Tuesday, October 16, 2007

With the election campaign just beginning, Australian Prime Minister John Howard has promised AU$34 billion in personal income tax cuts over the next three years. That is on top of $31.5 billion announced in May, and $36.7 billion announced in 2006.

The new tax cuts are based on new projections for growth in the Australian economy. The Treasury estimates that the economy will expand by 4.25% in the 12 months to June 2008, up from growth of 3.75% predicted in May.

The Government has challenged the Labor opposition to announce their tax policy immediately.

“The biggest, boldest tax plan that we’ve seen in a long time is presented yesterday, it deals with participation, competitiveness, building capacity in the Australian economy, and what does Kevin Rudd say? Nothing,” treasurer Peter Costello said. “He better have an answer today.”

Costello described the government tax policy as “very responsible” and said Rudd was a “Nothing Man” because he has not revealed Labor’s tax policy.

The Shadow Treasurer, Wayne Swan, replied “The only responsible course of action here is to study the detail. We’ve said we’ll put out all our policies well before the election and we’ll do that”.

“But in terms of what the Government’s put forward, we will take our time to study the detail. That’s the only responsible and reasonable thing to do.”

Economists from Access Economics, the ANZ Bank, HSBC and Macquarie Bank noted that the tax cuts will boost demand at a time when the Reserve Bank is trying to slow the economy. The Reserve Bank has been raising interest rates to keep the inflation rate within its target range. Households with substantial mortgages could end up worse off.

Rudd has said the Opposition will reveal its tax policy in its own time – mimicking John Howard’s approach when he was Opposition Leader in 1996.