Deloitte economist warns Malcolm Turnbull against tax cut cash splash for easy political win

AUSTRALIA’S economy is doing so well a prominent economist says the budget could return to surplus early, unless politicians ‘promise away’ the windfall with personal income tax cuts.

AUSTRALIA’S economy is doing so well a prominent economist says the budget could return to surplus early, unless politicians ‘promise away’ the windfall with personal income tax cuts.

Deloitte Access Economics economist Chris Richardson says the global economy is in “excellent shape” and is “raining revenue” on the federal budget.

But he has warned the Turnbull Government against using the windfall for a cash splash on personal income tax cuts ahead of the next federal election to win over voters.

“I don’t think personal tax cuts are needed from the viewpoint of the economy — the economy is going absolutely fine,” Mr Richardson told ABC News Breakfast this morning.

“They are needed if you like from the viewpoint of politics and the choice that both sides of politics face at the moment ... (is) do you go for an earlier return to surplus or do you hand that money back to the punters ahead of the election.

“It looks as though both of them will be lining up to have those personal income tax cuts.”

It comes as new modelling shows middle-income Australians would get back just $13 every week under a plan to cut one percentage point off all marginal tax rates.

The Herald Sun also reports the plan would cost a massive $6.7 billion next year.

The release of Deloitte’s quarterly economic outlook today also coincides with the latest Newspoll, where the Turnbull Government has had its best result since September 2016.

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Deloitte Access Economic's Chris Richardson says the global economy is ‘raining revenue’ on the federal budget. Picture: AAP

The Coalition has reduced Labor’s lead to 51-49 per cent on a two-party-preferred basis, while Prime Minister Malcolm Turnbull has received a four point bump in his personal rating to 36 per cent.

The government has repeatedly said the May 8 Budget will include personal income tax cuts, while Labor has flagged tax rises in government so it can match the government with something similar.

Mr Richardson said the last time the economy did the budget a favour through the mining boom, both the Coalition and Labor promised that away too.

“That was a mistake of historic proportion — that boom fizzled, leaving huge deficits in its wake,” he said in Deloitte’s latest outlook.

“Let’s hope that rush to a new set of promises won’t also prove equally problematic down the track.”

The government predicted in last December’s mid-year budget review that Australia would see a $10.2 billion surplus by mid-2021, which would be the first surplus since 2007-08.

For this financial year, a deficit of $23.6 billion has been forecast, although the government’s most recent monthly financial statement suggests the budget is running around $8 billion better off than forecast.

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Prime Minister Malcolm Turnbull has promised personal income tax cuts are on the way. Picture: AAP

Opposition finance spokesman Jim Chalmers said with Deloitte joining the likes of the International Monetary Fund and the Reserve Bank spruiking the strength of the global economy, the government won’t have any excuses for record and growing debt.

He said under the Liberals, the deficit was eight times bigger than projected in their first budget in 2014 and gross debt had crashed through the half-a-trillion dollars mark for the first time and was growing with no peak in sight.

“The budget is in such a mess on the Liberals’ watch because they insist on giving the biggest tax breaks to those who need them least, including a $65 billion tax cut to multinationals and the big banks,” he said in a statement.

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Wages are finally forecast to rise in the next few years but the hip-pocket gain will coincide with an interest rate rise.

“The good news and the bad news travelling together if you like,” Mr Richardson said today.

Deloitte has forecast wage growth will pick up but that an interest rate rise will occur in early 2019.

“Wage growth in Australia has been lifting for a while but it’s been lifting at a snail’s pace,” Mr Richardson told ABC.

“That will pick up a little bit. But even that is saying that today’s 2 per cent wage growth will

take a few years to reach 3 per cent.”

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Treasurer Scott Morrison will hand down the 2018 Budget in May. Picture: AAP

He predicted the interest rate lift would be flagged well in advance by the Reserve Bank for fear of spooking Australian families who are “up to their eyeballs in debt”.

He said two years of record low interest rates and left “consumers stretched and housing prices silly” which meant consumers and homebuilding would provide less support to growth in 2018 and 2919 than they did in 2016 and 2017.

The cash rate has been unchanged at a record-low 1.5 per cent since August 2016.

March quarter inflation figures are due on Tuesday.