RBA move makes tax cuts vitally important: economists

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Low and middle-income earners could pocket their $1080 refund – stage one of a three-part $158 billion Morrison Government promise – as early as next week if the legislation successfully passes through the Senate this week.

As the Reserve Bank of Australia (RBA) announced a second consecutive cut in official interest rates – to one per cent, the lowest on record – Treasurer Josh Frydenberg said the Australian Tax Office (ATO) had informed him that workers could receive tax relief as soon as next week.

“People will get it next week,” he said, “once they put in their tax returns. If they put in their tax return next week, then they will get it just days after.”

The first stage of the tax promise, which passed through Parliament on Tuesday, will deliver up to $1080 to low and middle-income earners when they lodge their tax returns. It increases the amount of money available through the low and middle-income tax offset from $530 to $1080.

The second stage will top up a low-income tax offset, which means more people – earning up to $45,000 instead of $41,000 – will get a 19 per cent tax rate.

The final stage would take effect from mid-2024 and flatten the tax rate from 32.5 per cent to 30 per cent for people earning between $45,000 and $200,000.

The anticipated tax cuts are likely to benefit many older Australians, according to YourLifeChoices’ most recent survey, 2019 Ensuring Financial Security in Retirement, which found that 39.4 of people aged 55 to 70 were working full or part-time.

Senior economist with The Australia Institute, Matt Grudnoff, said any tax relief packages needed to be “well-targeted if they are to maximise economic growth”.

“Low and middle-income taxpayers are more likely than high-income taxpayers to spend their tax cuts and stimulate the economy,” he told The Guardian.

“The increased low and middle-income tax offset in stage one (a) will cost the budget less money and proportionately benefit more people than stage 3(a).

“The stage 3(a) income tax cut is expected to cost the budget $95 billion over five years.

“The Government will spend more on this part of the tax cut than it is expected to spend on the Pharmaceutical Benefits Scheme over the same period.”

The RBA announced the 0.25 percentage point rate cut – the first back-to-back cuts since 2012 – at a board meeting in Darwin.

KPMG chief economist Brendan Rynne told The Age the move put pressure on the Government to consider other ways to boost the economy and made the unlegislated cuts particularly important.

“The RBA is sending a signal to the market, to politicians and to the community at large, that the Australian economy is not firing on all cylinders and, as one of the guardians of national welfare, the RBA is looking to help out where it can,” he said.

“So this really puts the onus on the Government to bring forward fiscal stimulus – by getting new targeted infrastructure projects up and running and ensuring the proposed tax breaks are brought into law soon as possible.”

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Written by Janelle Ward

102 Comments

Total Comments: 102
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    Needless to say, Labor is opposing the tax cuts Bill. Labor would rather allow the economy to go to hell in a hand basket than let the government fix things. Yes even if it means exposing their lack of concern for the financial struggles of those who once were Labor’s raison detre, the worker.

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      Adrianus, wrong! Labor supports the first two parts, bringing forward part two. They have passed all of it in the lower house to expedite discussion in the senate.
      The economy going to Hell in a hand basket is more complex than what you are inferring. This won’t do it on its own. People need to spend and a broader stimulus by way of construction etc to prevent further downtown of the economy.
      If the two parts of the tax went through the top earners still get something but to set something in place that is four or five years away seem nonsense to me.
      It looks like it will go through anyway because of the cross benchers using a bit of clout to get something for their constituents.
      Your beloved LNP will get it all through anyway so stop whinging!

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      Correct Adrianus, the Labor party is, no more, in my opinion.
      Now after getting a beating at the polls, they become the perennial dog in the manger party , stymie anything to make a point , well I think they may have backed off.

      But them (ALP) and the union movement forgot the working man quite a long time ago.

