This budget was an opportunity for the Federal Government to dump the controversial stage 3 cuts to personal income tax. Unfortunately, they didn’t take it.
The stage 3 tax cuts, which are due to begin in 2024, will cost the budget a quarter of a trillion dollars over the next 10 years. These tax cuts manly go to high income earners, with about half of the tax cut going to people who earn more than $180,000.
Each budget forecasts spending and revenue for the next four years. In this budget, two of those years, 2024-5 and 2025-26, include the impact of the stage 3 tax cuts. So, we can see what impact the stage 3 tax cuts are having.
Looking at the two years in the budget estimates that include the stage 3 tax cuts, we can see that the budget deficit for those years totals $100.9 billion. The Parliamentary Budget Office estimates that the stage 3 tax cuts will cost $38.5 billion for those two years. This means that almost 40 per cent of the budget deficit in those two years is directly attributable to the stage 3 tax cuts.
We can also look at what happens to the estimated amount of income tax that will be collected between the year before the stage 3 tax cuts start, 2023-24 and the year after the stage 3 tax cuts start, 2024-25. Between those years total individual and other withholding tax (the income tax paid by individuals) is expected to fall. This is highly unusual. The last time income tax fell was over a decade ago during the GFC.
The great thing about budgets is they highlight a government’s priorities. The Treasurer has said on a number of occasions that because of the budgetary position they can’t even afford to fund good ideas. If this is true, it highlights that giving a tax cut of over $9,000 a year to people earning more than $200,000 is a higher priority than any good ideas the government refuses to fund.