Australia’s Tax Cut Third Stage of Chaos

The last Coalition government successfully pushed then-opposition Labor into the corner of publicly supporting its tax cuts. In the 2019 general election, Labor’s tax issue dominated the agenda and ultimately lost the election, and after voting in Parliament to support the Coalition government’s tax cuts, Labor doubled down on its 2022 campaign, with Albanese promising to keep the previously passed tax cuts if it won the election. The Labor Party has not publicly proposed to shelve or amend the tax cuts that have already been passed, but the winds of the tax cuts have been blowing through the media backstage for a few times, but they have soon passed. However, a few days ago, Prime Minister Albanese used the National Press Club to announce the third phase of the revised tax cuts: by lowering the tax cuts for high-income earners, it will be reversed to benefit low and middle-income earners in Australia. There was not much opposition to this proposal in today’s society under the pressure of high cost of living, but there was a lot of discussion on whether Labor had reneged on its election promise. A stone has stirred up a thousand waves.

Whether this is a betrayal of the electorate by the government is a matter of opinion.

Low- and middle-income earners will benefit

In 2019, the Coalition government hoped to stimulate the economy and solved the problem of ‘budget creep’ through tax cuts, so it has launched a three-stage tax cut program. Currently, Australia imposes a tax on personal income, which is a progressive tax system. This means that the amount of personal income will be subject to different tax rates, which will be gradually increased according to the amount of income.

To put it simply, there are 5 tiers.

The tax cuts will be implemented from July 2020 onwards, with a higher range of tax bands to allow lower income earners to enjoy a lower tax rate. For example, the 19% tax bracket was raised from $37,000 to $45,000, and the 32.5% tax bracket was changed from $90,000 to $120,000 to allow low-income and middle-income earners to enjoy lower tax rates. This change does not reduce the tax for high income earners who earn more than $200,000 and still have to pay 45% tax on every dollar of income after $180,000. To the high-income earners, such a tax system does not encourage them to earn more money. The third phase of the tax reduction scheme was originally intended to give more tax concessions to high-income earners.

Specifically, because tax brackets do not automatically adjust for inflation, this means that over time, as an individual’s salary rises, so does their average tax rate, meaning that a raise in salary results in a person paying a larger percentage of their income in taxes. Previously, Phase I and Phase II tax cuts were already in effect for low- and middle-income families. The third phase of the tax cuts is intended to stimulate the economy through these changes by encouraging people to work more and earn more, as the extra income will be disproportionately seen as less of a disincentive to pay taxes. However, there are opposing voices that say the cuts will have an inflationary effect on the economy because people will have more money to spend, which will further drive up the cost of living.

Under the Coalition’s previous plan, the third phase would have abolished the 37% tax rate and introduced a flat rate of 30% for taxpayers earning between $45,000 and $200,000, while under Labor’s adjusted policy, the rate would have been reduced to 30% for taxpayers earning between $450,000 and $200,000. According to Labor’s adjusted policy proposal, from July 1, for most workers, the new tax cuts will be better than the current rules, especially expanding the scope of the third stage of the tax cuts, the previously announced third stage of the tax cuts will not reduce taxes for people earning less than A$45,000, while the latest plan to ensure that “everyone” will receive tax cuts, so that low-income earners will benefit; and the tax cuts for high-income earners with income of $200,000 and above, will not be applied to those earning more than $200,000, so that low-income earners will benefit from the new tax cuts. The tax cuts for high earners earning A$200,000 and above will be cut by almost half.

Specifically, those earning an average of A$73,000 a year will receive a tax cut of more than A$1,500 a year. Those earning A$50,000 a year would receive an additional A$929 a year, while those earning A$100,000 would receive A$2,100 a year. In the higher income groups, those earning A$200,000 a year will see their tax cut reduced from A$9,075 to A$4,500 a year. Overall, the one million Australians earning more than A$150,000 are worse off under the proposed reforms, while those earning less than that amount have more tax cuts. Labor MPs have confirmed to the ABC that the revised package has been passed within the party. Federal Treasurer Jim Chalmers said the changes would give people more help in dealing with the cost of living crisis. The Labor government estimates that the tax cuts will benefit around 13.6 million Australians.

Betrayal of election promises or going with the flow?

