Australian workers will get two years of bracket creep back in tax cuts, but income earners will be increasingly called upon to prop up the government’s bottom line without genuine tax reform.
The “modest” cuts announced by Treasurer Jim Chalmers in the federal budget will save Australians $10 a week once fully implemented in 2027/28.
But the documents revealed government spending was on track to reach a 40-year high, with deficits stretching into the middle of next decade.
Even with the cuts, personal income tax will still rise to 54 per cent of tax revenue, as young working age Australians bear a larger share of the tax burden.
Without further tax cuts, income earners will lose an increasingly higher proportion of their wages to the tax man as inflation pushes them into higher brackets.
Underlying deficits are predicted to total $179.5 billion over the five-year forward estimates period before eventually shrinking as spending declines.
But it is unclear how this will be achieved in practice.
Major expenses such as the National Disability Insurance Scheme, health, aged care, defence and interest on debt are projected to grow significantly faster than the economy over the next decade.
And that’s before you add on $104 billion in off-budget spending over the next five years.
The budget confirmed fiscal challenges into the future, said Chartered Accountants ANZ chief economist Richard Holden.
“In the long run, the only way to deal with a deficit is by increasing taxes or reducing spending, so this is the key figure that will drive major policy decisions, whoever is in government after the election,” he said.
Independent economic research body Prosper Australia called for structural reforms to rebalance the tax burden from younger income earners onto unearned wealth.
“The next government must commit to a tax reform process during its term to transform how we collect tax in Australia,” said the institute’s advocacy director Rayna Fahey.
“There is a broad consensus among economists, business leaders, and the community that Australian workers shoulder an unfair tax burden.”
Treasury forecast that tax as a proportion of GDP would come down to 23.1 per cent, well below the coalition’s proposed 23.9 per cent cap.
But this is dependent on economic growth forecasts which Professor Holden thinks are overly ambitious.
Economic growth is anticipated to grow at 1.5 per cent in 2024/25, 2.25 per cent in 2025/26 and 2.5 per cent in 2026/27 – speeding up while the economies of major trading partners China and the US slow down.
“This is arguably rather bullish in a world marked by global uncertainty with US President Donald Trump set to announce a new wave of tariffs on April 2, on top of the existing disruptions to global supply chains that have already occurred, and the substantial uncertainty about European security arrangements,” Professor Holden said.
Australia maintained its AAA credit rating with S&P Global Ratings, which noted the federal government’s net public debt of $556 billion remained modest by international standards.