My Blog

Tag: Tax, Spending & the Budget

  • Budget briefing paper 2025-2026

    The Centre for Future Work’s research team has analysed the Commonwealth Government’s budget.

    As expected with a Federal election looming, the budget is not a horror one of austerity. However, the 2025-2026 budget is characterised by the absence of any significant initiatives. There is very little in this budget that is new other than the surprise tax cuts, which are welcome given they benefit mostly those on low-incomes. There are continuing investments in some key areas supporting wages growth, where it is sorely needed, and rebuilding important areas of public good. However, there remains much that needs to be done in the next parliament.

    This briefing paper reviews some of the main features of the budget, focusing on those aspects targeting and impacting on workers, working lives and labour markets.

    The establishment of a $1 billion Green Iron Investment Fund to provide capital grants to green iron projects is a significant investment. With $500 million of this fund going to the troubled Whyalla steelworks this investment should ensure ongoing integrity in the management of this vital industrial asset. We believe the government should take a significant ongoing stake in the ownership of the Whyalla steelworks. The $2 billion Green Aluminium Production Credit, to incentivise Australian aluminium smelters to switch to renewable electricity before 2036, is a necessary and welcome policy to assist the transition to a low emissions economy. Unfortunately, the credit is not available until 2028-2029.

    New and ongoing support for students in TAFE and in higher education are important cost-of-living measures while also making education and training more inclusive and accessible. There is some new funding for previously announced initiatives that support workers and wages growth and some funding for new wage increases in the female-dominated, and low-paid, aged care and early childhood education and care sectors; demonstrating the government’s commitment to addressing long-standing undervaluation of feminised care occupations. Continuing government support will be needed as the current Fair Work Commission review of awards to address undervaluation progresses.

    Other reforms in ECEC, along with previously announced changes to paid parental leave and carer payments, provide welcome, but belated, support for working parents and carers. It is disappointing to see that the opportunity has been missed to raise Job Seeker and Youth Allowances from their grossly inadequate levels.

    The post Budget briefing paper 2025-2026 appeared first on The Australia Institute's Centre for Future Work.

  • Budget 2024-25: Resists Austerity, Reduces Inflation

    Targeted cost of living measures will directly reduce inflation in some areas (like energy and rents), while helping working Australians deal with higher prices in others (including reworked State 3 tax cuts, and support for higher wages for ECEC and aged care workers). Unlike previous years, the budget is projecting real wage gains in coming years that are actually likely to materialise — however, the damage from recent real wage cuts will take several years to repair, and further support for strong wage growth will be required, from both fiscal policy and industrial laws. The budget also spelled out initial steps in the government’s Future Made in Australia strategy to build renewable energy and related manufacturing industries; these steps are welcome but need to be expanded, and accompanied by strong and consistent measures to accelerate the phase-out of fossil fuels.

    Our team of researchers at the Centre for Future Work has parsed the budget, focusing on its impacts on work, wages, and labour markets. Please read our full briefing report.

    The post Budget 2024-25: Resists Austerity, Reduces Inflation, Targets Wage Gains appeared first on The Australia Institute's Centre for Future Work.

  • The gas industry is laughing at us as they make more money but not more tax

    Australia produces more than six times the amount of gas needed to supply our manufacturing industry, power stations and homes. But more than 80% either heads overseas as LNG exports or is used to convert natural gas into LNG:

    We export much more gas than we used to. In the 2000s we exported around 14m tonnes of LNG a year. Now, due to the opening of the Gladstone LNG terminal, we send 83mt overseas – the second most of any nation.

    But more production and more revenue has not led to more tax, even though the petroleum resources rent tax (PRRT) is in place to supposedly raise revenue from windfall profits such as those generated by the gas industry after the Russian invasion of Ukraine.

    When Australia exported 15.4mt of LNG in 2008-09, the government raised $2.2bn in PRRT. In 2022-23, exports had increased 437% to 83mt but PRRT revenue was up just 7% to $2.4bn.

    Did gas suddenly become unprofitable?

