But economists argued the extra money freed up by tax cuts would add to inflation at a time when the Reserve Bank was trying to lower it.
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The stage 3 cuts, to be given to everyone earning more than $45,000, come into effect in July 2024. They are projected to cost the federal budget about $20 billion a year, or about $254 billion over a decade.
Analysis from Anglicare Australia found the cuts would give people earning over $180,000 an extra $233.65 a fortnight, and people on more than $200,000 would get an extra $349.04. Those earning $60,000 would get $14.42.
Grattan Institute economic policy program director Brendan Coates said it made no sense to proceed with the tax cuts as planned.
“To be throwing that amount of money into the economy in the middle of next year, when inflation is still expected to be above the RBA’s target then of 2-3 per cent, just makes no economic sense,” he said.
Independent economist Nicki Hutley acknowledged it would be politically difficult for the government to change the plans, but said the cuts were poorly designed and the economic outlook gave Labor reason to change them.
“They have cause to scrap them altogether, [but] given the politics, and given the economic circumstances, they absolutely can justify tweaking them so that they make more sense, that you put the benefit down right at the lowest income levels,” she said.
“This is the thing: when you let the inflation genie out of the bottle there just is no easy way to get it back in without people having to face some form of disadvantage.”
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The Grattan Institute has recommended keeping the 37 per cent tax bracket, which applies to incomes over $120,000.
That would save the government about $8 billion, Coates said, which could then be used to raise both the JobSeeker payment and the maximum amount of Commonwealth Rent Assistance.
Beyond the economics, Anglicare Australia executive director Kasy Chambers said the tax cuts were simply unfair.
“This is a clear choice. If the government can afford to spend a quarter of a trillion dollars on tax cuts for people who don’t want or need them, then it can surely afford to help those who have been hit the hardest by the cost-of-living crisis,” she said.
Andrew Barker, a senior economist with the Committee for Economic Development of Australia, said the government had a challenge providing household relief while helping the Reserve Bank get inflation down.
He agreed the government should lift rent assistance and JobSeeker payments to help the most vulnerable, but thought it would be tricky to bring in wider energy bill relief.
“Energy bill relief, particularly if it’s across the board rather than targeted, does put more money in the pockets of consumers. So that increases spending,” he said.
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