Centre for Independent Studies modelling reveals small gains for workers under costly tax cut plans

MIDDLE-income Australians would get back just $13 every week under a tax cut plan that would cost a massive $6.7 billion next year, according to new modelling.

MIDDLE-income Australians would get back just $13 every week under a tax cut plan that would cost a massive $6.7 billion next year.

As Prime Minister Malcolm Turnbull works to deliver income tax cuts in next month’s Budget, new data has revealed how hard it will be for the government to provide meaningful hip-pocket relief to families struggling with low wage growth and soaring power prices.

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Cutting the middle-income tax rate from 32.5 per cent to 30 per cent would save $24 a week for workers on $90,000, $13 for those on $65,000 and just $1 for people earning $40,000.

Modelling produced for the Herald Sun shows a separate plan to cut one percentage point off all marginal tax rates would also cost $6.7 billion next year, although Australians earning $65,000 would only save $9 a week while those on six-figure wages benefited more.

Treasurer Scott Morrison has vowed tax relief will be targeted at middle-income earners, but he moved last week to temper expectations of the cuts the government could make.

Asked about the generous tax relief provided by John Howard, Mr Morrison said that was “a very different time for our economy” during the mining boom.

Treasurer Scott Morrison and Prime Minister Malcolm Turnbull. Picture: Kym Smith

“We will be working to ensure that particularly middle-income earners will be able to get some relief, and that’s what I’ve been working on,” he said.

Howard-era minister Amanda Vanstone famously admitted a $2.4 billion package of tax cuts delivering just $5 a week to workers would pay for “a sandwich and a milkshake if you are lucky — not much”.

Centre for independent Studies economist Robert Carling, a former Treasury official, recalled her gaffe in a paper last week which argued “the scope for personal income tax cuts is very limited in the next few years”.

Mr Carling said cutting the 32.5 per cent tax rate should be a top priority because it hit the largest number of taxpayers.

But the government, which has vowed to bring the Budget back to surplus by 2021, does not have lots of spare cash for tax cuts unless it makes major savings and receives unexpected revenue boosts.

Mr Carling also called on the government to tackle bracket creep, which will force up taxes for 1.6 million Australians over five years.

He said increasing the $18,200 threshold would cost $2.1 billion per $1000. Lifting the $37,000 threshold would cost another $1.2 billion per $1000 increase.

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