    No, the problem is that the PRRT is open to manipulation that enables companies to use costs to reduce their PRRT liability such that it appears they are never making “super profits”.

    In last year’s budget, the government finally proposed limiting the deductions to the PRRT in any year to 90% of LNG project revenues. Alas that proposal also had a punchline. The government announced the changes would raise an extra $2.4bn in PRRT over the next four years. That was roughly a 30% increase in tax.

    Thirty per cent!

    You would think the gas industry would launch the mother of all campaigns against it. But no. They loved it.

    The day it was announced the gas industry peak body recommended bipartisan support as the changes “would see more revenue collected earlier”. The key word was “earlier”. It won’t raise more tax; it just moves some tax from later to earlier.

    But it won’t even do that.

    In December’s midyear economic and fiscal outlook, the government announced it was revising down its estimate of how much PRRT would be raised over the next four years.

    How much did it reduce its estimate by?

    You guessed it: $2.4bn.

    We need to change the way the PRRT operates, we need to tax our gas more and we need to do it now.

    The post The gas industry is laughing at us as they make more money but not more tax appeared first on The Australia Institute's Centre for Future Work.

  • The Stage 3 tax cuts will make our bad tax system worse

    One of the chief purposes of government payments and taxes is to redistribute income, which is why tax rates are higher on taxpayers with higher incomes and payments tend to get directed to people on lower incomes.

    Australia’s tax rates range from a low of zero cents in the dollar to a high of 45 cents, and payments including JobSeeker, the age pension, and child benefits which are limited to recipients whose income is below certain thresholds.

    In this way, every nation’s tax and transfer system cuts inequality, some more than others.

    Which is why I was surprised when I used the latest Organisation for Economic Cooperation and Development (OECD) data to calculate how much.

    The OECD measures inequality using what’s known as a gini coefficient. This is a number on a scale between zero and 1 where zero represents complete equality (everyone receives the same income) and 1 represents complete inequality (one person has all the income).

    The higher the number, the higher the higher the inequality.

    Australia is far from the most equal of OECD nations – it is 21st out of the 37 countries for which the OECD collects data, but what really interested me is what Australia’s tax and transfer system does to equalise things.

    And the answer is: surprisingly little compared to other OECD countries.

    Australia’s system does little to temper inequality

    The graph below displays the number of points by which each country’s tax and transfer system reduces its gini coefficient. The ranking indicates the extent to which the system equalises incomes.

    The OECD country whose system most strongly redistributes incomes is Finland, whose tax and transfer rules cut its gini coefficient by 0.25 points.

    The country with the weakest redistribution of incomes is Mexico which only cuts inequality by 0.02 points.

    Australia is the 8th weakest, cutting inequality by only 0.12 points.

    Apart from Mexico, among OECD members only Chile, Costa Rica, Korea, Switzerland, Türkiye and Iceland do a worse job of redistributing incomes.

    What is really odd is that, before redistribution, Australia’s income distribution is pretty good compared to other OECD countries – the tenth best.

    It’s not that Australia’s systems don’t reduce inequality, it’s that other country’s systems do it more.

    Of the OECD members who do less than Australia, four are emerging economies: Chile, Costa Rica, Mexico, and Türkiye. Like most developing countries, they have low taxes, weak social protections and poor tax-gathering systems.

    Indeed, in Chile and Mexico, taxes and transfers do almost nothing to moderate extreme inequality.

    The other three countries ranked below Australia – Iceland, Switzerland, and South Korea – boast unusually equal distributions of market incomes. Each is among the four most equal OECD countries by market income, and each is considerably more equal than Australia.

    Australia ‘less developed’ when it comes to redistribution

    This makes Australia’s weak redistribution system more typical of a low-income emerging economy than an advanced industrial democracy.

    Even Canada, the United States, the United Kingdom and New Zealand do a better job of redistributing income than Australia.

    This new data enhances concerns about the impact of planned Stage 3 tax cuts. By returning proportionately more to high earners than low earners these will further erode the redistributive impact of Australia’s tax system.

