Millions of Australians could soon enjoy some welcome tax relief as the government struggles to help our ailing economy.
Yesterday, Australian Bureau of Statistics data revealed the country had recorded the worst employment figures in three years, with total employment falling by 19,000.
The number of people in full-time work dropped by 10,300 and part-time dropped by 8700, pushing Australia’s jobless rate to 5.3 per cent.
The ABS also revealed 726,000 Australians were now searching for a job, the worst figure since March 2017.
Experts believe that bleak outlook, coupled with stagnating wages and declining retail sales figures, is yet further proof of our weakened economy, with impending Reserve Bank of Australia interest rate cuts now all but certain.
However, there could be a glimmer of hope for many workers, with the Morrison government seemingly looking into further tax relief for middle income earners at least.
According to The Sydney Morning Herald, Westpac chief economist Bill Evans and
Commonwealth Bank senior economist Gareth Aird have both now called on the government to introduce its “Stage two” tax cuts – which were slated for 2022-23 – far sooner than originally planned in a bid to keep more money moving through the economy.
And when asked by the Nine Network this morning whether already legislated tax cuts could now be sped up from 2022, when they were due to be rolled out, Cabinet minister Peter Dutton said it was on the cards.
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“We will always consider ways in which we can cut taxes to help people make decisions about their own spending,” he said.
That sentiment was backed up by Treasurer Josh Frydenberg during an interview with Sky News.
The tax cuts could be brought forward to 2020. Picture: iStockSource:istock
“We’re always looking for opportunities to reduce taxes,” he said.
H&R Block’s Director of Tax Communications Mark Chapman welcomed the proposal.
“Given the fragile state of the economy and the repeated hints from the RBA that more action is required to boost growth, it would certainly make sense to move the stage two tax cuts from 2022 to 2020,” he said.
He said the “big extension” of the 32.5 per cent tax bracket – to include $30,000 of extra income currently taxed at 37 per cent – would help to boost the economy.
But he said it made sense to introduce the policy sooner.
“With stage two nearly three years away, and stage three, two years after that, it’s very much a guess as to what the state of the economy will be by then – if the aim of the cuts was to dig us out of our current economic malaise, it would have made sense to introduce the cuts over a shorter, closer time frame,” he said.
“The first stage of tax cuts were clearly designed to boost consumer spending by delivering a one-off cash injection to low and middle income taxpayers when they lodge their return. “Having said that, the effect of the tax cut has not fed through into consumer spending, which remains depressed, and in any event, the presence of the offset has not boosted tax refunds by as much as the government might have hoped, possibly because many taxpayers rushed into lodging quickly through myTax and in the process, missed out on valuable tax deductions they could have claimed.”
WHAT IS THE STAGE TWO TAX PLAN?
Stage two of the tax plan, due to come into effect in 2022, lifts the threshold for the 37 per cent tax bracket from $90,000 up to $120,000.
It also increases the low-income tax offset from $445 to $645 and lifts the top threshold for the 19 per cent tax rate from $37,000 to $41,000.
“On the face of it, that looks like a generous tax cut but as we’ve seen with the recent Low and Middle Income Tax Offset (LMITO), people don’t always behave as you’d expect when they receive a tax cut and – depending on the overall state of the economy at the time – many taxpayers may simply choose to ‘bank’ the tax cut by paying down debt or investing in savings rather than spending it on consumer goods like cars, holidays and homewares,” Mr Chapman said.
He said there was no evidence the next phase of tax cuts, which will be delivered during every pay cycle instead of in bulk, will be effective at helping the economy.
“There’s no evidence that tax cuts delivered through the normal pay cycle are any more effective at boosting spending that one-off offsets, as per LMITO,” Mr Chapman said.
“In fact, if anything, the perceived wisdom has been that one-off cash handouts like the LMITO are better for priming the economy, which is undoubtedly why the government chose this route for stage one of their tax plan.”