Economic repair, jobs help with budget heavy lifting

The post-JobKeeper return to work is boosting the budget bottom line, affirming the government’s strategy of growth to create jobs and pay down some of the nation’s eye-watering debt. We’re far away from being back in the black, or in a black hole, Tom Dusevic writes eight days from the May 11 budget. But “the economy is roaring back to life and Treasury is filling its boots, with more revenue from taxes on companies and workers, and less spending on last year’s rescue mission”. About 93,000 people have come off welfare since JobKeeper ended last month, including 30,000 people in the last week alone. Josh Frydenberg told The Australian on Sunday that the budget will continue to prioritise jobs. That is set to include changes to boost the nation’s childcare workforce and expand childcare subsidies for working parents.

If Deloitte Access Economics’ estimates are on the money, the budget will reveal a $100bn boost to the bottom line over the forward estimates. This will arise from a “red-hot” economic recovery, strong profits and booming iron ore exports boosting the tax take. In view of such expectations, business groups have urged the Treasurer to consider bringing forward stage three of the government’s income tax cuts package, scheduled to take effect from July 2024. Doing so, Business Council of Australia chief executive Jennifer Westacott said last week, would further boost the economy and create jobs: “We support any measures that put money back in people’s pockets, drive economic activity and let business do the heavy lifting on job creation as we recover.’’

Such a move would be controversial politically because the beneficiaries would be higher-income earners. It would be vigorously opposed by welfare groups and the opposition. Shadow treasurer Jim Chalmers has branded stage three “irresponsible’’. It would put about 95 per cent of taxpayers on a marginal rate of tax of 30 per cent or less by 2024-25. The reforms would flatten the system, imposing a 30 per cent rate on all income earned between $45,000 and $200,000. Income over that threshold would be taxed at 45 per cent. It would go a long way towards creating the flatter, simple tax system The Australian has advocated for years. But timing would be crucial. It is not known if Scott Morrison, Mr Frydenberg and cabinet regard bringing forward the changes as feasible. They are facing heavy demands in the budget to boost defence spending in light of the nation’s geo-strategic outlook. They are also under pressure to lift aged-care spending after the damning findings of the royal commission.

The issue of the stage three personal tax cuts is canvassed in Monday’s news pages by Deloitte Access Economics partner Chris Richardson. Analysis of Australian Taxation Office data shows the top 1 per cent of taxpayers will pay 18 per cent of all personal income tax this year, up from 16.9 per cent three years ago, Dusevic reports. The top 5 per cent of earners will contribute 35 per cent, the top 10 per cent will pay 47 per cent and the highest-earning 20 per cent will pay 63 per cent, up from 60.3 per cent in 2017-18. Such burdens do not encourage hard work and enterprise. While the left often claims Australians are not highly taxed, OECD figures released last week show otherwise. Australian workers labour under the third-highest income tax burden in the world, behind Denmark and Iceland. On the other hand, the challenge of rebalancing the budget after the pandemic stimulus must be considered. As Dr Richardson says, “repairing the economy does indeed do the vast bulk of the heavy lifting”. But the commonwealth may eventually need to find the equivalent of $40bn in annual savings to return the budget to balance: “Australians do need to realise that there’s an eventual bill to pay — it isn’t nearly as large as many seem to fear, but nor is it nothing.’’