      This government now needs to be given the reigns and allowed to develop infrastructure and create jobs , because we are looking at an automated future society unlike we’ve seen before and human beings must… MUST!! …have something to do.
      To Paddington.. the Government is looking at the future and the bolstering of confidence from big business and investors , who create jobs and need to profit , we are in a different world altogether, don’t be blind to that, the future will see machinery take jobs by the thousands , business investors and people setting out to make profit , also have to be helped along even if the likes of some consider that a bit off putting, you will need those investors to create work.
      If you don’t hand them some kind of tax relief carrot , Deserved or Not!!! There will be NO WORK, and then it’ll really be “Helter Skelter” as Charlie’s people wrote on the wall!

      Government needs to be allowed to help the nation al;ong , if we have drongos’ and old race horses like Albo , nothing from them will change , and they damned well need to , you have to have good opposition in our system , not trouble makers in pettiness, and foolishness, let the government govern and let the cross benches do what they are supposed to, help out not destroy! That is whats happened in Australia for too long, governments not being able to govern, its time it stopped, its time sense and negotiation began instead of you kick me I’ll kick you!!!!!

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      Read what I wrote below, Adrianus – that’s because this is being used as a political football and is not in line with the concept of government actually serving the people it represents… but serving itself first in using such things as a tyre lever on the heads of the Opposition, who have no choice unless they want to look greedy but to oppose it.

      Labor is opposing a cut for the top ranks – which include themselves – it is the LNP that has put the demand that it’s “take it or leave it” – and you know how I deal with ultimata…

      ”NUTS!”

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      John. nothing is stopping this govt from building more infrfastructure, certainly tax cuts have nothing to do with that and I doubt the small amnt people who pay tax get back will make any difference to their spending, they will probably put it away for the rainy. hurricane day forecast to be coming.

      What infrastructure has the Federal Govt built in the last 6 years, where are the new dams so desperately needed, hospitals, schools and roads and public housing needed to cope with our growing population? No the surplus is far more important in their eyes then getting the economy mooving.

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      Lots of wrong statements from Liberal & Labor types. Labor only pretended to oppose the tax package, due to the massive tax cuts ($11,640 for those on $200K+ income) benefitting ALL MPs – they could not pass that up, could they! Hence, they passed it in the Lower House. Now it is left to a handful of Senators (3 needed – 2 from Centre Alliance and J.Lambie naming their price now) to pass it in the Senate with Labor being irrelevant!

      Let’s be clear – once self-interest has been put forward, ALL such legislation will pass. The voters stupidly led down the country by voting back in known self-seekers from BOTH major parties, and will now pay the price.
      The real priorities over the 3rd stage massive tax cuts should have been:
      a. Reversal of the nasty Assets Test changes from Jan 2017 implemented on a Budget Emergency lie – so how come they can now afford $95Billion for the 3rd stage???
      b. Infrastructure spending BADLY needed to i) Bring down power prices, ii) Ensure Water storage dams and network built, iii) Generate real jobs through such programs.

      Are they working for the Australian people or themselves? No prizes for guessing the answer!

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      There are plenty of opportunities to stimulate the economy through productive infrastructure spending so it astonishes me the continuing focus by pollies, media and commentary on energy prices when average annual energy bills (~$1,600) are such a small part of average annual household income (~$110,000). Reducing energy consumption costs by even half will only make households better off by about $50 per month, an amount which is most meaningful to those needing assistance with making ends meet.

    • 0
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      Farside, Try to think of any rising cost in terms of how rapid the cost rises in comparison to income and you will understand why there is so much focus on the increasing cost of household energy.

    • 0
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      Farside, your silly comment shows you have no understanding of how increasing energy prices are known to a) cause exceeding hardship for those on limited income, with perhaps over a million on low incomes affected, and b) how high energy prices are a key cost for businesses both small and large, with many small businesses going under as a result. If they try to increase their prices, naturally the consumer also gets hit with higher prices. With our massive resources of coal, gas, uranium, etc, we should instead be having the lowest energy prices in the world – if only we invested wisely.

