With Treasurer Scott Morrison all but confirming personal tax cuts will be announced during next week’s federal budget, speculation has now turned towards how the government will fund it, but the case is far from black and white.
Tax relief funding debate a ‘moot point’, says Thomson Reuters
Mr Morrison has indicated that middle-income families would benefit from personal tax cuts, but there have been concerns of the government’s ability to fund any tax relief while bringing the budget back to surplus by 2020-21.
The last time the personal tax threshold moved was in 2016 when the 32.5 per cent threshold was increased from $80,000 to $87,000, costing the government $4 billion but tax consultant to Thomson Reuters, Terry Hayes, believes that the argument that the country could not afford tax cuts “may well be a moot point”.
“That could probably have been said for the last umpteen years’ worth of tax cuts because of the state of the budget,” Mr Hayes said.
“This year is no exception but I don't think it will stop the government giving the tax cuts anyway.
“Yes, on its own, a tax cut in theory adds to the deficit. But that totally depends on what other measures are announced in the budget,” he added.
“It's not quite as black and white as a lot of people try to make it out.”
What kind of personal tax cuts?
Mr Hayes believes any personal tax cuts will likely be framed as both sound economic policy and a vote winner, and says there are two likely forms they could take.
“The $37,000 to $87,000 threshold is where there may be some movement,” said Mr Hayes.
“The rate of tax on that could go down a couple of points. It's currently 32.5 per cent. Or the government could increase the $87,000 threshold to $90,000 or maybe $95,000.
“The train of argument is likely to be that putting more money in people's pockets suggests they tend to spend it. And spending is good for the economy overall,” he added.
“There are surprises in every budget. No doubt that will happen again.”