Daniel Wild Discussing Stage Three Tax Cuts On Mornings ABC Adelaide – 16 January 2024

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16 January 2024
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The Institute of Public Affairs’ Daniel Wild joined David Bevan on ABC Adelaide Mornings to discuss IPA research to discuss the stage three tax cuts and why they are necessary to help alleviate Australians’ cost of living pressures.

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Below is a transcript of the interview.


David Bevan:

Daniel Wild is the Deputy Executive Director of the Institute of Public Affairs. Daniel, what do you make of this?

Daniel Wild:

Well, good morning. These tax cuts are important to follow through with, and the main reason for that is that we know that many Australians are experiencing a lot of cost of living challenges, we all know about that, whether it’s the cost of groceries or your mortgage and so forth. There’s been some data out over the last couple of months that really drive this issue home, and I’ll just give you one example: we know that household disposable income is now back to where it was in 2015, and I think that’s an astonishing stat, and I think it reflects the lived experience of the typical person, which is that they feel that they’re going backwards. And in many cases, they are.

Tax cuts are one way to provide that much needed belief to workers and families. The other point that I just want to make is that we also have to recognise that as a nation, we rely very heavily on income tax as a source of government revenue. And we know now that income tax is a share of total income earned is at a record high of about 16.5%. That’s up from 13% a decade ago, so these tax cuts are important to alleviate those pressures and I think it’ll be, as we’ve just discussed, the lower to middle income earners that will be the primary beneficiaries of that.

David Bevan:

But the thing about the tax system, and stop me if I’ve misunderstood this, Daniel, is that because it’s progressive, doesn’t it make sense to deliver the tax cuts at the lower income levels? Because everybody gets the benefit of that. I mean, your first, what is it? $18,000 isn’t taxed at all. And then, whether you are earning $40,000 or $400,000, your next batch of income is taxed at a lower rate. So, everybody gets the benefit of a lower tax rate at the lower levels. So wouldn’t it make sense to always do it from the bottom?

Daniel Wild:

There’s a couple of things. You had the stage one and two tax cuts, which were geared towards those lower middle income earners. But I share the view that you could further expand these tax cuts to have a permanent cut to those at the lower end. I don’t think there’s any reason why that couldn’t be accommodated within this arrangement as well. The other point to making you were just discussing this, which is it is important for people to understand the extent of these tax cuts. So if you someone whose top rate is now 32.5% or 37%: that’s going to drop down to 30%. Now, that’s quite a big drop. The coalition has estimated around $1,300 a year better off. So, this will deliver a big benefit to a very large portion: $45,000 to $200,000 income, that captures the overwhelming majority of taxpayers. Now, of course, more can always be done, there’s no doubt about that, but let’s not forget just how significant these tax cuts will be.

David Bevan:

Do we need to be careful about bringing anachronistic assumptions to people’s wages? $100,000 sounds like a lot of money, but if you are living in Sydney with huge rents or in Adelaide with huge rents, $100,000 isn’t going to go very far. And you might think, “Well, try living on $45,000,” well, point taken. But six figure salaries that one day would’ve been seen as just extraordinary, “What a lucky young man or woman you are to get that,” that’s no longer the case, Daniel.

Daniel Wild:

Yeah, you’re right. $100,000 or $80,000 is not what it used to be, I share that view, and I just think it further reinforces the need for these tax cuts, and I think more broadly. Changing our tax system. This bracket creep issue, I know it’s a bit of a technical economics issue, but it really is a big deal because it doesn’t take into account the point that you’ve made, which is your actual purchasing power. So, people don’t so much worry about the income that they’re receiving, they worry about how much they’ve got left over after they’ve paid taxes, after they’ve paid all of their obligations such as mortgages and so forth: what do they have left over at the end of the day?

And like I said, the disposable income, which is what that measure captures, that is back to 2015 levels. So, I think you’re right, but it reinforces the need to really perform our tax system so that the load being put on workers is being reduced.

David Bevan:

Yeah, and I think of young people who might be in their thirties who are earning good money, but can’t afford to buy anything like the homes that their parents bought. So we look at their incomes and say, “Well gee, you’re rolling in dough,” but the reality of the spending that what their income can buy now in terms of the major asset of their life, they haven’t got anything like the income, the purchasing power of mum and dad.

Daniel Wild:

Yeah, you’re spot-on. And I think this is a real, one of the biggest social issues that we face as a country, and it’s one of the key sources of the generational divide that we see. We know exactly what you’ve said, that the share of income that’s now needed to have a deposit and buy a house is many multiples what it was 20, 30 years ago. And that’s a real challenge to our way of life. And people also typically want to buy a house or at a minimum a townhouse in order to be able to raise a family. So, it causes a lot of potential social challenges down the line.

One of the key factors that’s causing some of these issues, of course, is the rapid population growth, which has been underpinned by an extraordinary period of mass migration. And the government has indicated that they’re seeking to bring in another 1.7 million migrants over the next five years, which is roughly the equivalent to the population of South Australia. And I think a lot of Australians are concerned about, “Well, how is this going to be serviced and planned for?”, the effects not only on housing, but other critical social services, schools, roads, hospitals, and so forth. That is a key issue in our society that you’ve identified. And in addition to the tax cuts, I think as we head into what’s likely to be the 2025 election, a conversation about migration and home ownership will be front and centre.

David Bevan:

Well, we’ve got a question here on the text lung from Deborah. How does this affect government revenue? Now, the work that the Australia Institute have done, and I think it was picked up by Peter Martin, a well-known economist, former ABC journalist now in academia, he wrote a piece a few months ago saying that it’s estimated, I think he was relying on the Australia Institute’s figures, but it’s estimated that the stage three tax cuts will cost $20 billion in the first year and more than $300 billion over 10 years. Now, the income tax take will still grow though, won’t it, over that period? It’s just that it won’t grow by as much as it otherwise would, so they’re going to get more money coming in via income tax, but it’s $20 billion less than it otherwise would’ve been, is that correct?

Daniel Wild:

I haven’t seen those figures, but it’s a really interesting question by Deborah. There’s a couple of points to make. The first is, I think it’s important we’re careful with our language. Tax cuts are not an expense to the budget because it’s our money to begin with. So it’s not like you are spending more money, it’s that you are taking less money out of the economy. So, I know that some might think that’s a distinction without a difference, but we have to remember that this is the money of workers and families to start with, not an expense item.

But the other point is important, and in terms of the effects, well, there’s two offsetting effects. Obviously, if you cut tax rates, there’ll be less direct revenue that comes into the government. But offsetting that is if you have lower tax rates, there’ll be people with more money to spend, and as we know, that stimulates economic activity leading to a broader tax base and many other factors. And then, you’ll also have higher investment on the back of that. So, there’s two offsetting factors.

This transcript from ABC Adelaide Mornings with David Bevan from 16 January 2024 has been edited for clarity.

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