The Stage 3 tax cuts will be responsible for up to 42% of the Budget deficit

by Matt Grudnoff

The Stage 3 tax cuts are not just unfair, they create a massive hole in the budget

Analysis of the Budget Papers reveals that amid all the talk from the Treasurer of needing to make tough decisions, the most obvious decison has been missed.

As the government looks for ways to increase revenue to fund the growing demands for essential government services such as the NDIS and the rewiring of the nation to enable the transition to zero emisisons, the Stage 3 tax cuts remain a massive hit to the budget.

In the first year of the Stage 3 tax cuts in 2024-25 the budget deficit is predicited to be $51.3bn. However we know from recent costings by the Parliamentary Budget Ofice that the Stage 3 cuts in that year will cost $17.7bn. That means the Stage 3 cuts alone will account for 35% of the entire budget deficit. Even worse is that this continues to grow.

In this week’s budget, Treasury estimated the Budget deficit in 2025-26 will fall to $49.6bn, but the cost of Stage 3 cuts in that year will rise to $20.8bn. That means in 2025-26 the Stage 3 cuts will account for 42% of the total budget deficit.

We know that the Stage 3 cuts are massively inequitable with a majority of the benefits going to the wealthiest. But they will also radically change the income tax system and reduce the tax base at a time when Australians have made it clear they want government to take a larger role.

The Stage 3 tax cuts will have a greater impact on individual income tax collection than did the pandemic. But unlike the pandemic the Stage 3 cuts will continue forever – costing more and more every year.

Any government wanting to demonstrate good economic management would dump them. Doing so would put the budget on a much more sustatinable track, without the need for large cuts to necessary govenment services and benefits for low income housheolds in order to pay for tax cuts going to the richest in society.

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