“You can hear already the big centerpiece of this particular budget is $140 billion worth of income tax cuts that will come over 10 years.
This is no doubt an election budget.
The government right now says this will be their last budget before the next federal election. They have to get their message out.
It’s about the selling of this budget and also the alternative that comes up with it from the Labor party will be key to the decisions made at the Ballot box come next May” (Listen here)
Newsletter – May 11 2018
The one thing you need to know about this budget it is an election budget – it is designed to win votes.
Tax cuts, increase funding to aged care packages and infrastructure bonanza.
These are the type of claims people vote for at elections and these are what the Coalition are promising in the 2018-19 Budget.
But can they deliver it? Can we afford it?
Technically yes – the government have more money in the coffers than ever. Record amount of people in the workforce means more people paying tax, meaning the government have a lot more to spend.
This – combined with increased commodity prices and higher fuel prices alongside a strong global economy means we are financial in a good position. The government have an extra $11billion to spend this year compared to this time last year.
But one major thing to realise is, this budget is really Scott Morrison and Malcolm Turnbull taking a punt on what they think the global economy will do in the next 10 to 20 years.
Will China hold up? Could US President Donald Trump’s potential trade war become a reality? Could we have another GFC?
These are questions which, really, they can’t know the answers too but they are taking the punt.
But right now, our budget is in a pretty good position and frankly, we can afford this budget.
Now, the income tax cuts – this is the real cornerstone of this year’s Budget. It’s a seven year income tax reform really, or at least that’s how the Morrison and Turnbull are pitching it if you take into account the company tax cuts.
The plan works has three steps:
Step one is immediate and permanent tax relief to lower and middle-income earners by reducing the amount they will pay in tax from July 1 2018 and every year after that.
This means most Australian’s earning less than $90,000 a year will pay up to $530 less in tax under these changes.
Step two would involve lifting two tax brackets in 2022-23.
The $37,000 threshold will be lifted to $41,000, meaning half a million people will not have to pay a marginal rate of 32.5 per cent.
The $90,000 threshold will also be raised to $120,000, preventing 1.8 million people from paying 37 cents in the dollar.
Step three will see the 37 per cent tax bracket abolished entirely in 2024-25.
That would mean all Australians earning between $41,000 and $200,000 will pay 32.5 cents in the dollar.
Under the Government’s personal tax plan, 94 per cent of taxpayers will pay no more than 32.5 cents in the dollar.
As I said, this is an election budget.
Tax cuts win votes; no one wants to be paying more tax. As the Treasurer was saying ‘this is your money, it is not the governments money.’
The Treasurer told me on Tuesday – “They earned it. I’m saying I think you should keep it. I think when taxes rise too high in the economy it cost jobs, it costs the economy, and that only drags further on what the country can earn. So I believe in lower taxes. I don’t believe that you crash the economy with higher taxes. I don’t think you give government a blank cheque, by saying well you can just raise the taxes to whatever you like now.” (Listen Here)
One of the main argument against the tax cuts is why give Australian’s what would only equate to around $10 a week extra instead of using that extra money to pay down the nation debt which is expected to peak at 18.6 per cent of GDP in the current fiscal year before declining to just 3.8 per cent by 2028-29.
Now, it was on the eve of the federal budget when Former Federal Treasurer Peter Costello said national debt as a proportion of the GDP was at about the same level as when he became treasurer in 1996.
And his major sticking point – most Australians will be dead before the nation’s debt is paid off.
Well – the Treasurer had a few words to say to Mr Costello “Well I’m sure he’ll live a long and fruitful life, but I’m looking forward to him ensuring, seeing that over the next ten years more than $230 billion in net debt is paid down and that’s what this Budget projects.” (Listen here)
Now, Labor have said they will support the first step of the tax cuts, but not the rest. And of course, we can’t forget this is a package deal. Income tax cuts and company tax cuts – tax reform as I said they are labelling it.
With company tax cuts stalled in the Senate, it appears this is the Coalitions last ditch effort to get them through.
But is this enough to convince the Crossbench? That we will have to wait and see.
Now you can’t forget or deny the $140 billion in tax cuts over 10 years won’t be beneficial to families.
The government is taking a gamble on the economy, and all we can do is see if it pays off.
For all this and more, visit www.moneyaction.com.au
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