Budget tax cuts in 2024: will they stay or will they go?

Tax cuts planned for 2024 have sparked fierce debate about whether they should be scrapped or scaled back, but economists say there are reasons to keep them.

Labor faces pressure to stick with legislated tax cuts in 2024 as the budget faces a big hit in future years from soaring interest and NDIS costs.

As new modelling from The Tax Institute and News Corp Australia shows what the cuts will deliver households, economists and tax specialists say the government already relies too much on income tax and the system needs an overhaul.

The controversial stage three tax cuts for middle and high income earners are legislated to start in July 2024, delivering $1125 a year to a worker on the average wage of $90,000 and $9075 for anyone earning more than $200,000. Earlier stage one and two tax cuts focused on lower and middle income earners.

“I think they should go ahead – whether or not they will is the critical question” said BetaShares chief economist David Bassanese said of stage three.

“There’s still a lot of middle to upper income earners who will miss out if the whole thing is jettisoned,” he said.

“Our top tax rate cuts in at a relatively low multiple of average earnings compared to other countries. As a share of taxation we rely a lot on personal income tax.”

Mr Bassanese said possible alternatives to bridge budget gaps included taxes on wealth, inheritances, spending and potentially transactions.

The budget papers say interest on government debt and the NDIS are the fastest-growing payments, expected to increase about 14 per cent annually over the next decade.

NDIS costs are projected to reach $50 billion by 2025-26. “As virtuous a social program as it is, it can’t be uncapped – it’s obviously costing a lot more than expected,” Mr Bassanese said.

The Tax Institute tax counsel Julie Abdalla said the debate over the stage three tax cuts mainly going to higher-income earners brought to light broader issues in the tax system.

“It highlights an over-reliance on personal income taxes that needs to be addressed,” she said.

‘Simply abandoning this stage of the tax cuts will not resolve the underlying problems … we need to be looking at overall reform if we want fair outcomes.”

AMP chief economist Shane Oliver said tax was in a state of flux and the stage three cuts “really just give back bracket creep”.

The Tax Institute tax counsel Julie Abdalla says there are broader issues in the tax system.

“The last time brackets were changed for top income earners was back in 2008,” he said.

“More Australians are in a tax bracket that wasn’t intended for them. Bracket creep is tax hikes by stealth.”

Dr Oliver said the budget left significant deficits for the next decade, “but if you renege on the tax cuts it’s seen as a broken promise”.

H & R Block director of tax communications Mark Chapman said the budget’s lack of tax announcements meant that “hard decisions have been deferred, not avoided”, while Committee for Economic Development of Australia chief economist Jarrod Ball said the cuts should be “re-phased and scaled back in the next budget”.

“That will allow a proper assessment of the best options to address bracket creep and ensure the system remains progressive,” he said.

Originally published as Budget tax cuts in 2024: will they stay or will they go?