Hockey aims for tax cuts and surplus

Income tax relief funded by billion of dollars in spending cuts will be confirmed by Treasurer Joe Hockey on Monday as a way of combating bracket creep and boosting economic growth.

“That’s why our forthcoming options paper on tax reform will include options for cutting personal income tax”, Mr Hockey will tell the Tax Institute and Chartered Accountants of Australian and New Zealand in Sydney.

“For the average income earner on around $77,000 each year, they are just below the second-highest tax bracket of 37 cents in the dollar, which kicks in above $80,000”, he said.

The renewed focus on tax has prompted the Greens to call on both main parties to avoid “a tax cuts arms race”, warning that the associated spending cuts would erode vital public services.

He says that without tax cuts, nearly half of all taxpayers will be in the top two tax brackets in a decade.

The treasurer used a speech on Monday to justify the need for income tax cuts, particularly focusing on bracket creep which will have a negative impact on the economy.

“For the worker out there on an average income, they might not notice it the first year”.

Hockey’s second budget, delivered in May, predicted a deficit of $35.1bn this financial year. But, eventually, it bites.

“Back in 1996-97, under the Howard government, the tax burden was less concentrated, with the top 25% paying a majority of income tax”.

“If you’re dropping personal income tax and you’ve got a deficit, the money has to come from somewhere”, he says.

The Coalition will use its plans to cut personal income taxes to further pressure the states to think of new ways to raise revenue after they failed to agree to NSW Premier Mike Baird’s proposal to increase the GST to 15 per cent.

At a meeting with State Treasurers on Friday he announced at the GST would be applied to all online imports into Australia from 2017.

Mr Hockey argues that cuts to income tax, including for super rich, will help the economy by encouraging people to stay in the workforce for longer.

“We still have a budget to fix, there’s no denying this. But we still have a budget to balance – we still have a budget to fix…it will be managed through continued discipline on spending decisions”. “A government that can not contain expenditure inevitably falls into the trap of searching for new sources of revenue – as our political opponents are now with new taxes on superannuation, electricity and jobs”.

“That’s exactly what was promised prior to the 2013 election”.

“Joe Hockey has actually increased personal income tax and petrol taxes and tried to impose a GP tax”, he said.

Arguing the tax system represented a structural handbrake on growth, Hockey suggested changes were needed to ensure “reward for effort” when people achieved higher salaries.