“Most importantly,[ours] have already been budgeted for. They’ve been baked in and reflected in our budgets for a number of years. That’s a very,very different experience to the UK....We shouldn’t be comparing one country’s tax policy to another country’s tax policy.”
The analysis from the Parliamentary Library uses the forecast cost of the stage three tax cuts done by the Parliamentary Budget Office and compares the results with the cost of the tax cuts outlined last week byBritish Prime Minister Liz Truss and Chancellor Kwasi Kwarteng when both plans are measured against GDP.
The stage three cuts sacrifice $17.7 billion in revenue in 2024-25 and the cost climbs steadily to $31.4 billion in 2030-31,with continued increases after that.
The British tax cuts were forecast to cost £2.4 billion in 2022-23 and were due to climb to £4.6 billion the following year before settling at lower costs in subsequent years,although Truss and Kwarteng came underintense political attack for not putting the plan to the Office for Budget Responsibility for a more detailed costing.
The Parliamentary Library calculates the British plan would have cost 0.1 per cent of GDP in its first year and 0.18 per cent in its second year before falling to 0.07 in the final year of the known costings.
The stage three cuts,by contrast,would be equivalent to 0.7 per cent of GDP in their first year and would climb steadily to 0.9 per cent of GDP by the end of the decade. This assumes nominal GDP,the measure of economic output that is central to budget forecasts,grows from $2.5 trillion in 2024-25 to $3.5 trillion in 2030-31.
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The comparison heightens the argument over the Australian plan afterglobal financial markets punished the British government for unveiling the tax cuts last year and assuming they could be funded with continued borrowing,leading investors to cut the value of the pound and shy away from buying government bonds.
The Australian package,however,has already been factored into federal budget forecasts. While the government is paying higher interest rates on new bond issues,there has been no similar sign in Australia of a reluctance by investors to buy Commonwealth bonds.
“The UK Tories have looked at the global economic outlook and decided that tax cuts are political poison,but Australian Labor apparently still requires convincing,” said Bandt.
“Continuing ahead with the stage three tax cuts is economic vandalism,moving us closer to a flat tax system,while also risking UK-style economic damage.”
The stage three tax cuts abolish the 37 per cent tax rate and apply a 30 per cent rate to all income between $45,000 and $200,000.
Opposition Leader Peter Dutton has told voters to expect Labor to drop the stage three cuts. He defended the package as a way to help workers on middle incomes.
“We do not abolish the top marginal tax rate under the stage three tax cuts here. What happens is that the marginal tax rate of 32.5 is reduced to 30 cents in the dollar and you abolish the 37 per cent tax rate. So,it means that for 95 per cent of Australians,they will not pay more than 30 cents in the dollar.”
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