Why Stage Three Tax Cuts Should Be Here to Stay

 **Why stage three tax cuts should be here to stay** ‍ Misguided Greens and Independents are urging Treasurer Jim Chalmers to drop the stage three tax cuts which were legislated by the former Coalition government. A seemingly innumerate statement from independent MP Monique Ryan says it all about this debate. In recent weeks Ryan said: “Anything that’s going to give $243 billion to top income earners over our society is inadvisable.” Last time I looked, a carpenter on $66,000 or a midwife on $78,000 were not “top income earners”. It would be a huge mistake to let Ryan and co have their way. The reversal of what has already been legislated due to the support of the Labor Party and removal of stage three tax cuts would result in significant tax hikes for millions of middle income Australians. It would significantly raise sovereign risk in Australia and ultimately send the wrong signals to business and international capital and labour markets. There are two reasons stage three tax cuts should remain. The first reason is stage three addresses the dreaded bracket creep for middle income earners. Bracket creep occurs when taxpayers are pushed into a higher tax bracket by earning a higher income. When bracket creep occurs, the economy suffers from the fiscal drag of Canberra eating into more of our money. Bracket creep is exacerbated when the taxation framework fails to keep up with inflation. In other words, bracket creep is a bigger problem in a higher inflationary environment as we presently face. In the stage two cuts, the upper threshold of the 19% tax bracket was raised from $37,000 to $45,000, and the tax threshold between the 32.5% and 37% marginal rates were raised from $90,000 to $120,000. In stage three, the 32.5% and 37% brackets will be consolidated into a single, lower 30% tax bracket at a $45,000 lower threshold which stretches to $200,000. Most importantly, 94% of Australian taxpayers will be paying no more than 30 cents in the dollar at this bracket. Those who characterise stage three as a tax cut for the mega-rich deliberately ignore this fact. Midwives earning an average salary of $78,784 will receive a tax cut of $845 a year. Carpenters earning $66,348 will receive a cut of $534 a year. Teachers, plumbers, and nurses are also set to benefit from the stage three tax cuts. That means more money in their pockets, not Canberra’s. The second reason is the nation needs to be competitive to attract capital and skilled labour. This includes at the higher income level. This may be unfashionable, but the truth is that the country also needs higher income jobs to be filled for businesses to be successful. Much has been said about raising the threshold of the top tax bracket to $200,000. This 45% tax bracket has a current threshold of $180,000, which has remained unchanged since 2008. It has not been indexed with inflation in the last 14 years. Australia’s top income tax threshold is currently much lower than comparable economies. In the United Kingdom, the top band is $256,527 (AUD), in Singapore it is $335,055 and in Japan it is $417,458. Australia currently has the same top marginal rate as the UK and Japan, at 45%. Raising the top rate threshold to $200,000 in 2024-25 under stage three does not close the gap significantly, but repealing the change sends the wrong signal to the market. Certainly it would completely undercut the so called 36 concrete outworkings of the government’s Jobs and Skills Summit. In flagging the government’s plans in immigration reform, Home Affairs Minister Clare O’Neill says: “We’ve got some really big challenges that we’re confronting and we’ve got this great opportunity to welcome the best and the brightest from around the world to help us confront them.” The best and brightest are not stupid. They won’t bring their skills to Australia if they are to be clobbered with some of the highest taxes in the developed world. In his July Statement on the Economy, the Treasurer said that real wages growth will pick up in the fiscal year 2023-24. If the government wants to encourage real wage growth, repealing the stage three tax cuts is the second last thing they should do. The only thing worse would be to increase the Superannuation Guarantee to 15%, which Assistant Treasurer Stephen Jones has recently advocated. The already legislated increases to super to 12% eats 80% of wages growth in the budget according to the Treasury. The tax cuts have already been legislated too. They have been incorporated into the macroeconomic expectations of Australian businesses and workers. Labor promised to keep the stage three tax cuts prior to the election. It was part of their claim to being a steady pair of economic hands as an alternative government. It was their Kevin Rudd-style “economic conservative” claim. If Labor capitulates to the Greens and independents such as Ms Ryan, middle income earners will pay more tax and Australia will entrench our uncompetitive, isolationist tax system which will destroy the government’s new skills agenda. _‍_ _Andrew Bragg is a Liberal Senator for New South Wales and chair of the Senate Economics Committee_ ‍