Scott Morrison will try to get the economy back on track with the October 6 budget
Scott Morrison has hit back at an advert slamming potential tax cuts for millions of Australians.
The October 6 budget is expected to bring forward tax cuts that were due in 2022, meaning middle and low income earners will be able to keep more of their money.
A TV advert produced by left-wing think tank The Australia Institute says the cuts risk damaging public services and won’t provide the stimulus the economy needs to recover from the coronavirus-caused recession.
A government spokesman criticised the campaign, telling Daily Mail Australia: ‘At a time of recession the Australia Institute want to take money out of people’s pockets.
‘We’re always focused on how we can give it back to them and lower taxes.
‘The Australia Institute and the Labor Party have never met a tax increase they didn’t like.’
The campaign is backed by 40 prominent Australians – including two former Reserve Bank officials, a former Liberal Party leader and the head of the welfare lobby group ACOSS.
‘Cutting taxes for already wealthy Australians will undermine the long-term strength of our public services, like healthcare and education, while doing very little to stimulate economic growth,’ said Ben Oquist, Executive Director of The Australia Institute.
‘Tax is an investment in our society. Those calling for tax cuts today will be calling for service cuts in the future.’
Institute research released in recent weeks suggests the cuts will benefit high income earners, who are more likely to save rather than spend the extra cash.
‘We’ll need substantial stimulus for an extended period,’ former Reserve Bank deputy governor Stephen Grenville said.
‘Cutting top-rate income tax would be a weak stimulus which undermines the equitable and progressive tax structure we’ll need when the COVID crisis is over.’
Former federal Liberal leader John Hewson said tax cuts will not be good for the Coalition’s electoral hopes in the long run.
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‘They increase inequality and fail to ensure job security and increasing wages with our economy still struggling to exit recession,’ Dr Hewson said.
The cuts would increase the upper threshold for the 32.5 per cent marginal tax rate from $90,000 to $120,000 and increase the upper threshold for the 19 per cent rate from $41,000 to $45,000.
In July Treasurer Josh Frydenberg said he was ‘looking at the timing of tax cuts’ because they ‘boost aggregate demand, boost consumption, put more money into people’s pockets.’
Some tax experts believe Mr Frydenberg would get more bang from taxpayers’ bucks by targeting business initiatives.
BDO tax partner Mark Molesworth said personal tax cuts alone will not be enough to drive a worthwhile stimulus response in the face of the first recession since the early 1990s.
‘More Australians are being frugal with their money so a tax cut will not inspire a spending spree even with Christmas approaching,’ Mr Molesworth said on Monday.
‘To encourage consumer spending it would be better to look at business investment incentives.’
These could take the form of an investment allowance, which would provide an incentive to buy assets and expand business operations.
He also suggested an employee headcount rebate, which would be paid as a tax benefit in cash per new full-time employee created by a business.
The federal budget on 6 October will contain a series of measures to get the economy back on track after coronavirus restrictions hammered the economy.
One option being considered is to encourage small and medium businesses to hire new workers by paying a chunk of their wages, government sources told The Australian.
This would be different to the JobKeeper scheme which pays companies to keep existing employees if they suffer a large hit to their revenue.
The government is also tipped to allocate up to $10billion to the states for infrastructure spending.
The AFR reported the cash could be dished out on a ‘use it or lose it’ basis, meaning states would need to prove they are spending it quickly to qualify for more.
A spokesman for the Prime Minister told Daily Mail Australia: ‘We’re not engaging in budget speculation.’
The $1,500-a-fortnight JobKeeper payments are being reduced to $1,200 from 27 September and to $1,000 from January for full-time workers.
Mr Morrison on Sunday told the ABC that other measures will be introduced to complement the scheme as it is wound back.
The government is reportedly considering wage subsidies to drive hiring. Pictured: An electrician at work
‘What Treasury says is that we need to boost aggregate demand in our economy and the full suite of measures you have as a government need to do that job and that’s what the budget will do,’ he said.
‘And so you don’t have to hold on to every measure forever. There are other measures that come in and pick up from where others left off. We are transitioning JobKeeper, it’s important to do that. We always said it was not something that would be around forever.
‘But there are other programs and the Treasurer will go into greater detail about that obviously in the budget, which are dealing with the here and now, but rebuilding our economy and then building it for the future so we can go into a decade of prosperity.’
The jobless rate unexpectedly fell from 7.5 per cent in July to 6.8 per cent in August, bucking widespread predictions of a slight rise.
Roughly 111,000 people gained employment in August, the third month of exceptionally strong results.
Over half the massive jobs losses in April and May have been recovered.
However such strength masked a 42,400 drop in employment numbers in Victoria, where lockdowns remain.
Treasurer Josh Frydenberg, a Victorian MP, said businesses in the state were still hard hit by lockdowns.
‘I’m hoping and the prime minister is hoping those restrictions can be eased as quickly as it is COVID-safe to do so,’ he said.