Labor will back the Morrison government’s personal income tax cuts to ensure the benefits flow-through to workers as soon as possible.
Shadow treasurer Jim Chalmers has already written to the tax commissioner Chris Jordan to confirm the opposition’s support for individual tax cuts that were announced in Tuesday’s federal budget.
They include the bringing forward of cuts that were scheduled for two years time backdated to July 1 and the extension of the low and middle income tax offset.
“I note that you require public bipartisan support for these amendments to be able to implement the updated tax withholding schedules prior to the passage of amendments through parliament,” Dr Chalmers wrote.
The extra cash is aimed at boosting household demand to help lift the economy out of its first recession in nearly 30 years.
But Josh Frydenberg has avoided saying whether Australia will record another quarter of economic contraction before growth starts to improve.
The treasurer’s budget, handed down on Tuesday, forecasts the economy growing at a rapid 4.75 per cent rate in the next financial year before settling at 2.75 per cent and three per cent over the next two years.
This will follow a decline of 1.5 per cent in 2020/21.
During his traditional post-budget address at the National Press Club on Wednesday, Mr Frydenberg was asked whether he was confident the economy can avoid a third straight quarter of contraction.
“We’re making the forecast and the assumptions based on what we know today and the fact is that we are expected to have economic growth of 4.75 per cent next year,” he replied.
Asked again about the September quarter, he said: “The economy is coming back. The unemployment rate is coming down and that will see more people in jobs.”
However, the Treasury still expects the unemployment rate to peak at eight per cent by the end of this year, compared to 6.8 per cent in August, and it won’t return to sub-six per cent until 2023/24.
Labor is unimpressed.
“With that amount of money being splashed around you’d expect to put a big dent in unemployment,” shadow assistant treasurer Stephen Jones said.
“Between now and Christmas unemployment goes up and it stays up for unacceptably too long.”
The budget assumes a coronavirus vaccine will be in wide use by the end of next year, but Prime Minister Scott Morrison says various tax cuts and business incentives will roll out regardless.
“There’s always assumptions in the budget, there’s assumptions about many things but this budget is a plan and that plan is not on those assumptions,” the prime minister told ABC television.
KPMG chief economist Brendan Rynne said the government is banking on a response that builds self-sustaining growth momentum.
“The fear has to be that the budget concessions simply kick the can down the road – the sugar hit is short-lived, with economic activity brought forward but leaving a void in future demand,” Dr Rynne said.
Mr Frydenberg’s big spending budget also forecasts a record deficit of $213.7 billion in 2020/21 and more than $1 trillion in government debt the year after.
Deutsche Bank economist Phil O’Donoghue believes the risks are heavily skewed to larger deficits across the out-years, resulting in an even higher levels of debt issuance in coming years.