High inflation will prompt the government to reconsider giving tax breaks to middle-income people in this year’s election budget, a major bank says.
In every budget since 2019, Treasurer Josh Frydenberg has offered tax refunds of up to $1,080 under a low- and middle-income tax offset program (LMITO).
Mr. Frydenerg’s first budget was presented a month before the May 2019 election, when headline inflation was just 1.6%, well below the 2-3% target of the Reserve Bank of Australia.
Inflation is now climbing to 3.5%, which could make the government think twice about extending the program of tax cuts in the March 29 budget, with the average price of gasoline now reaching a level record $2.12 per litre.
High inflation will prompt the government to reconsider giving tax breaks to middle-income people in this year’s election budget, a major bank says. In every budget since 2019, Treasurer Josh Frydenberg has offered tax refunds of up to $1,080 as part of a tax offset program for low- and middle-income earners (pictured, a trainee steelworker)
Westpac economists Andrew Hanlan and Bill Evans said high inflation would make further tax relief unlikely this year.
“Higher inflation puts upward pressure on government spending,” they said.
“The budget will include revisions to labor market, wage and inflation forecasts – with any upside surprises.”
In Budget 2022, 10 million workers earning up to $126,000 received tax relief.
This saw 4.6 million Australians earning between $48,000 and $90,000 receive $1,080, while 1.8 million people earning between $37,000 and $48,000 received $255.
Westpac said the government was unlikely to extend tax offsets for low and middle incomes in the 2022-23 budget at a cost of $8 billion, so it would come into effect in 2023-24.
“We have not included an extension to LMITO in our fiscal numbers for this budget,” he said.
Instead, the government could give a one-time payment to low- and middle-income people to deal with higher inflation as an alternative to extending tax cuts.
Westpac economists Andrew Hanlan and Bill Evans said high inflation would make further tax relief unlikely this year (pictured are shoppers queuing to shop at Goonellabah in the town of Lismore, Australia flood-affected northern New South Wales)
In every budget since 2019, Treasurer Josh Frydenberg has offered tax refunds of up to $1,080 as part of a low- and middle-income tax offset program.
Westpac said a $4 billion cost-of-living package could be delivered at half the cost of extending the tax cuts program for another year.
“New policy measures should build on the current foundations, while aiming to ease cost-of-living pressures for people receiving social security benefits and those on low and middle incomes, including those receiving benefits. welfare,” he said.
Russia’s invasion of Ukraine is particularly affecting Australian motorists, with the national average price of unleaded petrol rising last week by 14.9 cents per liter to a record 212.5 cents per liter .
Over the past year, regular unleaded prices are up 54% from 137.9c/L on 28 March 2021.
The price of West Texas Intermediate crude oil climbed again to US$114 a barrel, not far off recent 14-year highs above US$120 a barrel.
One Big Switch campaign manager Joel Gibson has called on the government to temporarily cut fuel taxes in the next budget, as New Zealand has done, so motorists don’t have to pay 44 cents per liter cistern excise.
“Some people oppose cutting fuel taxes because they’re worried about the state of our roads, but there’s no guarantee the money will be spent on the roads,” he said.
Russia’s invasion of Ukraine is particularly affecting Australian motorists, with the national average price of unleaded petrol rising last week by 14.9 cents per liter to a record 212.5 cents per liter . Over the past year, prices for regular unleaded have risen 54% from 137.9c/L on March 28, 2021 (pictured is a motorist in Brisbane refueling)
“These prices make people’s businesses and jobs unprofitable and they also raise the prices of groceries and other goods. If New Zealand can provide relief, so can we.
But workers in general could finally get a decent pay rise with wage growth stuck below the long-term average of 3% since mid-2013.
Westpac expects the budget forecast to point to wage growth of 3% by June 2023 and 3.25% by June 2024.
From July 1, 2024, the number of tax brackets will drop from five to four for the first time since 1984 as part of the Stage Three plan announced in 2019.
This would result in the abolition of the 37% tax bracket and the creation of a new 30% tax bracket for all individuals earning between $45,001 and $200,000.
Without another round of tax cuts for 2023-24, Australian workers would have a year without tax cuts.
