Treasurer pledges tax cuts ‘right now’
Treasurer Josh Frydenberg has confirmed the budget will deliver income tax cuts "right now" in a move that all but confirms tax relief will be backdated in the budget.
News.com.au exclusively revealed on Friday that senior government sources had confirmed the budget backdates the tax relief to ensure workers can secure tax relief this financial year.
"We believe people should keep more of what they earn. We also believe more people having more money in their pockets right now will help economic activity across the economy,'' Mr Frydenberg told the Today Show.
"More spending will mean more jobs."
The personal income tax cuts for middle income earners are worth up to $2565 a year for workers earning more than $120,000 or $50 a week and $1080 a year or $20 a week for anyone earning more than $50,000, but are not scheduled to start until 2022.
The Morrison Government has confirmed it's considering "bringing forward" the tax relief that was scheduled to commence in 2022, but until now the speculation has not included the tax cuts starting in this financial year.
But "instant" tax relief can be delivered swiftly despite the fact the new financial year has already commenced, according to tax experts.
Experts say there's a couple of different ways those tax cuts could be delivered into workers' pockets quickly once it is legislated.
It would simply involve the Australian Taxation Office changing the weekly tax table that companies use to pay wages and salaries in this financial year, ensuring workers can keep more of what they earn.
The tax cuts, worth $20 billion, were scheduled to come into force in 2022. A third stage of the tax cuts, with a tax rate of 32.5 per cent to apply to the vast majority of workers, is currently scheduled from 2024.
Critics have raised concerns that middle and high income earners are more likely to hoard the cash than spend it in the current economy, raising concerns that tax cuts are not the best way to stimulate the economy and get people spending.
Asked today, "Why would you drag forward these tax cuts, to middle and high income earners?,'' Mr Frydenberg argued many people are saving more simply because they are banned from leaving their home in Victoria.
"Well, as you know at the last election there were two competing narratives around tax. We were for tax cuts and the other side were for tax increases,'' Mr Frydenberg said.
"Our tax cuts have been focused on low and middle income earnings. We know there is a high savings ratio at the current time. That's been a reflection of the health restrictions that have been put in place. That's the fact people can't go to the local restaurant or travel to a local tourism spot or go out to the local pub. Once those restrictions are eased and we have seen that happen outside of Victoria, more money will be spent and that savings ratio will come down."
But the tax cuts will require new legislation, setting the scene for a potential battle with the Labor Party in the Senate if the legislation includes bringing forward tax cuts for high income earners originally scheduled in 2024.
Deloitte Access Economics' Chris Richardson said bringing forward the tax cuts will also help tackle the "fiscal cliff" when the JobKeeper scheme is scrapped in March.
High income earners will secure huge windfalls under Stage 3 of the Morrison Government's tax cuts that were scheduled to commence in 2024.
For the Prime Minister Scott Morrison, who earns over $500,000, that tax cut will be worth a whopping $11,000. But Mr Frydenberg defended the tax cuts as fair.
"Our tax system is fair and has been a progressive tax system and will remain progressive tax system. The top 5 per cent of taxpayers pay about a third of the total tax bill. If you're on $200,000 you pay 10 times as much tax as someone who is on $45,000. Our tax plan will continue to remain progressive,'' Mr Frydenberg said.
"As part of a broader tax reform where we're creating one big tax bracket between $45,000 and $200,000, 94 per cent of taxpayers will pay no more than 30 cents in the dollar."
The budget announcements are coming in daily now as the countdown to Tuesday's budget begins in earnest.
On Friday night, News.com.au confirmed the Morrison Government is extending the First Home Buyer Loan Scheme to support the residential construction industry and help first home buyers to enter the market sooner.
The cap on the value of the new homes eligible for the scheme will also be increased to $950,000 in Sydney and $850,000 in Victoria. The cap will rise to $550,000 for new homes in WA, SA, the Northern Territory and Tasmania.
Lower price caps will apply in regional areas and an income threshold will also apply. All applicants must be first home buyers and have earned less than $125,000 for singles and $200,000 for couples.
The extension of the scheme will help an estimated 10,000 first home buyers secure a loan for new home with a deposit of as little as 5 per cent but only for new builds.
The existing scheme reached capacity on May 27, after the 10,000 limit of borrower guarantees was reached. The majority of successful applicants were single and aged under 30.