Treasurer Jim Chalmers Implements $23 Billion Tax Cuts Amid Economic Concerns 07:51

Big day for the Treasurer, Jim Chalmers. He is today implementing Stage 3 tax cuts. They are costing the Government $23 billion. It'll be money in your back pocket, but it looks like it's going to be gobbled up fairly quickly. The Treasurer joins us on the program. Thank you for your time, Treasurer.

Thanks for having me back on the show, Clinton. Significant tax cuts today. Are you concerned, though, based on you would have read the story in the Herald today, that based on some ANU research, that within a couple of years, most of the benefits will disappear?

I'm not concerned about that because the reason we're providing these tax cuts from today so that every single Australian taxpayer gets a tax cut is because we want to get those average tax rates down and that's what we're doing. So the highest they've been is was actually in the last 35 years or so was actually under John Howard. They're a little bit lower now and we want to get them lower still.

Now, we know, and I read that story in the Herald, of course, about average tax rates. We know that there will always be people who say that we should cut taxes more. I understand that. That's a healthy feature of a political and economic discussion in a country like ours. But we are making a meaningful difference today. These tax cuts are an important part of a broader suite of cost of living policies that

which are all about recognising people are under the pump and doing something about it. So the cost of living relief is meaningful, it's substantial and it's responsible in the context of a budget which is tight and we're providing as much relief as we can in the most responsible way. How do you ever really get around bracket creep? Because it's obviously been a problem for governments of every political persuasion. The original plan was to really try to reform bracket creep

Yeah, this is one of the, I think, misconceptions or misunderstandings about what we changed. So you know and your listeners would know in around about January this year, we took the old stage three tax cuts and for the same price tag, we made them fairer. So everyone got a tax cut rather than just people who are already on higher incomes.

And we're proud that we did that. But there's been this kind of misunderstanding, I think, that what the former government was proposing all those years ago was returning bracket creep and what we're doing isn't. But the reality is we are returning bracket creep for more people. Now, we found a better way to return bracket creep, which is to return bracket creep right up and down the income scale rather than just to people...

are already doing pretty well. And that's because we understand the tax system's got a role to play in feeding and fuelling people's legitimate aspirations to earn more and keep more of what they earn and provide for their families. But we found a way, a responsible way, to do that for every taxpayer rather than just some who are doing a bit better than others. But if based on that ANU research, that for 80% of taxpayers, that by 2027, which really isn't all that far away,

that the average tax rate will be where it is as of yesterday, does that mean you'd have to go and do it all over again? Well, I think obviously governments of the future will look at the budget and look at the tax settings and typically...

Governments of both political persuasions have tried to cut taxes where they can. I guess the point that I'm making about that research, and I don't dismiss that research, either. That's a serious crowd and it's a serious newspaper that reported it, so I don't dismiss it. But I guess the point I'm making is, absent what we changed in January, the situation would be a little bit worse than that and we're doing what we can.

We're turning bracket creep where we can. We're cutting a couple of rates. We're lifting a couple of thresholds and we're providing cost of living relief right up and down the income scale. And the other thing that's really important to your listeners, Clinton, is the tax cuts are a big part of what we're doing, but not the only part. We've got the energy bill relief. We've got cheaper medicines. If you're on an award, you get a pay rise today. If you're having a baby, you get another couple of weeks of paid parental leave. All of these are ways...

that we're providing this meaningful and substantial cost of living help because we know people are under pressure and that's what we're responding to. But on the flip side, based on CPI last week, 4% above market expectations, if there is an interest rate increase in August, and that could well now happen, is that not going to hurt those middle-income earners who you adjusted the stage three tax cuts to benefit so much? Doesn't that mean, again, much of that tax cut is going to be gobbled up by an interest rate increase?

Well, I put it a slightly different way. I mean, I don't, as Treasurer and Treasurers before me, don't get into kind of pre-empting or predicting decisions that the Reserve Bank takes. But I think if we throw it back a little bit, you can see that the interest rate rises in the system are already putting a lot of pressure on a lot of people. I think that's self-evident. You know, and our economy's a bit slower as a consequence as well. And so we understand that. And so the responsibility for us is,

is to try and roll out this cost of living relief in a way that's part of a solution to inflation rather than part of the problem. So the energy bill rebates will take some of the sting out of electricity prices. The rent assistance, which comes in a bit later in the year, will take some of the sting out of rents and put downward pressure on inflation.

And also, we're doing it in the context of a budget where we're getting the budget in much better shape as well. We turned a couple of big Liberal deficits into a couple of Labor surpluses. And the Governor of the Reserve Bank has said publicly that she thinks that those two surpluses that I've delivered so far in two years are helping in the fight against inflation. So that's important too. But when you handed down your budget a couple of weeks ago, based on the Treasury, a new Treasury analysis, you're predicting an inflation rate between 2% and 3% going back to the Reserve Bank target.

Given the 4% of last week, do you have to now revise that at some point soon? Well, I'm not anticipating that. But at the end of the year, in the mid-year budget update, the Treasury redoes all their forecasts anyway. They would normally do that. There's nothing unusual about that. But the monthly number that we got the other day, the monthly inflation number, inflation is higher than anybody wants it. But it's much, much lower than it was a couple of years ago when we came to office and

and we know that our policies are helping and we know that that monthly number can be a bit volatile. The other thing which is really important here

is if you look at what happened around around the world in a lot of countries where their inflation peaked higher than ours and where it peaked earlier than ours what you see is the last percentage point or so before you get into the target is often the most difficult and inflation comes or has come off pretty substantially but it doesn't always come off in a perfectly straight line and that's what we're seeing here we want to see inflation lower

We want to see it moderate further and faster, but we've made a heap of progress and we know that our policies are helping. Thank you for your time, Treasurer.

Appreciate it, Clinton. All the best.

But reality is, and we'll talk to the ANU after four o'clock, based on their research, by 2027, 80% of us will be back to where we started with the tax cuts because of bracket creep. And governments of both political persuasions have tried to address bracket creep for years. And in the end, it always catches up with them. I'm sure most people who will enjoy a bit of a bigger pay packet will.

Over the next couple of months, we'll enjoy that. But if interest rates then increase as well in August, and of course the Treasury wouldn't comment on that, that enjoyment is going to be very fast-lived.