Last month, the Parliamentary Budget Office released an incredibly useful tool for our economic debate that not only reveals the secrets of the budget figures, but also highlights how badly the stage-three tax cuts mismanage the budget.
In the middle of December, the PBO gave us all an early Christmas present – one that oddly has largely been left under the tree. So let me do us all a favour and open it.
It released a “build you own budget” tool.
This tool in a sense reveals the budget secret-sauce recipe that up to now has been kept in a box in Treasury. It allows you to change various economic forecasts such as inflation and wage growth, and see how everything from tax revenue to government spending to debt changes.
Given these “parameter changes” to forecasts added an extra $57.3bn revenue in 2022-23, that is pretty important.
The tool shows that higher inflation and wages growth actually reduce the budget deficit (because income and company tax revenue rise):
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But while this is fun for economics nerds, the real beauty of the tool is when you play around with tax rates and thresholds.
The tool shows that the stage-three tax cuts will cost $300bn in their first nine years, and also just how much scope the Albanese government has to change the tax cuts.
The stage-three tax cuts debate has become a bit of an all-or-nothing situation, but the PBO’s tool shows you can cut various tax rates and change thresholds and still spend the same amount of money while delivering much fairer outcomes.
So massive are the stage-three tax cuts that instead of spending $300bn over nine years, you could raise the tax-free threshold from $18,200 to $27,100 and still have enough money to raise the top-tax threshold from $180,000 to $200,000.
If you find this a bit too generous to low-income earners, you could instead cut the tax rate for those earning under $45,000 from 19% to 15.75% and cut the rate for those earning $45,000 to $120,000 from 32.5% to 30% (this last bit would occur under the stage-three cuts).
Both these proposals actually cost slightly less than does the stage-three tax cut:
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But who benefits differs greatly.
Raising the tax-free threshold would give those on $30,000 a 5.7% tax cut, while those on $200,000 would get a 1.7% cut.
Under the second proposal, the biggest tax cut goes to those on $120,000 (2.3%) while those on $200,000 would still get a not insignificant 1.4% cut:
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In both situations everyone gets a cut, but the benefits are much better directed than are the stage-three cuts where those on $200,000 get a 4.5% cut.
But we need not stop there. The PBO’s tool allows us also to change the amount of jobseeker, disability support pension and the aged pension.
So massive are the stage-three tax cuts that we could raise jobseeker from $668.40 a fortnight to $1,925 and the total cost over the nine years from 2023-24 would be just $138m more, and the 2032-33 budget deficit would actually be smaller.
Just ponder that.
Right now, the “Raise the Rate” campaign is calling for jobseeker to increase to $1,022. We would be able to do that (let’s make it $1,025) and give some tax cuts – call them “stage 3a” – and still spend much less than the actual stage-three cuts.
Under “stage 3a” we could cut the 32.5% tax rate to 30%, and also raise the top tax threshold from $180,000 to $200,000.
The total nine-year cost of that package (including the jobseeker of $1,025) would be just $266bn rather than $300bn and the budget deficit in 2032-33 would be 1.5% of GDP instead of 1.7%.
Conversely we could raise jobseeker to $1,300, which would put it roughly at the poverty line for a single person estimated by the Melbourne Institute.
This costs a bit more so let’s go with “stage 3b” tax cuts, which are the same as “stage 3a” but keeps the top tax threshold at $180,000. This would again deliver a smaller budget deficit in 2032-33 than do the current stage-three cuts:
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But again, the benefits of the “stage 3a” and “stage 3b” are much fairer than the current stage-three cuts:
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The PBO has provided us all with an extremely valuable tool.
We can now see how the budget interacts with economic growth and also the impact of different tax cuts and welfare payments on both the budget bottom line and debt over time.
There will always be the argument that we can afford to increase debt to keep people out of poverty. But given the current climate of high inflation, deficit spending for ongoing payments is politically unlikely.
The PBO’s budget tool however gives us all a chance to show how we could pay for things and still deliver tax cuts.
If the Albanese government continues with the stage-three tax cuts as legislated it will oversee the worst budgetary management changes in living memory.
Government is about choices; the Albanese government should choose wisely, and fairly.
The choice is not all or nothing for stage three. The PBO’s tool shows that government can still deliver tax cuts. But crucially in a way that also enables them to help those in much more need than people earning more than $200,000.
• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
