First phase of seven-year plan will give 4.4 million Australians with incomes between $48,000 and $90,000 a $530 cash rebate

This article is more than 2 years old

This article is more than 2 years old

The Turnbull government has put itself on an election footing with a $13.4bn tax plan offering the first run of relief to low- and middle-income earners squeezed by a long period of wages stagnation.



The seven-year tax plan, which in the first phase will give 4.4 million taxpayers with incomes between $48,000 and $90,000 a $530 cash rebate, is the centrepiece of the 2018 budget, and costs $140bn over the medium term.

The statement also includes more than $2bn of funding for aged care, and $4.2bn allocated over the forward estimates for infrastructure.

The government has attempted to balance its massive outlay on personal income tax cuts, which it intends to legislate, with measures clawing back $6.1bn in revenue from the black economy, and $500m from fresh welfare crackdowns. A crackdown on the use of tax incentives for research and development is also forecast to save $2bn over four years.

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The full seven-year tax plan includes measures addressing bracket creep. In two elections’ time, the government proposes a shift towards a flat tax system where the current 37% bracket would be axed and workers on incomes between $41,000 and $200,000 would be taxed at the same marginal rate – a boon for high-income earners.

Labor has given initial backing to the tax relief for low and middle-income earners but has reserved its position on the proposal to axe the 37% tax bracket.

The economic projections released by the treasurer, Scott Morrison, on Tuesday night would see the budget return to balance in 2019-20, one year ahead of schedule, and a deliver surplus of $11bn in 2020-21 and $16.6bn in 2021-22.

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Net debt is forecast to peak at $349.851bn or 18.4% of gross domestic product in 2018-19 and declines to $118bn or 3.8% of GDP in the final year of the medium-term projections in 2028-29.

The government’s income tax relief is funded by a massive increase in company tax revenue as the economy unwinds from the lingering effects of the global financial crisis. Company tax collections increased by $15bn or 22% in 2017-18 and receipts are expected to grow solidly over the out years.

Income tax collections have also improved as the labour market has strengthened and are expected to grow strongly in the last two years of the four-year budget cycle, with Treasury forecasting a rebound in wages growth to 3.5% – which is optimistic at a time when wages growth has been stagnant.

Quick guide 2018 budget at a glance Show Hide • Tax cuts for middle low and middle income earners with most saving between $200 and $530 a year on their tax bill through a tax offset • Ambition for a flat tax rate by 2024 of 32.5% for everyone earning between $41,000 and $200,000 • $4.5bn earmarked for roads, but major public transport projects will have to wait years for the lion's share of funding announced in the budget. $24.5 billion has been directed to new commitments, but only $4bn of that is being spent in the next four years • The controversial robodebt electronic debt recovery is to continue • Newly arrived migrants will have to wait another year to receive welfare assistance, while refugees will see their wait for Newstart doubled to 26 weeks • Superannuation funds to be banned from charging exit fees and fees for accounts under $3,000 will be limited to 3% • ABC to have its funding cut by $83.7 million over three years. Meanwhile a Captain Cook statue in Scott Morrison’s electorate is to be built at a cost of $25m • ‘Black’ economy is under the spotlight with government planning to claw back revenue it is losing to illegal tobacco. Home Affairs estimates it can earn $3.6 billion from a crackdown • Pensioners will be able to earn an additional $25 a week without reducing their pension. The pension loan scheme is also being expanded, which allows pensioners to use their homes as equity to boost their retirement incomes • $1.6bn is being spent to support an additional 14,000 additional high-level home care packages. A further $82.5m is being spent on mental health services for older Australians, including a $20m “loneliness” package, to help people “remain connected to their communities”. • New measures to help crack down on multinationals avoiding tax commitments. The government is also moving to add to previously announced measures to make sure income earned in Australia, can be taxed by Australia.

Compared with the expectations in last year’s midyear economic forecast, forecasts for tax receipts have been revised up by $12bn over the four years to 2021-22, driven by parameter variations, while the government’s policy decisions are expected to decrease tax receipts by $13.9bn over the four-year cycle.

Expenditure on government payments is forecast to equal 25.9% of GDP in 2018-19, which is just below the peak recorded during the stimulus rolled out by the Rudd government during the global financial crisis.

Spending falls to 24.7% of GDP at the end of the four-year cycle. Morrison, on the defensive about ballooning government outlays, says real expenditure growth remains below 2%, “the most restrained of any government in more than 50 years”.

Morrison told parliament on Tuesday night the government’s tax plan was “affordable and funded”.

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He said the overwhelming majority of the cost of tax relief hit the bottom line in 2019-20, “the same year as the budget is forecast to return to balance”.

The government is chasing a sugar hit because it has trailed Labor in most major opinion polls since almost losing the 2016 election. It wants the budget to reboot its political fortunes, with Tuesday night’s economic statement the last fiscal word before Australians go to the polls for the next election due early next year.

The government could trigger an election any time after August.

The Coalition wants a political contest with Labor where it paints the opposition as a risky high-taxing big-spending alternative – but the opposition has given itself fiscal room to move, and will match the government’s income tax cuts or provide an alternative of its own.