Bill Shorten has dismissed Malcolm Turnbull’s plan to cut personal income taxes, saying it amounts to a vague promise of “free beer tomorrow” to distract voters from his political woes.
The former Treasury official Chris Richardson has also undermined the prime minister’s plan to pursue tax cuts for middle Australia, saying there is no strong economic case for such tax cuts and they will come at the budget’s expense.
Turnbull raised the prospect of personal income tax cuts in a speech to business leaders on Monday night, as he attempted to shrug off the chaos of the past few months and make the case for his “measured” leadership.
He told the Business Council of Australia dinner he was “actively working” with the treasurer, Scott Morrison, and his cabinet colleagues on a plan to introduce personal income taxes while also returning the budget to surplus.
He said the tax cuts would boost efforts to address cost-of-living pressures, including measures the government had taken to reduce power bills, the budget’s housing affordability measures, childcare reforms and an overhaul of private health insurance.
“Another way of putting more money into people’s pockets is by increasing their disposable income through lower taxes,” Turnbull said.
But Shorten has dismissed Turnbull’s plan and raised questions about the timing of the announcement, given it came hours after Turnbull was roundly criticised for cancelling the penultimate week of parliament.
“It is like free beer tomorrow, isn’t it?” the Labor leader said on the Sunrise program on Tuesday. “This bloke who just says whatever comes into his head to keep the wolves from the door. If he really wanted to support the battlers, he wouldn’t be cutting the taxes of millionaires and increasing the taxes of everyday Australians.”
Shorten pointed out that the Coalition was proposing to increase the Medicare levy by 0.5% on people who earn less than $87,000 a year, so Turnbull was effectively raising taxes first before trying to claim credit for cutting them again.
The shadow treasurer, Chris Bowen, picked up on that idea, saying Turnbull’s tax cut plan was just a fistful of dollars from a government trying to divert attention from its other problems.
“The government is engaging in thought bubbles and throwaway lines,” Bowen told Radio National on Tuesday. “Their only way of proposing a personal income tax cut is first to increase personal income tax. That’s like Uncle Arthur’s car yard where he puts the price up one day and the next day offers a big sale or discount on the prices he increased the day before.”
Richardson also undermined the economic case for personal income tax cuts, saying they would cost billions of dollars.
“The economy’s going fine, it doesn’t need help from tax cuts. The budget is not going fine, and tax cuts would come at its expense,” he told the ABC on Tuesday.
“Having said that, it is absolutely middle-income earners in the firing line for tax increases. It’s almost, from the view point of politicians, the worst of all worlds. The biggest relative increases in taxes over the next handful of years will be going to middle-income earners who are, of course, likely to be swinging voters. That’s what the government is responding to.”
The Parliamentary Budget Office last month revealed that the government’s plan to return the budget to surplus by 2020-21 was heavily reliant on personal income tax increases across every income bracket, with the largest increase to hit middle-income earners.
The PBO said the government was relying heavily on “bracket creep” to bring the budget back to surplus. Bracket creep is the phenomenon whereby taxpayers shift into higher tax brackets when their nominal incomes grow, owing to inflation and/or real wages growth. More than 1 million Australians are expected to shift into higher tax brackets over the next five years, where their average tax rates will increase.
The PBO said the tax rises reflected a seismic shift in the taxation burden from businesses to individuals. The personal tax increases are necessary to compensate for the government’s controversial $65.4bn company tax cuts.
Accountants have responded to the lack of details in Turnbull’s plan by describing the ways income tax relief could be achieved.
“If the government wanted to cut income tax for lower- and middle-income earners without also benefiting higher earners, the mechanism to do so already exists,” said Grant Wardell-Johnson, a KPMG tax partner. “It is called the low-income tax offset.
“Currently it is a max of $445 which applies up to $37,000 and tapers to $66,667. It is non-refundable and cannot be used to offset the Medicare levy. One could increase the amount and possibly the taper to, say, $100,000 and achieve what the PM has mentioned.”
Mark Molesworth, a BDO tax partner, said the government should pursue holistic tax reform rather than piecemeal tax cuts.
“Whilst we welcome the renewed attention on the tax system, we hope this doesn’t turn into a bidding war for votes using the promise of reduced tax rates as an electoral sweetener,” Molesworth said. “Serious consideration needs to be given to reforming the tax system as a whole.”
The International Monetary Fund said if the government wanted to pursue income tax cuts it ought to be part of a larger plan for tax reform.