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      George, I said low income households should get meaningful support with their energy costs, even $50/mth would halve the average bill but these million or so are not your average household. The fact you find it silly does not surprise me. Energy costs are a small fraction of household spending and they receive more headlines than other other elements like housing, transport, food, health, recreation and entertainment – reductions in these costs would be far more meaningful to low income households.
      https://static.moneysmart.gov.au/images/infographic/australias-spending-habits-2018.svg

      I did not discuss energy in terms of business costs. How many small businesses have gone under solely because of energy prices?

      Good luck with attracting investment in coal, gas and uranium generation; boat sailed on that issue long ago. A domestic gas reservation policy should be the priority to mitigate the rate of increases.

    • 0
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      I take your point Adrianus that energy costs have risen quickly. We know the reasons for this – networks, market manipulation, exports etc. My point however is that energy costs is one of the smaller elements of household spending and that the savings from even a halving of average energy bills would be quickly taken up elsewhere.

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      Farside my electricity bill is roughly $$1,000.00 every quarter even after SoLar Rebate and pensioner discount $50.00 a month would help a little but not that much, we don’t have gas but use wood heating in the winter. Itw ill be interesting to see if they have a referendum on Nuclear Power soon won’t it, MP John Barillaro wants one.

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      Misty, the average bill is $1600. Yours is more, some will be less. My inlaws (Newstart soon on pension) in FNQ also pay around $3500 and my mother’s partner (SFR) in WA pay a little over $4000. Wood is expensive for heating unless you have your own supply so this would add to your burden.

      Current generation of nuclear reactors will not help. There is no investment appetite for them and projects to build are being delayed or abandoned across the globe. The only hope for nuclear are the so-called Gen IV reactors, but let’s hope the scientists take the lead on this in the Australian debate rather than muppets like Canavan and his cronies. Either way you won’t be seeing much hit the grid in this space much before 2040 if at all.

    • 0
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      John, very good post!

      As you elude to, as automation reduces the number of workers future governments will need to rely less and less on individual tax income. If only Labor/Unions/Greens had an eye to the future, we would find ourselves all moving in the same direction. Instead theirs is a simplistic focus, seize control of the budget, increase taxes and redistribute wealth. Thinking long term for Labor is 3 years. They can have 5 different positions on a policy in 5 weeks.

  2. 0
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    And as a tax cut, those that have not actually paid any tax should not see it – compared with the franking credits ‘argument’ – interesting that aspect does not seem to have been raised so far . . . .

    • 0
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      Interesting…… good point….

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      Grandma, if someone has “less assets and less income than countless thousands of pensioners” and chooses not to take a pension then that is their personal choice and more power to them. It is not something for them to laud over those who choose to take a pension.

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      Farside you should know better now not too get on the bad side of whinging grandma, prveiously called Only Genuine Rainey and also Older and Wiser, those Franking Credit and pensioner comments are dead giveaways.

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      Farside you can have a house worth many millions and still get the full old age pension. Infact it 8s a great idea to buy a house that only leaves you enough assets to qualify for the full old age pension on retirement. When you run out of cash just downsize with only enough cash to continue to qualify for the full pension. Keep repeating.

      Not only do you have a tax free appreciating asset but you get paid to have it. Many have seen the light.

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      what is your point Geezer? Maximising non-assessable assets while maintaining pension eligibility is an obvious strategy.As you say many have seen the light and trading down the sweet spot as needs must. Those forced into early retirement but not eligible for welfare support have been doing this for years. Rainey just got her panties in a twist on calling her out over her not so wealthy SFRs expecting accolades for denying themselves the pension despite being eligible.

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      Well whinging grandma, you got that name right this time, why do you go on with the same old same, you do go on and on don’t you, don’t know why you want to keep changing your name on this site it is easy to tell who it is from your comments and as for sniping well you are a master at that.

    • 0
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      Insults will get you nowhere WG, I feel sorry for you if you have to resortt to insults to try to get a point across, time you had a holiday I think. Kaye I hope the moderator is checking these comments.

