By Michelle Grattan, University of Canberra
Treasurer Scott Morrison has moved to dampen expectations about the government’s ability to provide early personal income tax cuts.
Initially after becoming treasurer, Morrison said it was vital to deal with bracket creep by providing income tax relief. When the government decided against raising the GST, which would have financed this objective, Morrison held out the prospect of modest income tax cuts. On Tuesday he cast further doubt on what could be done.
Asked at the Australian Financial Review’s business summit whether the budget could set out a path for lower personal and company tax, Morrison said it could not all be done in one budget. “It has to be done within budget after budget after budget.”
Sources said personal income tax cuts were not off the table but the prospects were fading. The government’s tax package, which was supposed to be a big campaign centrepiece has been steadily whittled away, although it is thought it could now include a hike in the tax on cigarettes.
Morrison canvassed various ways personal income tax cuts could be funded, pointing to the prohibitive difficulties of each.
They could be paid for out of a budget surplus, which the government did not have. They could be funded out of strong growth in nominal GDP, which did not exist.
The third way was a switch in the tax mix with a higher GST, which the government had examined but ruled out because the growth gains were modest and the compensation bill overwhelming.
“The best way to drive income tax cuts ultimately is off growth. So our focus is very much on, let’s drive growth.”
Modelling has shown that company tax relief is a better driver of growth than personal income tax cuts.
Morrison said the government would “try and find a way to ensure that the earners in our economy get a better deal out of our tax system. We will have to start with those areas that are most likely to drive growth because the resources to do this are limited”.
“We need to back the earners in our economy to drive growth and ensure that there is greater compensation for their investment, allowing them to realise more from their own efforts so they will in turn invest more.
“In other words, rewarding the risk takers, for being the growth makers.
“That is the next critical step in managing the successful transition in our economy.
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“This is the objective that has and will continue to drive our consideration of tax measures in this year’s Budget – the need to drive investment.
“Tax and spend is not a plan in our view that will deliver the investment that is needed to drive jobs and growth. It is not a plan to successfully manage our transitioning economy.”