Extract from The Guardian
Government wins game of brinkmanship but sets up tough election and byelection contest
The Turnbull government’s $143.9bn income tax cuts have passed the
federal parliament, setting up the major economic policy contest of the
next election.
The budget measures passed the Senate in full on Thursday after a combative morning in both chambers of the parliament. Labor, the Greens and the South Australian independent Tim Storer attempted to delay the final vote in the upper house after the government and crossbench supporters combined to gag debate.
The tax cuts will be rolled out in three stages over seven years, and will cost the budget more than $143.9bn in forgone revenue after a decade, making it harder for the government to return the budget to surplus.
In political terms, Thursday’s result is a significant procedural victory for the Coalition, which had presented a take-it-or-leave-it proposition to the Senate, demanding the package be passed as a whole – a game of high brinkmanship which the government won.
But the successful passage of the centrepiece of its 2018-19 budget also sets up the major political contest of the months that remain between now and when Australians go to the polls, and will also affect the ground contests in next month’s byelections in several states.
Labor will offer voters a more generous version of the proposed tax cut for low- and middle-income earners, and pledge to roll back the most expensive elements of the package which provide tax relief for Australia’s highest-income earners, a stance reminiscent of the “rollback” campaign against the GST in the early 2000s.
If Labor wins the next election, the top end tax cuts will be repealed before they take effect, assuming a newly elected Shorten government could get sufficient Senate support.
The latest Guardian Essential poll published this week indicates there is strong public support for the first stage of the tax cuts but significantly less support for tax cuts for higher-income earners, which involves flattening the tax scales so workers earning between $40,000 and $200,000 pay the same rate.
The poll also showed a positive shift by voters in favour of Bill Shorten’s alternative proposal to almost double the tax cut for low- and middle-income earners and impose higher tax rates on the top income earners.
Australia’s highest-income earners are the major beneficiaries of the Turnbull government’s plan.
By 2024-25, those with taxable income of:
The tax cut plan comes in three stages.
Stage one will provide tax relief of up to $530 to low- and middle-income earners over the next four years. Stage two is directed at taxpayers earning over $90,000. Stage three is directed at taxpayers earning over $120,000.
Stage one is a low- and middle-income tax offset, and will give $530 to 4.4 million taxpayers with incomes between $48,000 and $90,000 in 2018-19. This stage also raises from $87,000 to $90,000 the income threshold under which the tax rate of 37% applies.
Stage two, which begins in 2022, lifts the top threshold for the 19% rate from $37,000 to $41,000 and lifts the top threshold for the 32.5% tax rate from $90,000 to $120,000. Stage three abolishes the 37-cent tax bracket from mid-2024.
Given the sequencing of the tax plan, voters will not get noticeable hip pocket relief until after the next federal election.
The National Centre for Social and Economic Modelling (Natsem) modelled the distributional effect of the government’s tax cut plan in May and found the richest households will get the most benefits, particularly from stages two and three.
Those with annual household pre-tax income of $80,000 are in the top 40% of income earners. Those with household pre-tax income of $140,000 are in the top 20%.
Opponents of the plan pointed out during the chamber debate that it baked in tax relief for a decade despite the difficulty of forecasting economic conditions accurately over that time.
The budget measures passed the Senate in full on Thursday after a combative morning in both chambers of the parliament. Labor, the Greens and the South Australian independent Tim Storer attempted to delay the final vote in the upper house after the government and crossbench supporters combined to gag debate.
The tax cuts will be rolled out in three stages over seven years, and will cost the budget more than $143.9bn in forgone revenue after a decade, making it harder for the government to return the budget to surplus.
In political terms, Thursday’s result is a significant procedural victory for the Coalition, which had presented a take-it-or-leave-it proposition to the Senate, demanding the package be passed as a whole – a game of high brinkmanship which the government won.
But the successful passage of the centrepiece of its 2018-19 budget also sets up the major political contest of the months that remain between now and when Australians go to the polls, and will also affect the ground contests in next month’s byelections in several states.
Labor will offer voters a more generous version of the proposed tax cut for low- and middle-income earners, and pledge to roll back the most expensive elements of the package which provide tax relief for Australia’s highest-income earners, a stance reminiscent of the “rollback” campaign against the GST in the early 2000s.
If Labor wins the next election, the top end tax cuts will be repealed before they take effect, assuming a newly elected Shorten government could get sufficient Senate support.
The latest Guardian Essential poll published this week indicates there is strong public support for the first stage of the tax cuts but significantly less support for tax cuts for higher-income earners, which involves flattening the tax scales so workers earning between $40,000 and $200,000 pay the same rate.
The poll also showed a positive shift by voters in favour of Bill Shorten’s alternative proposal to almost double the tax cut for low- and middle-income earners and impose higher tax rates on the top income earners.
Australia’s highest-income earners are the major beneficiaries of the Turnbull government’s plan.
By 2024-25, those with taxable income of:
- $200,000 will get a cumulative tax cut of $11,815
- $160,000 will get a cumulative tax cut of $8,415
- $120,000 will get a cumulative tax cut of $6,935
- $90,000 will get a cumulative tax cut of $4,685
- $80,000 will get a cumulative tax cut of $3,740
- $50,000 will get a cumulative tax cut of $3,740
- $30,000 will get a cumulative tax cut of $1,400
The tax cut plan comes in three stages.
Stage one will provide tax relief of up to $530 to low- and middle-income earners over the next four years. Stage two is directed at taxpayers earning over $90,000. Stage three is directed at taxpayers earning over $120,000.
Stage one is a low- and middle-income tax offset, and will give $530 to 4.4 million taxpayers with incomes between $48,000 and $90,000 in 2018-19. This stage also raises from $87,000 to $90,000 the income threshold under which the tax rate of 37% applies.
Stage two, which begins in 2022, lifts the top threshold for the 19% rate from $37,000 to $41,000 and lifts the top threshold for the 32.5% tax rate from $90,000 to $120,000. Stage three abolishes the 37-cent tax bracket from mid-2024.
Given the sequencing of the tax plan, voters will not get noticeable hip pocket relief until after the next federal election.
The National Centre for Social and Economic Modelling (Natsem) modelled the distributional effect of the government’s tax cut plan in May and found the richest households will get the most benefits, particularly from stages two and three.
Those with annual household pre-tax income of $80,000 are in the top 40% of income earners. Those with household pre-tax income of $140,000 are in the top 20%.
Opponents of the plan pointed out during the chamber debate that it baked in tax relief for a decade despite the difficulty of forecasting economic conditions accurately over that time.
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