  3. 0
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    I agree with Paddington o n this issue. In order to have the public spend, there needs to be enough money in their pay packet for them to do so.
    It seems to me that since ‘globalisation’ took hold, only big business has benefited. I think most workers and small/medium business owners would agree.
    The gap is just too wide between our ‘social groups’.

    • 0
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      An increasingly classed and stratified society, and soon to be no better than some petty Asian despotism like the fabled Singapore or China etc… Singapore being the representative of ultimate capitalism (jeez – shares aren’t even taxed there – how does Joe Ordinary ever get off the economic floor?) and China having reverted to the ancient Mandrin style of ultimate riches for the top dogs and poverty for the rest with a few favourites in between.

      The more things change…. now all we need is for North Korea under The Fat Controller to come into the capitalist world, and reap the benefits, and then there’s only Iran….. I’m sure Kim Rong Un would leap at the opportunity to become a mega billionaire like his Chinese counterparts…. and his honchoes would be slavering at the chops for the same….

      Welcome to Around the World With Trebor…

  4. 0
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    Well ….. there is an argument about bracket creep – and I was just thinking this morning that this argument (regardless of full facts) parallels that of ‘deeming’ – and my second thought was that government chooses to persist with archaic and massively out-moded ways of doing things.

    It’s a simple enough calculation annually to simply adjust for CPI or by some other yardstick, but of course, that would take away the opportunity for Santa Claus to come along and say there is a need for income tax relief… and pretend to be the Big Giver …

  5. 0
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    Weeks? Days? Tell me another one…

    When it has taken OVER 6 months for Centrelink to organise a Seniors health card (still not received) how can anyone (nobody on a pension, but especially if you were duped of a pension!) expect to get anything from this bunch.

    The only people who like the Libs are those that have plenty of cash and assets. To hell with the rest of us. Politics of Greed vs Politics of Compassion. You made your choice. It’s all about the dollars.

    I see similar in Brazil, where the President was voted in resoundingly on a platform of increasing logging and clearing of their forests. Australia has just done something similar. Makes you wonder about the level of intelligence of the population.

    Had my whinge, off for a cuppa. Enjoy life whilst I still can, but keep up the fight.

    • 0
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      Yes, anyone who lodges a tax return knows the refund doesn’t come in a few days! They have already been told by the ATO that there would be no payment until the Legislation has passed, but now without consultation they are suggesting very quick refunds!

    • 0
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      Janus says “The only people who like the Libs are those that have plenty of cash and assets.” This is blatantly untrue; 50% more retirees vote conservative than for Labor and progressive politics.

    • 0
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      I have to agreed with Janus this time Farside, those 50% you mention are probably the ones Janus is commenting about, have plenty of cash and asset, at least that is what I can ascertain from my wide range of friends and acquaintances.

    • 0
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      Misty, I come across plenty of pov pensioners that would never entertain anything but voting for the party of Bob Menzies. I suspect there were also many pensioners seduced into voting One Nation or Palmer on the basis of the promised pension increases or anti-immigration policies and directed preferences to LNP. But the numbers don’t lie.

      Surveys over decades consistently show at least 61% of retirees favour LNP (two party preferred).

      ABS reports 66% of retirees receive at least a part-pension, suggesting 34% are self-funded.

      For the sake of argument let’s make a conservative assumption the bulk of SFRs, say 90%, voted LNP, which accounts for 31% of retirees voting LNP.

      This suggests the other 30% of retirees that vote LNP comprises those receiving at least a part pension.

      It is hard to argue all of this cohort has plenty of cash and assets on the one hand but then complain the 2017 cuts to the means tests were unfair. We also know from the election results that this cohort is probably larger as many of the large swings to Labor occurred in the wealthier established electorates like Higgins and Kooyong.

