conditions for spending cuts.
Sir. Swan’s hesitation about keeping the tax breaks was not echoed by Skills and Training Minister Brendan O’Connor, who appeared on the Today show about an hour later.
A new top marginal tax rate of 45 percent will apply to those earning more than $200,000, giving them tax breaks of $11,640 a year
“We have not changed our position on Phase 3 tax relief,” Mr O’Connor said.
‘In fact they are not due to come into effect for nearly two years, but we have committed to that position and nothing has changed since we committed.
‘That is our position. It hasn’t changed. We are of course looking at the consequences for the budget.’
Sir. O’Connor said the Treasurer and other finance ministers were combing spending for “disruption and waste” that they could cut, but other than that nothing “had changed”
The new tax laws, introduced by the Morrison government in 2019 and voted for by Labour, will see the number of brackets cut from five to four for the first time since 1984.
Those earning between the tax-free threshold of $18,200 and $41,000 will pay a marginal rate of 19 percent, while those earning more than $45,000 will pay the new 30 percent marginal tax rate.
Skills and Training Minister Brendan O’Connor stood by the Albanian government’s promise of tax cuts
Treasury figures showed those earning more than $200,000 a year received the biggest tax cut at $11,640 compared to $8,640 for those earning more than $180,000.
An average full-time worker on $92,000 would get $2,340 back.
In the 2018-19 financial year, 2.3 million Australians earned $90,000 to $180,000, and more of these benefit workers as the 37 per cent marginal tax rate is scrapped to a 30 per cent rate.
Only 510,000 people earned more than $180,000 a year.
Australia’s 6.1 million Australians earning $37,000 to $90,000 now pay a marginal tax rate of 32.5 per cent.
The Treasurer was adamant that stage three tax cuts were here to stay, but took a look at new UK Prime Minister Liz Truss (pictured centre, with Chancellor of the Exchequer Kwasi Kwarteng), who has abandoned plans for major tax cuts after feeling pressure from international lenders
At a press conference on Tuesday, Dr. Chalmers hit out at Britain’s Conservative Party government, led by Liz Truss, after its hasty U-turn – calling the proposed tax cuts a ‘cautionary tale’.
“The broader point is sufficiently relevant to us that when you get monetary policy and fiscal policy out of hand, as the British risk doing, then there are consequences not only for the budget, but also for the economy,” says Dr. Chalmers said.
‘I see what is happening in the UK as a cautionary tale about getting the fiscal and monetary balance out of whack.
Millions of Australians could miss out on big tax cuts, with Treasurer Jim Chalmers (pictured) hinting they could be under scrutiny after a controversial tax policy was dumped in the UK
“We need to ensure that spending in the budget, especially in these uncertain global times, is directed towards what is affordable and sustainable and responsible and sufficiently targeted.
‘I think that’s one of the lessons from Britain.’
While the Treasurer was stiff, phase three tax cuts were still underway, Australia’s national debt is approaching a staggering $1 trillion, towering above any historical precedent.
With fears of a global recession and Australia facing runaway inflation, the government is likely to be looking at a black hole of debt unless it sharply cuts spending or raises taxes.