Invest
Does the economy need a tax cut?
Despite interest rates falling to record-low levels, retail sales fell by 0.1 per cent in the September quarter, leading to an economist calling for future tax cuts to be brought forward.
Does the economy need a tax cut?
Despite interest rates falling to record-low levels, retail sales fell by 0.1 per cent in the September quarter, leading to an economist calling for future tax cuts to be brought forward.
According to Westpac’s chief economist, Bill Evans, the Reserve Bank of Australia needs fiscal support to lift consumer spending. Bringing planned tax cuts forward could support the economy, he noted.
While highlighting the constraint of the government’s commitment to a budget surplus, the economist believes a middle ground could be found.
“To boost demand, it would be better to accelerate the second stage of personal income tax cuts, which the government has already legislated for July 2022,” Mr Evans explained.
The economist advocates for splitting stage two income tax changes across two years, costing $7 billion in year two.
“The point at which households move from the 19 per cent tax rate to 32.5 per cent could lift from $37,000 to $41,000 in the first year and then $45,000 in the following year.”
“Similarly, the move from 32.5 per cent tax rate to 37 per cent could occur at $105,000 in the first year and then $120,000 a year later,” Mr Evans explained.
However, H&R Blocks’ director of tax communications, Mark Chapman, has warned against expecting tax cuts to be a silver bullet for the economy.
“People don’t always behave as you’d expect when they receive a tax cut and – depending on the overall state of the economy at the time – many taxpayers may simply choose to bank the tax cut by paying down debt or investing in savings rather than spending it on consumer goods like cars, holidays and homewares,” Mr Chapman said.
Mr Evans argued the tax cuts will have a larger effect on household spending than the recent tax cuts, which have done very little to stimulate the economy due to it being added to weekly after-tax income, instead of a lump sum.
While Mr Chapman does not believe pay cycle decreases are more effective than one-off offsets, he does believe moving the income tax cuts forward could help the economy.
“Given the fragile state of the economy and the repeated hints from the RBA that more action is required to boost growth, it would certainly make sense to move the stage two tax cuts from 2022 to 2020,” concluded Mr Chapman.
About the author
About the author
Economy
Australian founders adapt to the challenging fundraising environment with optimism and strategic shifts
The landscape for start-up funding in Australia has been increasingly challenging, but this has not dampened the spirit of the country's entrepreneurs. Read more
Economy
Signs point to possible US economic 'soft landing' in ClearBridge analysis
The US economy may be steering towards a 'soft landing' despite mixed signals from the stock market, according to a recent analysis by ClearBridge Investments. Read more
Economy
Alternative fund managers predict capital raising surge in 2024
Alternative investment fund managers are predicting a sizable increase in capital raising efforts in 2024, according to a global study by Ocorian, a leading alternative investment fund administratorRead more
Economy
Understanding the economic indicators that affect your earnings
The landscape of personal finance is profoundly influenced by broader economic trends and indicators. Read more
Economy
Navigate market turbulence with expert advice: no crystal ball needed
In an era fraught with investment market uncertainties, from fluctuating interest rates to geopolitical strife, seasoned market experts are guiding investors through the mire, offering sage advice on ...Read more
Economy
OPEC delays crucial meeting amidst challenging negotiations and global economic concerns
The Organization of the Petroleum Exporting Countries (OPEC) has postponed an important meeting scheduled for the weekend, suggesting potential discord among members, according to Ipek Ozkardeskaya, ...Read more
Economy
Impact of inflation on Australian investments: What you need to know
Inflation is often touted as the silent enemy of investors. While it’s a normal part of most economies, unchecked inflation can erode the real value of your investments over time. Read more
Economy
Economists downgrade outlook following higher inflation and lower real wages
The vast majority of chief economists surveyed by the World Economic Forum believe inflation will be high or very high in the US and Europe this year. Read more
Economy
Australian founders adapt to the challenging fundraising environment with optimism and strategic shifts
The landscape for start-up funding in Australia has been increasingly challenging, but this has not dampened the spirit of the country's entrepreneurs. Read more
Economy
Signs point to possible US economic 'soft landing' in ClearBridge analysis
The US economy may be steering towards a 'soft landing' despite mixed signals from the stock market, according to a recent analysis by ClearBridge Investments. Read more
Economy
Alternative fund managers predict capital raising surge in 2024
Alternative investment fund managers are predicting a sizable increase in capital raising efforts in 2024, according to a global study by Ocorian, a leading alternative investment fund administratorRead more
Economy
Understanding the economic indicators that affect your earnings
The landscape of personal finance is profoundly influenced by broader economic trends and indicators. Read more
Economy
Navigate market turbulence with expert advice: no crystal ball needed
In an era fraught with investment market uncertainties, from fluctuating interest rates to geopolitical strife, seasoned market experts are guiding investors through the mire, offering sage advice on ...Read more
Economy
OPEC delays crucial meeting amidst challenging negotiations and global economic concerns
The Organization of the Petroleum Exporting Countries (OPEC) has postponed an important meeting scheduled for the weekend, suggesting potential discord among members, according to Ipek Ozkardeskaya, ...Read more
Economy
Impact of inflation on Australian investments: What you need to know
Inflation is often touted as the silent enemy of investors. While it’s a normal part of most economies, unchecked inflation can erode the real value of your investments over time. Read more
Economy
Economists downgrade outlook following higher inflation and lower real wages
The vast majority of chief economists surveyed by the World Economic Forum believe inflation will be high or very high in the US and Europe this year. Read more