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      Grandma, so many LNP voting SFRs disliked Labor more than seeking revenge on the coalition; it just means they a slightly less rusted on but still voted LNP, just this time it was motivated by self interest rather than ideology. It did not change the fact the majority of retirees still vote LNP and that cohort includes many full and part pensioners. I don’t expect it to change significantly before the boomer bulge shuffles off this mortal coil, regardless how well, or poorly, Labor campaigns.

      As for your 66 year old couple with $900k of assessable assets – I understand their circumstances but nup, don’t feel sorry for them. They are better off than someone in a similar situation but five years younger or lost a fortune in the GFC or fell upon hard times. There are plenty of people having to survive on savings and investments, but they know there is a safety net if it goes pear shaped. Yes they have to consider long term but if they worry over the uncertainties of investing in the share market then they should invest elsewhere. You play the cards you are dealt.

  6. 0
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    Labour having the effrontery to oppose/change this legislation simply highlights Labour’s inability to accept that the majority did not believe them and did not vote for them – the typical thug, union boss approach.
    Man, are they going to be in opposition for years to come!

  7. 0
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    I have not paid tax this year but I hope I get paid the tax rebate that the same as them with franking credits

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      And pigs might fly cupoftea.

    • 0
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      So put your money at risk and get some franked dividends? Hoping for something needs to be constructively formulated to goals which need to be acted upon. Otherwise hope alone will fade like a dream in the distant past.

    • 0
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      you might be surprised Adrianus that many retirees thought they would losing their franking credit refunds despite thm not owning shares and had never received a refund cheque previously. As for putting money at risk and investing in franked shares … never entered their minds that this was a necessary prerequisite. They were simply persuaded by the campaigning.

  8. 0
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    It is unlikely the LNP will make any changes to their current direction is they need to get the economy “in the black” to justify their devious approach during the election. The good of the country is secondary to the good of the party.
    Tax cuts to those on the upper tax brackets won’t do the economy any good as it is unlikely they will spend on the sort of thing that will provide a boost. It is the ordinary wage earner who needs money in their pocket to give them the confidence, and the means, to spend to stop the downward spiral our economy is in. It is also downright stupid to lock in tax cuts that won’t happen until after the next election. Who knows what situation the country will be in by then.
    The next few months will tell if ScoMo is essentially a snake oil salesman or has what it takes to be a real P.M. Frydenburg looks to be out of his depth at this stage but time will tell with him also. We could be in for a rough ride here so fasten your seat belts.

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      I think they will break their election promise to run a surplus. Just as Labor promised bigger and better surpluses, bigger and better tax cuts yada yada yada.. they would also be faced with the same problem. How best to stimulate the economy.
      At what moment in time do our politicians stop being politicians and act in accordance for the greater good?

    • 0
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      “The good of the country is secondary to the good of the party.” … nailed it Tanker!

  9. 0
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    Well here’s a novel If SCMO’s Government wishes to give away money to stimulate the economy. Get rid of the current Age Pension Scheme and re-introduce a Universal Age Pension for all 65 year olds with no income and asset tests.

    • 0
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      Thoughts and Prayers?

    • 0
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      Chucky, there are two taxes that I don’t like. Income tax on the worker and Payroll tax on the company. Both taxes serve to reduce incentive for growth and productivity.

      We are in big trouble atm if the RBA is trying to drop the value of the Aussie Dollar by tightening monetary policy. It shows how much we rely on mining exports to prop up our balance of trade. Our unemployment rate is low because the states have been bolstering their Public Services. en passant.. Had to laugh when I heard the Union bosses in QLD have called off strike action because the Labor State government has finally agreed to a pay rise for Teachers after an exhausting 3 hour negotiation. It’s not just the extra money which people have in their pay packets, its also the feeling of confidence, and the inspiration which drives workers to achieve their personal goals. If we are to sail successfully through these headwinds then it will be on the back of the worker in private enterprse, not the frail and old who keep our hospitals busy and Doctors wealthy, not the public servants.

  10. 0
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    ops: The beginning of my comments should read ” novel idea”.

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