Tax cuts: hamburger, milkshake or three course meal? - The Centre for Independent Studies
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Tax cuts: hamburger, milkshake or three course meal?

Anyone following the entrails of the post-budget income tax cut debate would be aware that the government has steadfastly refused to release estimates of annual revenue impacts beyond the forward estimates period (that is, when the largest cuts are due to take effect), preferring to state that the sum of the annual impacts over 10 years is $144 billion.

This sounds like a massive amount and, as such, serves both the government’s claim to generosity and its opponents’ charge of fiscal recklessness.

Thanks to costings by the Parliamentary Budget Office requested by one of the parties, we now have annual figures all the way to 2028-29, which put the tax cuts into a much more meaningful perspective and show they are neither generous nor reckless.

The PBO’s estimate is that the cuts in the first year of full implementation (2024-25) would be roughly $18 billion. Based on a conservative projection of GDP, that would be about 0.7% of GDP.

In historical perspective, this makes the cuts of medium size. They are more than ‘hamburger and milkshake’ cuts, but much smaller than those associated with implementation of the GST in 2000, which were more than twice as large.

As Matthew O’Donnell and I outline in a paper released this week, Too Little; Too Late: Personal Income Tax Reform in Australia, if only the first round of cuts (that is, excluding the 2022 and 2024 instalments) is passed, the annual impact is only $4.5 billion. If that happens, forget about the hamburger — it becomes a milkshake tax cut.

Even if fully implemented as planned, the cuts will not stop revenue from growing — but merely clip its rate of growth for a few years. Nor will they fully hand back the proceeds of bracket creep — for that, they would need to be much larger. Nor will they stop the overall average tax rate from grinding higher into record territory — but merely slow its rate of increase.