I acknowledge the Turrbal people, their elders, customs and traditions.
I thank the McKell Institute for getting us together – and all of you for being here.
In a week that’s already taken me to Canberra, Launceston and Melbourne (twice!) –
It’s a real pleasure to have this opportunity to speak with some wonderful people on home turf, including:
Rachel and Sarah who invited me;
Ed who introduced me a moment ago;
Marianna, and the other board members.
Graham and Bart;
And all of you who support the great work of the Institute.
Economic stocktake
It’s only been a week since the PM and I announced our cost‑of‑living tax cut for middle Australia, and I want to spend the bulk of my time talking about the economic benefits of our changes.
But first it’s worth acknowledging how much has already happened since then.
On Monday we appointed Greg Combet as the new Chair of the Future Fund Board of Guardians, and two new Board members, who will all inject fresh thinking and leadership to help renew that important institution.
The same day we heard about the collapse of Evergrande in China –
Not a big surprise but still a very concerning reminder of the slowdown in China and the weakness in its property sector –
And of the uncertainty we see in a slowing global economy where a soft landing is assumed, but not assured.
And while I was meeting with Tasmanian steelworkers that day, we also got news of a very soft retail figure, which underscored the impact of interest rate hikes.
Around the same time, in Townsville, the PM was talking with Queenslanders affected by heavy weather –
And announcing important new investments in hydrogen hubs and regional infrastructure.
Yesterday we got the new inflation data for the December quarter, and for the month of December, which showed inflation substantially lower than its peaks in 2022.
It showed we are making very welcome and very encouraging progress in the fight against inflation, but it’s not mission accomplished because we know people are still under pressure.
It’s why we are pleased to see the ABS confirm our existing measures are putting downward pressure on electricity bills, early childhood education fees, rent – and inflation overall.
It’s why on the 40th birthday of Medicare we are pleased to see the billions of dollars we allocated in the last Budget make a meaningful difference to the bulk billing rates released today.
Tax reform
It’s also why we made the important and difficult decision to put people before politics and change our position on the stage three tax cuts that Scott Morrison legislated 5 years ago.
By now you know what our changes mean:
Every taxpayer gets a tax cut, and 84 per cent of Australians get a bigger tax cut to help with sustained and persistent cost‑of‑living pressures.
A worker on the average income of around 73k has their tax cut more than doubled.
Someone on around 100k now gets around $2,200 a year.
Workers earning less than 45k were going to miss out, but now they get a tax cut too.
For many, that is on top of the benefits of our changes to the Medicare levy low income thresholds announced at the same time.
All of that is pretty well‑established now, so I want to focus more today on the economics of our plan, and in doing so I want to make an overarching point here:
We did not choose between relief or reform.
This is relief and reform.
By dropping 2 rates and lifting 2 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.
In fact, the top threshold will be lifted on 1 July for the first time since we were last in office.
Overall our plan provides superior relief and superior reform.
We already know it provides more relief for more people – that’s not contested.
But it’s better for women, work incentives, and labour supply; it puts no additional pressure on inflation; and for these reasons it’s better for the economy as well.
So it ticks 3 boxes by:
- Maximising cost‑of‑living help;
- Without adding to inflation;
- And boosting capacity so there’s an economic dividend too.
Consider the key conclusions of the Treasury advice we released a week ago:
First, our approach does more to reduce bracket creep for more taxpayers compared to the old stage three.
Bracket creep hurts low and middle income earners the most, as they experience the fastest growth in their average tax rate as their incomes increase.
Our plan returns bracket creep for all taxpayers 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.
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, which is more than double the labour supply impact of the old stage 3.
Third, our changes deliver more for women.
5.8 million women, or 90 per cent of taxpaying women will receive a bigger tax cut under our plan.
We’ll be delivering 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 early childhood educators.
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 will begin to flow from the middle of the year when inflation is expected to have moderated further.
The economics of this – national and household – 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.
Since then, opponents and critics of our changes broadly fall into two categories:
Those searching in vain for an economic excuse to justify a political position.
And those who think it’s only tax reform if it disproportionately benefits people on the highest incomes.
They need to acknowledge as the Treasury advice does, that there’s more than one way to return bracket creep and build more incentive into the tax system.
To say this another way:
Beware the commentator who says it’s only tax reform or economic reform if it mostly benefits those already doing well.
They are often trying to justify a predominantly political argument, not an economic one.
Economic reform
This brings me to a broader point about reform.
Because what we are seeing on tax is reminiscent of what we’ve been seeing when it comes to productivity.
Some will have you believe that harsher industrial relations are the only way to make our economy more productive –
That is by making people work harder and longer for less.
But making our economy more productive means making it more dynamic and more competitive –
And investing in people’s ability to adapt and adopt quickening technological change, in a net zero economy.
Competition policy has a big role to play here too.
That’s why we’ve set up a Competition Taskforce with a broad remit –
Covering our competition laws, institutions, and other areas of focus – including our work on non‑compete clauses.
We’re reviewing our merger settings as a nearer‑term priority, having just completed consultation on options for reform.
And at a time when Australians are under cost‑of‑living pressure, it’s important our competition settings help consumers too –
That’s why today I formally directed the ACCC to investigate pricing and competition in the supermarket sector –
This will help ensure Australians are paying a fair price at the checkout and Australian suppliers are getting a fair price for their goods.
Craig Emerson’s review of the Food and Grocery Code of Conduct complements this work.
Our government is also partnering with states and territories to revitalise National Competition Policy for the first time in 3 decades.
State and territory Treasurers agreed last December to develop this agenda over the course of this year –
That work will be supported by the Productivity Commission, which will be tasked with assessing the economic, revenue and broader benefits of reform proposals considered by the Council on Federal Financial Relations (CFFR).
What combines our approach to Medicare; to energy; to wages and the workforce; to competition policy, and to tax –
Is that optimal combination of relief and reform.
Because relief and reform can and should be complementary, not at odds.
This is how we modernise our economy; to maximise our advantages in the defining decade; to create more opportunities for more people in more parts of the country.
To do the right thing by the steelworkers I met with in Launceston this week, the early childhood educators I spoke with in Carrum Downs yesterday – and their economy.
By getting the incentives right; the human capital right; the markets and capital flows; the energy transformation; housing supply; the migration system; the international relationships; the technological infrastructure; our economic institutions and our productivity agenda.
In all of these areas we have a clear direction and some progress.
Inflation is slowing;
Real wages are growing;
And soon tax cuts will be flowing as well.
But we know there’s more work to do together.
Which is why I’m so pleased to be here today, why I’m so grateful for the work you do –
The support you show each other and the Institute, and the ideas and momentum you generate.
And it’s why I’m looking forward to the discussion.