Stage 3 Tax Cuts: the Real Impact on your finances.

There’s been plenty of media talk about the Stage 3 tax cuts and understandably so. Of course, some of it is driven by political motives and some by genuine outrage over the cost of broken promises. However, I want to steer clear of that and take a more practical look at things.

Here’s my view. In theory, the Government performs – or should perform –a limited number of critical functions in our society. It makes spending decisions based on what is needed to properly execute those functions. In turn, it needs to raise enough revenue to pay for those decisions.

All of that is being done with our money. They reach into your pocket, and mine, to fund the things that need to be done.

I ask you to think about that for a moment – it’s your money but you are compelled to give some of it to someone else, in this instance the Government – primarily via the tax system – “for the greater good of society”. You have elected someone else to decide how you will spend up to 47% of your taxable income (more if you count taxes that are built into pricing of the goods you buy)!

So, it’s a hell of a responsibility that the men and women that we elect to Parliament carry with them. That’s a lot of your money right there! In that light, what is the Government proposing?

According to the Australian Financial Review, they are proposing to retain the 37% tax bracket “albeit at a higher threshold of around $135,000” and that rate “will apply up to $190,000 after which the 45 per cent rate will apply”. The result is a watered-down tax cut for higher income earners.

So, beyond the Peter Pan stuff, it may well be that the Government have formed the view that that they need to retain more tax revenue, to fund current, future and past spending.

Yes, past spending. Treasurer Chalmers has made no secret of his desire to reduce our national debt. A debt that became much greater, by the way, when the Government of the day borrowed money in an effort to see us through the COVID pandemic. In other words, spending we have already had the benefit of. Spending that has to be paid for by someone, at some time.

Now, that’s where the disagreements start. Who should pay for it and when? Naturally, nobody wants to be the one and nobody wants to experience all of the economic pain now, if it can be spread through time. Sadly, that opens the door on politics.

Yet, I say policy decisions ought to be weighed against an agreed set of principles, guided by strategy and values, policy and direction, not by political expediency.

What do we want for Australia and therefore, our people? What is our opportunity, as a nation, for the greatest economic prosperity and therefore, our standard of living? How will we get ahead and what are the tactical tweaks – like tax cuts – that play a part in getting us there?

Only then will we be able to make, communicate and stick to decisions well made. Will it ever happen?

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Neil Parker

MANAGING DIRECTOR

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