News Tax cuts for COVID ‘naive’, former Liberal leader John Hewson says in new budget campaign

Tax cuts for COVID ‘naive’, former Liberal leader John Hewson says in new budget campaign

Former Liberal leader John Hewson has criticised the tax cut plan. Photo: AAP
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Fast-tracking tax cuts would leave Australia “a weaker state”, and “fail” the Coalition government’s goals for a post-COVID recovery, according to a blistering new campaign headlined by former Liberal leader John Hewson.

A former Reserve Bank governor, leading economists, legal experts and immunologist Professor Peter Doherty are among the prominent Australians pleading with Scott Morrison’s government to change tack in order to create jobs and stimulate spending.

Their campaign follows Treasurer Josh Frydenberg’s controversial confirmation earlier this month that he was considering bringing forward planned stage two and three tax cuts from 2022 and 2024 to this year.

Mr Frydenberg’s decision had sparked warnings from economists that the move would detonate an “inequality grenade” in Australia and further entrench the divide between rich and poor.

Dr Hewson is among the critics ramping up pressure on the government to instead spend on infrastructure, services, or shoring up a long-term boost to welfare payments.

Ben Oquist, TAI’s executive director, said the tax cuts would “fail” the government’s stated goals. Photo: AAP

“The LNP naively hope tax cuts are good politics, but they won’t be as they increase inequality and fail to ensure job security and increasing wages with our economy still struggling to exit recession,” he said.

The Sydney Morning Herald reported on Sunday the government was strongly considering including the tax cuts plan in its October 6 budget.

It was also reported that the long-term rate of the JobSeeker welfare payment would not be included in the budget, with an announcement delayed indefinitely.

Dr Hewson – the Coalition’s leader between 1990 and 1994, and now a vocal critic of his party’s federal direction in recent years – has lent his voice to a campaign from progressive think tank The Australia Institute.

“Cutting taxes for already wealthy Australians will undermine the long-term strength of our public services, like health care and education, while doing very little to stimulate economic growth,” said Ben Oquist, TAI’s executive director.

Speaking to The New Daily, Mr Oquist said he was concerned about the “fiscal cliff” Australia faced when JobKeeper and JobSeeker supports were wound back in coming months.

“The economy does need fiscal support, but tax cuts are the very worst option, and particularly the type proposed,” he said.

Scott Morrison and Josh Frydenberg said the tax cuts were being considered. Photo: AAP

“The government said its support for the economy would be temporary and targeted – but these tax cuts are permanent, and are targeted at the wrong people.”

The proposed cuts would strongly flatten the nation’s tax system, with gradual changes to increase the threshold for various brackets and then remove others.

Eventually, everyone earning between $45,000 and $200,000 would pay the same 32.5 per cent tax rate, with those on high incomes to benefit most from lower taxes.

TAI has previously shared modelling done by its economists which show that 91 per cent of the benefit from the 2022 tax cuts would go to the richest 20 per cent of Australians, with the bottom 50 per cent of earners receiving just 3 per cent of the benefit; and that men would get more than double the benefits that would go to women.

“We know wealthy people are less likely to spend and more likely to save, but the permanent damage this will do to the future revenue base, that’s not temporary,” Mr Oquist said.

“It will ultimately lead to a weaker state and less services in future.

“We need good fiscal stimulus, but we need what will give you the biggest chance of boosting aggregate demand and long-term benefits. On both those tests, tax cuts to the top end just fail.”

Mr Oquist said the think tank’s campaign – launching on TV on Monday – was backed by prominent Australians including former RBA governor Bernie Fraser, former deputy RBA governor Stephen Grenville, Australian Council of Social Service CEO Cassandra Goldie, and former Department of Prime Minister and Cabinet secretary Michael Keating.

Professor Peter Doherty put his name to the tax cuts campaign. Photo: AAP

Dr Grenville said the tax cut plan “would be a weak stimulus” and would “undermine the equitable and progressive tax structure we‘ll need when the COVID crisis is over”.

Mr Fraser said policy makers should be considering economic stimulus that would protect “the most vulnerable groups in those communities [who] are always hit the hardest in major crises like this pandemic”.

About 40 academics and economists have signed on as part of TAI’s campaign.