Federal budget 2020: Expert says Stage 3 tax cuts ‘may never happen’

Millions of Aussies are celebrating new tax cuts headed their way. But there’s another range of cuts that may never see the light of day.

Treasurer Josh Frydenberg’s tax cut announcement sparked a flurry of excitement among cash-strapped Aussies this week.

In his Budget speech on Tuesday, Mr Frydenberg confirmed the government’s Stage 2 tax cuts would be brought forward in a bid to combat the coronavirus recession, promising that “Australians will have more of their own money to spend on what matters to them, generating billions of dollars of economic activity and creating 50,000 new jobs”.

But while there’s also a third stage of the government’s planned tax cuts in the pipeline that could be far more effective in getting the economy back on track, they may never actually see the light of day.

That’s according to Robert Carling, a senior fellow at Aussie think tank the Centre for Independent Studies (CIS), who believes the latest budget focuses too heavily on short-term cash splashes while neglecting permanent structural reform.

“New spending is enormous, and although most of it is supposed to be temporary one wonders whether it will be fully unwound. Over four years spending increases outweigh tax decreases by more than $4 to $1,” Mr Carling said in a post-Budget statement.

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The tax cuts were the main feature of the new budget. Picture: Sam Mooy/Getty Images

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“It is unsatisfactory that Stage 3 of the income tax cut has not been brought forward at all, let alone to 1 July 2020 like Stage 2. It is Stage 3 that contains the real reform in this tax cut, but it may never happen — even though it is currently in legislation.

“There is also no permanent investment allowance. It was similarly disappointing that there was no word on the rate of JobSeeker allowance after the end of this year.”

Mr Carling told news.com.au Stage 3 was “more worthy of being called reform” and that it should have been brought forward in this Budget too.

Stage 3 tax cuts, which are expected to begin in 2024, would get rid of the 37 per cent tax rate so that anyone who earns between $45,000 and $200,000 only pays 30 per cent tax.

Under Stage 2 – which have been backdated to July 1, 2020 – an estimated 11.6 million workers will see their take-home pay increase, with the exact bonus depending on their income bracket.

Mr Carling said Stage 3 would do a better job of stimulating the economy right now, when it is needed the most.

“It is only Stage 3 of these tax cuts that actually cuts the marginal rates … whereas Stage 1 and 2 are just a low and middle income tax offset,” he said.

“But Stage 3 actually cuts tax rates over a very wide range of incomes, so that would be a very good incentive to work, to save, to invest and to set up a small business.

“But it might not happen after all – if there’s a change in government, I’m pretty sure they would not want to proceed with it, and even if there’s not, by the time we get to 2024 the Morrison government would be looking at ways to close the budget deficit and this would be sitting there as an obvious option to not proceed with it and save a lot of money.”

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Experts have questioned how much the Stage 2 tax cuts will actually help the economy. Picture: iStock

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Mr Carling described the current tax cuts as a “cash splash” that will put extra money in consumers’ pockets in the months ahead, which should boost spending “to some extent”.

But he said it was only a fraction of tax changes that were needed.

“There should also be a longer-term focus – they are talking about improving incentives and productivity, so what the economy needs is not just a short-term sugar hit which is what this is – it’s short-termism.”

Committee for Economic Development of Australia chief executive Melinda Cilento also expressed doubts that measures included in this weeks budget, including the tax cuts, would work as planned.

“The budget forecasts assume that the job measures and broader stimulus will work as expected, but if households don’t spend as much of the tax cuts, or if businesses are reluctant to hire and invest, these forecasts won’t be realised, and support will need to respond accordingly,” she said.