What You Will Gain And Lose Thanks To The Tax Cuts
Who could argue with a $1000 tax cut? Social services experts are, with fears the huge tax cut bill will start a countdown to a vastly less fair Australia.
The government has secured the necessary support for its mammoth $158 billion tax cut package to sail through the parliament, with an immediate refund to plop into bank accounts nationwide within weeks.
Most people are happy with that -- who doesn't like to see a bigger number on their tax return cheque?
But it's the final tranche of the three-stage tax plan which has experts worried, with fears the government will slash essential services like health, housing, education or welfare to pay for the cuts, as well as the tax cuts increasing inequality.
The changes have been described as a "timebomb" which will "rob" the future and "leave a broken underclass".
READ MORE: Do Tax Cuts Lead To Higher Wages?
"We will end up with a hugely divided society, as has happened in the U.S.," claimed Emma Dawson, executive director of progressive think tank Per Capita.
It's a double-edged sword. Let's get into it.
What will you get in the tax cuts?
The government's tax cuts -- an expansion of those passed last June -- are likely to pass the Senate unamended on Thursday. There are three stages, kicking in at various intervals:
- People earning up to $126,000 will get a cash refund in their 2018-19 tax return, with up to $1080 for lower-income earners. Around 10 million people will benefit, with four million getting the full amount.
- From 2023, the upper threshold for the 19 percent tax bracket will raise from $41,000 to $45,000.
- From 2024, the 32.5 percent tax rate will drop to 30 percent.
It's a wide flattening of Australia's progressive tax system, meaning everyone earning between $45,000 and $200,000 will be on the same 30 percent tax rate -- that's 94 percent of Aussies.
That's good, right?
Depends who you ask. The $1080 refunds will immediately boost the flagging economy, with the government hoping people will spend their refund -- a holiday, a renovation, a new outfit, it doesn't matter. The economy is sputtering, wages growth is sluggish and the Reserve Bank is slashing interest rates to historic lows to kickstart spending, so an immediate handout of $15 billion will help.
BUT tax cuts cost money. And the benefits are lopsided.
One-third of the tax cut benefits go to the richest 10 percent, a budget analysis forecasts. The Australia Institute modelling found more than half the benefit will go to the richest 20 percent, and only three percent to the poorest. The Grattan Institute claimed the changes "make income tax the least progressive since the 1950s."
This has been slammed by social advocates.
“The Federal Government is playing reverse Robin Hood – taking money that could go to essential services for our most disadvantaged in favour of giving tax cuts to those at the top end,” NSW Council of Social Service CEO Joanna Quilty said.
“Our services need to be prioritised, not an unaffordable tax cut that mainly goes to the highest 20 percent of income earners."
READ MORE: Government Tax Cuts: What You Need To Know
Due to both the federal budget being precariously balanced and the government promising budget surpluses no matter what, there are fears that if something even minor goes wrong -- such as mineral export prices dropping, the winds of global trade turning sour, or even just optimistic treasury predictions being off -- the tax cuts may be paid for by government frugality.
In other words, services cuts could be in our future, in what is being described as a "timebomb".
Quilty said the tax cuts are "likely to push the budget into deficit given the slowing economy."
"That raises the risk of more rounds of harsh funding cuts," she said.
“It is a gamble to rely on a set of rosy economic projections for the future and commit to large tax cuts now, many years in advance."
Can you explain this to me with a Simpsons meme?
Gladly. This classic Treehouse Of Horror one should do it.
Government: Take this $1080 tax cut. But beware it carries a terrible curse.
Taxpayer: Ooh, that's bad.
Government: But it comes with a flattening of the tax system!
Taxpayer: That's good!
Government: Flattening the tax system is also cursed.
Taxpayer: That's bad.
Government: But it means the government takes less of your money!
Taxpayer: That's good.
Government: The government taking less of your money is feared to lead to cuts to essential social services... That's bad.
What will this actually mean for Australian society?
The government's budget forecasts count on an income dip, which will affect what it collects in tax. The government says it will make up the shortfall as the economy generally grows, but those predictions are based on the economy growing at a rate it currently isn't -- and there aren't great forecasts for things to pick up in the near future.
"We can’t know what the economy will look like in five years time, so the government’s plan to lock in these expensive high-end tax cuts years in advance is a hazardous path to take," Australian Council of Social Services CEO Dr Cassandra Goldie said.
Emma Dawson, executive director of progressive think tank Per Capita, said she feared the long-term impact of the tax plan on Australian society.
"These tax cuts are aimed squarely at undoing our social contract and replacing it with a “winner takes all” society, where you get only what you can pay for," she said.
"Where human dignity is dependant on your wallet. Where the wealthy steam ahead and leave a broken underclass in their wake."
The tax cuts will almost certainly pass on Thursday, so they're imminent, no matter what -- but the long-term impact will play out in coming years.