In making the changes to the stage three tax cuts we announced last week the Government did not choose between relief OR reform, we chose relief AND reform.
We chose more relief for middle Australia and better tax reform for our economy.
We already know our plan provides more relief for more people – that’s not contested. But it is also better for women, work incentives, and labour supply without putting additional pressure on inflation.
For these reasons it’s better for the economy as well.
By dropping two rates and lifting two thresholds we are reforming the tax system, returning bracket creep where it has the most impact, and providing cost‑of‑living relief and reward for effort right up and down the income scale, with a bigger emphasis on middle Australia.
That’s superior relief and superior reform.
Our tax plan delivers three key benefits by maximising cost‑of‑living help, doing so without adding to inflation, and boosting capacity so there’s an economic dividend too.
The key conclusions of the Treasury advice we released a week ago back this up.
First, our approach does more to reduce bracket creep for more taxpayers compared to Scott Morrison’s plan.
Bracket creep is not just about workers moving into higher tax brackets, it’s about workers facing higher average tax rates as their income rises over time. It hurts low and middle income earners the most as they experience the fastest growth in their average tax rate as their incomes increases.
Our plan returns bracket creep for all taxpayers, across the income scale, and does more to reduce the impact on those most burdened by it.
As a result, the average taxpayer will pay $21,635 less of their income in tax over the next decade.
Second, our plan boosts labour supply and incentives to work for those who want to.
Treasury estimates our changes will increase labour supply by around 930,000 hours per week. That’s the equivalent of 25,000 full time jobs, and it’s more than double the labour supply impact of the old stage three.
Third, our changes deliver more for women.
5.8 million women, or 90 per cent of female taxpayers will receive a bigger tax cut under our plan. Ensuring more women keep more of what they earn and help parents who are returning to work, particularly young women with children.
We’ll deliver a bigger benefit to more than 90 per cent of taxpayers in high demand occupations with a higher percentage of women including teachers, nurses, aged and disability carers and childcare workers.
This helps to build a bigger, more inclusive and more dynamic labour force and advances the reform directions outlined in our Employment White Paper, Working Future, released last year.
And fourth, we’re doing it in a responsible way that doesn’t burden the Budget or add to inflationary pressures. Treasury has been clear our changes are broadly revenue neutral and won’t add to inflation.
Tax relief flows to working Australians over the course of the year rather than in a lump sum – so the effect is staggered – and they begin to flow from the middle of the year when inflation is expected to have moderated even further.
The Treasury Secretary and I consulted the RBA ahead of these changes, and Governor Bullock confirmed they don’t have implications for their inflation forecasts.
For all these reasons, our tax cuts are good for the cost of living, good for bracket creep, good for labour supply, and good for women.
Ours is a tax reform and economic reform that is more substantial and more beneficial than Scott Morrison’s plan, and one that is the best response to the economic challenges of 2024, not a response to the political battles of five years ago.
That is because the economics of our tax plan, both for the country and for people, are much more important to us than the politics.
We knew it would be contentious.
But we changed our position because the circumstances demanded it, and we had a much better alternative to put forward.
We found a better way to deliver cost‑of‑living relief and tax reform with an economic dividend in a way that doesn’t make our inflation challenge worse.
Since then, some opponents and critics of our changes have searched in vain for an economic excuse to justify their political predisposition.
To this I say beware the commentator who says it’s only tax reform if it disproportionately benefits those already on the highest incomes.
Relief and reform can and should be complementary, not at odds.
This is how we build on the welcome and encouraging progress in our economy, which has seen slowing inflation, growing real wages, the first Budget surplus in 15 years – and before long our cost‑of‑living tax cuts for middle Australia flowing this year.