Australian Government Says Income Tax Rejig Won't Add to Inflation

By James Glynn

SYDNEY--Australian Prime Minister Anthony Albanese confirmed Thursday that the government's already-legislated income tax cuts would be retargeted to better benefit low and middle-wage earners, while adding that the rejig won't add to inflation.

Speaking in Canberra, Albanese said all 13.6 million taxpayers in Australia would receive an income tax cut from July 1, although the size of the expected cut for high-income earners would be reduced sharply, with the funds reallocated down the wage spectrum.

"Our plan will more than double the benefit for Australians on the average income, and it will look after low-income earners and part-time workers as well," Albanese said.

"Our tax cuts will not add to inflation," he added.

According to advice from the Department of Treasury, the income tax changes will have a "broadly neutral" impact on government revenues and will support labor supply, Albanese said.

"The Treasury Secretary and the Treasurer have both consulted the Governor of the Reserve Bank of Australia on our changes, who expects there are no implications for the RBA's inflation forecasts," Albanese said.

The decision to retarget the income tax cuts comes ahead of a federal election expected in early 2025, and will be delivered amid a cost of living surge for households, which have also weathered a record jump in mortgage interest rates.

Moving to reshape the income tax cuts may come at a political cost for the Labor government, amid widespread claims that its failure to deliver the income tax reductions as originally outlined amounts to a broken election promise.

Some economists are also warning that giving extra income to low-wage earners increases the risk that the funds will be spent, stoking inflation.

"Low and middle-income earners need this money. They are likely to not put it in the bank. They are likely to buy things they need such as food, rent and essentials...But what this will do is encourage workforce participation and help to deal with labor supply," Albanese said.

Inflation has been falling over recent quarters and fourth-quarter consumer price index numbers at the end of this month are expected to show the annual rate of inflation is now closer to 4.0% rather than the 8.0% rate seen a year ago.

Business groups have also argued that the decision robs the country of an important opportunity for far-reaching reform of the tax system which would help address a productivity slump.

Write to James Glynn at [e-mail]

(END) Dow Jones Newswires

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