In a sign the government is ready to reverse the tax cuts, Chalmers admits tough decisions will need to be made to restore the budget.
“The fiscal position we’re in means we’re going to have to make some tough decisions with this budget. Tough decisions for tough times,” he will say.
“Law requires right reasons, following the responsible path; not by way of least resistance. We need to get serious about rebuilding our fiscal buffers – especially given the deteriorating global outlook.”
But Opposition Leader Peter Dutton said many Australians made financial decisions based on the tax cuts, arguing they would not be inflationary given the economy is expected to grow in 2024.
“Their position couldn’t be clearer and there are a lot of workers who have taken out home loans over the last couple of years knowing that ‘look, interest rates are low, there’s a chance they’re going to go up and I know that in 2024 I going to reduce taxes and it will help me pay off my mortgage payments and they made investment decisions on that basis because of the confidence that comes from the words of the Prime Minister himself,” he said. Radio Sydney 2 GB.
Former treasurer Wayne Swan, for whom Chalmers worked during the Rudd and Gillard administrations, said the government should have considered the tax package in the third phase.
“I don’t know if they’re going to change their mind, but any government that sits in this environment and says it’s not going to review all the policy settings in the light of what’s going on is going to have its head in the sand,” he said. Nine Network.
While the government has been criticized for being uncertain about the third phase of tax cuts, 10 million workers will soon suffer one of the biggest pay hits in 40 years and face the prospect of double taxation.
New analysis shows that scrapping the Low and Middle Income Tax (LMITO) this year will reduce the tax burden on 10.2 million people earning between $48,000 and $126,000 by $1,500.
The compensation, which former Treasurer Josh Frydenberg touted as a “cost of living” measure in March, has been expanded in the last two budgets.
A person earning $90,000 would receive a salary of $69,983 for the 2021-2022 fiscal year. Their after-tax pay will drop to $68,383, or more than 2 per cent, this financial year after the tax credit ends.
The last time so many people were directly affected by such a large tax increase was the introduction of the Medicare levy by the Hawke government in 1984.
Under the $243 billion third-stage package, which Labor backed in the run-up to this year’s election, a person earning $90,000 will see a $1,125 boost to their pay as part of the cuts, which will start on July 1, 2024.
Combined, completing the third phase of offsets and reductions would cost more than $2,000 more by mid-2024 for people earning between $90,000 and $120,000 a year.
More than $12 billion worth of compensation is currently flowing into the economy as Australians complete their annual tax returns.
Chalmers said the compensation was introduced to support middle-income Australians, but noted that any new spending in the next budget must be “responsible, sustainable, affordable and targeted”.
“We’ve supported LMITO for a reason in the past, and that’s because we support a real tax break for people on low and middle incomes,” he said.
Deloitte Access Economics lead partner Pradeep Phillip said ending the tax credit would increase the taxes many Australians pay.
“When the temporary LMITO ends, will there be a reduction in people’s after-tax income? yes. So we also have to look at overall family income, from whether there is cheaper medicine or more affordable childcare, changes to energy costs,” he said.
“Everybody’s talking about tax rates, but now they’re talking about the broader economic impact.”
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