“That means economic conditions will keep feeling pretty tough for a while yet.”
The Albanese government has cited the ongoing high cost of living as one of the reasons for itsrevamp of the stage 3 tax cuts that are due to start flowing from July 1.
Chalmers said this week’s quarterly and monthly measures of inflation,to be released by the Australian Bureau of Statistics on Wednesday,were likely to show a further easing in price pressures.
But he cautioned inflation was likely to remain a problem for some time.
“We have made welcome and encouraging progress in the fight against inflation,but it’s not mission accomplished,” he said.
“People are still under pressure. And that’s why we are delivering a bigger tax cut for more people without adding to these inflationary pressures in the economy.”
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Some analysts have raised concerns the revamped tax cuts,which sharply reduce tax relief to people earning more than $200,000 while lifting it for people earning less than $147,000,could add to inflation. This is due to lower-income earners being more likely to spend their extra tax relief.
But the Commonwealth Bank’s head of Australian economics,Gareth Aird,said ultimately the amount of money involved in the tax cuts was not enough to change the economic outlook.
He said if all the extra tax relief to low- and middle-income earners was spent,it would boost overall consumption by $4 billion.
According to Aird,this was a rounding error in a $2.6 trillion economy.
“We do not wish to trivialise the tax cuts as they are significant in size. But the back-of-the-envelope calculation highlights why we do not think the government’s new tax plans warrant a change of economic forecasts,” he said.
“The tax cuts are only a partial offset to the massive lift in income tax paid as a share of household income over recent years.”
The tax cuts will dominate the political debate when the federal parliament resumes for the new year next week.
Independent MPs in the country’s richest seats say many of their constituents feel the Albanese government’s proposals are fairer,but warned more substantial reform must be on the agenda to resolve long-standing tax problems such as bracket creep.
Teals Kate Chaney and Monique Ryan said they would support Labor’s changes,while other MPs still considering the changes had heard a degree of positive feedback in their electorates.
Kooyong MP Ryan,who wanted changes to stage 3,said she would vote for the new package because it would give more relief to more Australians when they needed it.
“Most of my community believes the government should do much more to help us address the cost-of-living crisis,” she said.
But,she said,tinkering around the edges was not good for the country in the long term.
Chaney,the member for the WA seat of Curtin,will also support the redesigned package as an “acceptable compromise” while people struggle under cost-of-living pressures,but said tax brackets should be indexed to solve bracket creep.
“Even more importantly,I would like to see both major parties having a serious conversation about the reform we need in our tax system more broadly. We need to reduce our reliance on income tax and identify alternative sources of revenue,” she said.
Cut through the noise of federal politics with news,views and expert analysis from Jacqueline Maley. Subscribers can sign up to our weekly Inside Politics newsletterhere.