A tax expert believes Treasurer Josh Frydenberg would get more bang from taxpayers’ bucks by targeting business initiatives in next month’s budget rather than bringing forward already-legislated tax cuts.
BDO tax partner Mark Molesworth said personal tax cuts alone will not be enough to drive a worthwhile stimulus response in the face of the first recession since the early 1990s.
“More Australians are being frugal with their money so a tax cut will not inspire a spending spree even with Christmas approaching,” Mr Molesworth told AAP on Monday.
“To encourage consumer spending it would be better to look at business investment incentives.”
These could take the form of an investment allowance, which would provide an incentive to buy assets and expand business operations.
He also suggested an employee headcount rebate, which would be paid as a tax benefit in cash per new full-time employee created by a business.
Cabinet minister David Littleproud declined to comment directly on whether the government is considering incentives for businesses to take on more staff, saying Mr Frydenberg would “reveal all” when he hands down the October 6 budget.
“The treasurer will want to have a big bang on election night,” he told the Nine Network on Monday when asked about the speculation.
The government has flagged it is considering bringing forward personal income tax cuts scheduled for 2022 and 2024.
But an ad campaign initiated by the Australia Institute and backed by 40 prominent Australians – including two former Reserve Bank officials, a former Liberal Party leader and the head of the welfare lobby group ACOSS – says they won’t provide the economic stimulus the government is looking for.
Institute research released in recent weeks suggests the cuts will benefit high income earners, who are more likely to save rather than spend the extra cash.
“We’ll need substantial stimulus for an extended period,” former Reserve Bank deputy governor Stephen Grenville says.
“Cutting top-rate income tax would be a weak stimulus which undermines the equitable and progressive tax structure we’ll need when the COVID crisis is over.”
Former federal Liberal leader John Hewson said the coalition naively believes tax cuts are good politics.
“But they won’t be as they increase inequality and fail to ensure job security and increasing wages with our economy still struggling to exit recession,” Dr Hewson said.
The campaign will air from Monday on Sky News and commercial television.