By David Crowe and Shane Wright
A consumer spending boost will fuel Australia's sluggish economy as soon as next week after the Morrison government gained Labor support for its $158 billion income tax cut, delivering payments to millions of workers on the same scale as the cash stimulus during the global financial crisis.
The package passed the Senate on Thursday night 59 votes to 9. The Coalition, Labor and four crossbenchers voted for the package while the Greens voted against. One Nation senators Pauline Hanson and Malcolm Roberts abstained.
Tax refunds worth up to $1080 will now flow to about 10 million people who earned less than $126,000 in the last financial year, with 4.5 million of these workers likely to receive the full $1080, depending on their tax affairs.
A GFC stimulus-like boost to consumer spending is expected after Labor agreed to pass the government's tax cut bill.Credit: Dominic Lorrimer
Prime Minister Scott Morrison acclaimed the victory on Thursday night as a way to reward aspiration and boost the economy, while noting the government would "consider" other ways to spur growth if necessary in the half-year budget update due by December.
In a late move to allow the bill to pass on Thursday night, Opposition Leader Anthony Albanese scaled back his objections in a formal Labor decision to vote for the full tax package while leaving room to review the most expensive income tax cuts over the next three years.
Mr Morrison insisted the tax relief would proceed without needing any spending cuts to cover the cost of the third and final stage of policy, due to start in 2024 and cost $95 billion over the subsequent five years.
When Mr Albanese asked Mr Morrison in Parliament to name the services and programs to be cut to fund stage three, Mr Morrison said: "None".
Mr Albanese said the Prime Minister's pledge "lacks credibility" and warned of spending cuts in the years ahead, setting up a clash over future budget measures.
Prime Minister Scott Morrison is congratulated by MPs in the House of Representatives after the Senate passed his income tax cut package.Credit: Alex Ellinghausen
But Finance Minister Mathias Cormann said the budget was forecast to remain in surplus after the impact of the income tax cuts without policy change
“That means [it is] based on an assumption of no future policy decisions to cut spending,” Mr Cormann said.
“That is why the Prime Minister is absolutely right when he gives that iron-clad guarantee that these tax cuts do not require, and are not based on the assumption of, future spending cuts.”
The success in Parliament is a major victory for Mr Morrison on a key policy at the May 18 election but only came after side-deals were discussed with Centre Alliance senators Rex Patrick and Stirling Griff on gas supply and Tasmanian senator Jacqui Lambie on help for the homeless in her state.
"We went to this election on the platform of ensuring that Australians keep more of what they
earn," Mr Morrison told Parliament.
When combined with tax cuts legislated last year, worth $144 billion over a decade, the government commitments add up to $302 billion over the period to 2029, despite warnings from economists that the huge cost would weaken the budget bottom line.
The Labor shadow cabinet met on Thursday and formally decided to accept the first and second stages of the tax policy while reviewing the third stage before the next election, clearing the way for a future policy to adjust or oppose the tax cuts for wealthier workers.
Mr Albanese confirmed this position means Labor will review its position on the third stages from both budgets, worth $42 billion in last year's budget and $95 billion in this year's budget.
Treasurer Josh Frydenberg attacked Labor for leaving the door open to amending the package, saying a worker earning about $100,000 a year in 2024 would lose a tax cut worth $1375 a year if Labor reversed the third stages of the tax package.
Most Australians submit their annual tax returns to the ATO in the second half of July and into August. That suggests the refund payments will have their biggest economic impact in August and September.
Crossbench senators Rex Patrick, Jacqui Lambie and Stirling Griff celebrate after the passage of the bill.Credit: Alex Ellinghausen
The bulk of the cash from the tax refunds will go to those workers on incomes between $48,000 and $90,000.
Deloitte Access Economics director Chris Richardson said the initial tax refunds would act much like the stimulus cheques mailed out by the Rudd government during the depths of the global financial crisis in February 2009.
On that occasion, cheques of $950, worth a combined $8.1 billion, were mailed out over a short period of time, boosting the struggling retail sector which reported a 2.6 per cent jump in sales in March 2009.
Mr Richardson said the $1080 boost for low and middle income earners, worth a combined $8 billion, would act in a similar way, with the nation's retailers set to be the biggest beneficiaries.
"You're going to get a lot more bang for your buck with these tax cuts because they're going to turn up in people's bank accounts as a lump sum and as a surprise for a lot of mums and dads," he said.
"There are going to be a lot of big-screen TVs going out the door on the back of this."
CEO and founder of Kogan.com, Ruslan Kogan, said he was confident taxpayers would use the extra cash.
"This is great news. Hard working Australians are much better at spending their own money than the government is at spending it on their behalf," he said.
"We love that we operate in a nation of frugal shoppers who know how to do their research, compare prices, compare specifications and make the right decision."
The headwinds facing the economy were highlighted by the Australian Bureau of Statistics which reported retail sales grew by a less-than-expected 0.1 per cent through May.
Annual retail spending growth slipped to its lowest rate since the start of last year. In the nation's biggest retail market, NSW, annual growth is now just 0.5 per cent compared to 2.9 per cent a year earlier.
Job vacancies in the three months to May fell by 1.1 per cent, the first drop in this leading indicator for the employment market in 3 years and the biggest drop since 2013.
Vacancies in the private sector tumbled by 1.6 per cent while there was a lift in the public sector due in part to advertising linked to the NSW and federal election campaigns.
Over the year, vacancies grew by 1.8 per cent. In the 12 months to May last year they grew by 24 per cent.