As soon as Labor’s proposed changes to the third phase of the tax cuts were announced, Shadow Treasury Minister Angus Taylor immediately took the position that the Labor government’s breaking of its ironclad election promises meant that Labor had broken its election promises. He reminded Albanese that Australians had voted for the policy at two elections (2019 and 2022), so today was a reversal by the incumbent government of a policy it had supported during the campaign. The Deputy Leader of the Opposition, Susan Rye, even called Albanese a ‘liar’, suggesting that Albanese, who insisted in the election that he would do what he said he would do, and that he ‘would not change the third phase of the tax cuts’, had lied his way to a general election victory. Of course, Albanese has his own reasons for this decision – it’s because the global economy has changed since Morrison’s legislation in 2019.

That’s true. Over the past three years, there have been pandemics, recessions, and global inflation, affecting not one war, but two. Albanese pointed out that the changes to the tax cuts were in response to the huge cost of living pressures being felt by the Australian people at the moment, and that the right decision had to be made to make changes accordingly. Jim Chalmers has also defended the government’s new proposal as an approach that will work and provide middle class Australians with the cost of living relief they so desperately need for the same amount of money. The package of Stage 3 tax cuts is scheduled to be legislated by Morrison in 2019, so rewriting this plan bypasses parliamentary approval until July. This means that the government will need the support of the Greens and neutral MPs in order to change the tax cuts that were previously required. According to the opposition’s current stance, it will oppose any changes to the third phase of the tax cuts.

Opponents argue that today is a good day, the world is facing inflation, the cost of living is under pressure, but why doesn’t the government propose a subsidy or other increase in profits tax on large corporations, so that the money goes directly into the hands of the people who are facing difficulties, or let investors pay more taxes, so that they can make less profit? Taxing the high-income earners directly is a clear attempt to gain the approval and support of the majority by bullying and deceiving a small group of people in the community.

However, it is clear that the new program is designed to provide more support to middle income earners who are facing cost of living pressures, and to provide assistance without exacerbating inflation. On the other hand, it would be responsible to change policy when the economic situation changes. After all, equality is one of Australia’s core social values, and it’s always been the government’s responsibility to leave no one behind. It’s just a matter of clarifying where the limits lie and who determines them, or else this kind of reneging on election promises will be repeated, and will have a long-term negative impact on maintaining public trust in the government.

Trust compromised

While the Labor government is lobbying for changes to the third phase of the tax cuts, Treasurer Jim Chalmers has promised that there will be no changes to the negative deduction policy, which is not something that Labor has considered or is considering. But the Opposition says that given that Labor has violated the public trust by changing the third phase of the tax cuts, it needs to be more specific about its commitment to negative withholding this time around. After all, a politician’s credibility with the electorate depends on keeping his word, but it seems that the Labor Party has gone back on its word and broken its promise. It’s no wonder that Liberal frontbencher Dan Tehan wants Labor to explicitly rule out any changes to the negative tax deduction policy, after all, Labor has betrayed the public’s trust by reneging on its promise to change the third stage of the tax reduction plan.

The newly released report, Everyone’s Loss of Housing, warns that the negative deduction policy encourages people to invest in property through tax cuts that could have been used to build more homes; and that if the focus of government subsidies isn’t changed from property investors to those who have been squeezed out of the market by high house prices, the housing crisis will only get worse. Jim Chalmers, on the other hand, said that the government had found other ways to reduce the pressure on the housing market, including encouraging the construction of more ‘build-to-rent’ homes.

The tax cuts have been redistributed under the revised third phase of the tax cuts, with lower and middle income earners benefiting more and higher income earners receiving smaller cuts – and everyone knows it. After all, next year is another election year in Australia, and Labor’s move is nothing more than a gesture of goodwill to the low and middle income voters, and there is no way to avoid the suspicion of buying people’s hearts and minds. It is impossible to avoid the suspicion of buying people’s hearts and minds. And such a move will only arouse great resentment and opposition from the opposition party. At present, the biggest uncertainty is whether the Labor Party’s amendment plan will be passed in the legislature to realize the legislation; however, the Labor Party has a better chance of winning. After all, this change is also in line with the Green Party’s political position, which is to demand more support for low-income earners, and to raise the threshold of tax exemption, so that more low-income earners will not have to pay any tax. In the long run, Labor’s reneging on its primary election promises will be a source of confusion and even resentment for voters. After all, Australian voters, who have been immersed in the democratic world for so long, are not so easy to fool, and backtracking on their promises is often a big step down for those who believe in simplicity and simplicity.

Author/Editorial Sameway

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