Sources cited by The Australian have indicated that next week’s Federal Budget is likely to include a one-year extension of the low and middle income tax offset (LMITO), which is worth up to $1080.
However, the government is said to have ruled out bringing forward the third stage of its personal income tax cuts, which will benefit people on high incomes in particular.
Strangely, Westpac’s Bill Evans has criticised the move, claiming the government was “missing the opportunity to bring forward tax reform” by extending the tax offset again.
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Extending the LMITO is sensible, although it should be made permanent. Analysis by the Bankwest Curtin Economics Centre estimated that around 3.4 million taxpayers would lose out from the LMITO’s removal, half of which would be women.
Bringing forward the stage 3 tax cuts is also a bad idea. These tax cuts overwhelmingly benefit high income earners, as illustrated below:
Therefore, the stage 3 tax cuts will necessarily increase inequality and won’t provide much stimulus to the economy, since most of the money received by high income earners will be saved rather than spent.
If the Morrison Government’s goal is to drive economic activity, then it makes more sense to lift JobSeeker from its poverty level of $44 a day, as well as invest directly in public services and infrastructure.
The unemployed living below the poverty line would spend nearly every additional dollar they receive. Therefore, raising JobSeeker would stimulate economic activity far more than the stage three tax cuts, while also reducing inequality.
Investing in public works would also stimulate economic activity directly, as well as deliver essential services and infrastructure to all Australians.