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Treasurer comes under fire for ‘failed’ attempt to defend stage 3 tax cuts

  • May 18 2021
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Earn

Treasurer comes under fire for ‘failed’ attempt to defend stage 3 tax cuts

By Cameron Micallef
May 18 2021

Treasurer Josh Frydenberg has announced that he will push through with the controversial stage three tax cuts, although he failed to explain why they’re beneficial to the Australian economy and whether Australia can afford the reduction. 

stage 3 tax cuts

Treasurer comes under fire for ‘failed’ attempt to defend stage 3 tax cuts

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  • May 18 2021
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Treasurer Josh Frydenberg has announced that he will push through with the controversial stage three tax cuts, although he failed to explain why they’re beneficial to the Australian economy and whether Australia can afford the reduction. 

stage 3 tax cuts

Since announcing his budget last week, Mr Frydenberg has been on the campaign trail discussing the benefits of stage three tax cuts.

During an interview with ABC’s Insiders, Mr Frydenberg was asked about the economic benefits of the stage three tax cuts and whether Australia could still afford them.

When he announced the proposal a couple of years ago, Mr Frydenberg said “they were affordable because the government continues to deliver budget surpluses”.

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Having had a global pandemic and several big government stimulus rescue packages in 2020 alone, Australia is now faced with a daunting $1 trillion in debt.

When questioned whether passing the stage three cuts, at a cost of $17 billion in 2024, is still affordable, Mr Frydenberg said, “They are legislated tax cuts; they are in the budget numbers, and they create a stronger and fairer system.”

“They are rewarding Australians in work, and it is returning more of their money.”

Mr Frydenberg stuck to his guns on several occasions, defending the tax plan as one that will yield “a fairer system”.

What’s due to happen

The stage three changes eliminate several tax brackets, with taxpayers earning between $45,000 and $200,000 paying the same 30 per cent a year on income earned.

“And stage three will take account and take effect from 2024-25. These are important reforms. We’re abolishing a whole tax bracket, the 37 cents in the dollar tax bracket.

“And we”re creating one big tax bracket between $45,000 and $200,000. Ninety-five per cent of Australians will pay a marginal rate of no more than 30 cents in the dollar. So, if you’re on $45,000, if you’re an $80,000, if you’re on $100,000, you will pay lower taxes,” Mr Frydenberg said.

While Mr Frydenberg believes this reform is an important reward for hard workers, Labor and the Greens have argued that the changes benefit high-income earners far more than those with a significantly lower take-home pay. 

According to projections, when the low and middle income tax offset is revoked in 2022, a person earning $45,000 could be $855 a year worse off, while someone on $60,000 could be $700 worse off, and individuals earning $80,000 could see a $200 pay cut. 

On the flip side, those earning more than $200,000 will be $9,000 better off than they are today.

Refusing to acknowledge these apparent inconsistencies, Mr Frydenberg repeatedly stressed that low- to middle-income earners are better off than in 2018 when the reforms to the tax system began.

“The low and middle income tax offset that has been extended this year, we’ve used it as a stimulus measure. It is not a permanent measure of the tax system. What is a permanent feature is what is legislated,” he said.

Frydenberg’s reasoning slammed 

Responding to the Treasurer’s interview, Richard Denniss, chief economist at The Australia Institute, took to Twitter.

“The reason that Josh Frydenberg can’t say how much growth his stage three tax cuts will deliver is that there won’t be any. There’s no evidence that giving a $9,000 per year tax cut to those earning over $200,000 will boost GDP. None,” Mr Denniss wrote.

The shadow assistant treasurer and shadow minister for financial services, MP Stephen Jones, also responded by saying “every tax payer earning under $80,000 will pay more tax next year, under Scott Morrison’s plan. He won’t tell you this.”

In his next door stop appearance at Levi Cafe Murrumbena, the Treasurer was hit with more tax-related questions, again failing to extract any economic benefit out of the process. 

“People on all salaries are aspirational; people always want to keep more of their hard-earned money. Let’s go back to the last election because that’s where we took to the Australian people our tax plan,” he said.

The Treasurer explained that someone on $200,000 pays eight times the tax than someone earning $50,000, while only earning four times as much.

However, separate research previously released by The Australian Institute suggested that the stage three tax cuts delivered only a $7 per week benefit for those earning $60,000, while those earning $200,000 receive $174 in tax breaks.

Treasurer comes under fire for ‘failed’ attempt to defend stage 3 tax cuts
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About the author

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Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

author image
Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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