Billions of dollars in tax cuts are being considered as part of a package to lift the Australian economy from its lockdown-induced recession, following the release of the National Accounts on Sept. 2.
The National Accounts revealed economic activity shrank seven percent in the June quarter, confirming the first recession for the nation’s economy in nearly three decades.
Currently, one million people are unemployed and another 400,000 are likely to begin relying on government support before Christmas.
Federal Treasurer Josh Frydenberg has hinted at fast-tracking income tax relief in the Oct. 6 budget to breathe life into the battered economy.
“It’s important that people recognise that tax cuts put more money into people’s pockets. More money into people’s pockets means more spending and more spending means more jobs,” he told reporters in Canberra on Sept. 3.
However, he said these were ongoing discussions and would reveal the full details in the upcoming budget.
The Coalition government last year pushed through a ten-year income tax plan that would save Australians $158 billion (US$115.7 billion). The plan was to be rolled out in three stages, with the latter two stages originally set for 2022 and 2024.
This year, the federal government has earmarked the fast-tracking of the last two stages in response to the pandemic.
Reserve Bank Governor Robert Lowe’s verdict is that Australia is facing its worst economic episode since the Great Depression.
The National Accounts confirmed Lowe’s analysis, revealing household consumption fell, as well as business investment, and home building.
Household savings rose however to a record 19.8 percent in the quarter, indicating Australians were more cautious and saving in response to economic uncertainty.
The treasurer said that on a global scale, Australia weathered the pandemic-induced lockdown better than many developed nations.
“In the United Kingdom, Gross Domestic Product (GDP) fell by 20.4 percent in the June quarter. In France, GDP fell by 13.8 percent, Canada by 11.5 percent, Germany by 9.7 percent, and the United States by 9.1 percent; while New Zealand is expecting the economy to contract by more than 20 percent,” he said.
The federal opposition Labor Party has vowed to work constructively with the government to lift the Australian economy.
Labor Shadow Treasurer Jim Chalmers, however, was opposed to bringing forward tax cuts, saying it was no substitute for job creation.
“We need a jobs plan, and tax cuts being brought forward on their own is not a jobs plan,” he told ABC on Sept. 3.
“At the moment, the government’s plan is to wind back JobKeeper, wind back JobSeeker, freeze the pension, and slash wages. That would be part of the problem not part of the solution,” Chalmers added.
The treasurer has maintained plans to scale back the JobKeeper and JobSeeker support payments at the end of September.
Ann Kayis-Kumar, senior lecturer at the School of Taxation, University of New South Wales, told The Epoch Times on Sept. 3 that tax cuts alone would not be enough to stimulate the economy.
“For tax cuts to work we’d need people to be earning enough to actually need to pay the tax in the first place. The problem with the economic fallout of the COVID-19 pandemic is that we don’t have this occurring,” she said.
She called for more fundamental reforms to the corporate and individual tax system, floating the idea of an allowance for corporate equity, which would give businesses tax deductions for investing money (in the form of ‘equity’) in their business.
Jennifer Westacott of the Business Council of Australia backed the idea of tax cuts, saying it was one key ingredient to creating jobs along with cutting regulation for business.
“We need a recovery plan that is driven by the private sector, focused on job creation, and getting investment going again—and we don’t have any time to waste,” she said in a statement on Sept 2.
“We’ll need to harness the spirit of cooperation we’ve achieved through this crisis to finally deal with some of our most difficult reform challenges—tax and regulation,” she added.