    It also highlights the consequences of Australia’s relatively weak payments programs, including JobSeeker which on one measure is the second-weakest in the OECD. It’s an understatement to say we’ve room for improvement.

    The post The Stage 3 tax cuts will make our bad tax system worse appeared first on The Australia Institute's Centre for Future Work.

  • Higher exports prices improve the budget, but the Stage 3 tax cuts remain the wrong tax at the wrong time

    Yesterday’s mid-year economic and fiscal outlook (MYEFO) provided some pleasing news for the Treasurer, Jim Chalmers. But higher revenue does not mean a stronger economy nor that households are better off.

    While the Treasurer was releasing the latest budget numbers the annual figures for median earnings were released by the Bureau of Statistics.

    These figures showed that the median weekly earnings in August this year were $1,300 – a rise of 4.2% from last year, which was less than the 5.4% increase in inflation.

    That weekly amount translates to $67,600 in annual earnings.

    People earning that amount will get just $565 from the Stage 3 tax cuts (0.8%) while someone on $200,000 – well in the top 10% of earners will get a 4.5% cut worth $9,075.

    The Treasurer told ABC 730 on Wednesday night that the government has not changed its position on Stage 3 and that “We think there is an important role for returning bracket creep where governments can afford to do that.”

    The problem is the Stage 3 cuts are mostly focused at rewarding those on high incomes, who are least affected by bracket creep.

    If the Government was truly worried about using the bonus revenue from higher export prices to assist low and middle-income earners it would care more about those on the median income of $66,700 than those in the top tax bracket and top 10% of income.

    The post Higher exports prices improve the budget, but the Stage 3 tax cuts remain the wrong tax at the wrong time appeared first on The Australia Institute's Centre for Future Work.

  • The Government needs to act on Stage 3 as the RBA warns about wealthy households spending

    The Reserve Bank’s decision to raise interest rates on Tuesday lacked any clear reasoning.

    When compared with other periods such as during the mining boom, when household spending was growing fast and real wages were surging, we can see that the economy at the moment is much weaker. Households are now cutting back on luxuries as their real wages fall.

    But the RBA pointed out that one group of Australians are doing OK – those with high income and wealth. Those with large savings buffers and who are also enjoying the increased wealth from rising house prices are still spending.

    This is also the group who are about to be handed the biggest income tax cut in history. The Reserve Bank has made it clear that allowing Stage 3 to go forward in its current form will only fuel inflation and likely result in higher interest rates for all.

    With a Reserve Bank desperate to use any excused to raise rates and slow the economy even as it already slows, the Government needs to amend the Stage 3 cuts to deliver greater benefit to low-middle income households who have suffered the most from the rising cost of living and interest rates, and less to those who are already doing well and for whom a potential $9,075 tax cut would just put more fuel on the inflation fire.

    The post The Government needs to act on Stage 3 as the RBA warns about wealthy households spending appeared first on The Australia Institute's Centre for Future Work.

  • Bolstered by a biased tax system, house prices keep rising

    Despite rising interest rates, the latest figures from the Bureau of Statistics show that Australia’s house prices rebounded in the March quarter of this year. Policy director Greg Jericho writes in his Guardian Australia column that since the beginning of the pandemic property prices around Australia have risen 26% while at the same time average household disposable income has increased just 8%.

    This disparity has massive consequences for affordability. Had for example the median property price in Sydney risen in line with household incomes since June 2020, instead of being $1.15m it would be $954,000 – a $196,000 difference.

    Underlying the strength of the market even in the face of rising interest rates is the fact that Australia’s tax system is biased towards property investors.

    The most recent taxation statistics covering 2020-21 showed for the first time the number of investors recording property net profits was greater than those recording a loss. Such a situation only occurred because of the record low interest rates at the time. We know that the past 12 months will have seen a large spike in the number of people negative gearing their properties and thus not surprisingly housing remains an attractive investment not in spite of rising interest rates, but because of rising interest rates.

    The post Bolstered by a biased tax system, house prices keep rising appeared first on The Australia Institute's Centre for Future Work.

  • Real wages falls and interest rates rises signal tough times for households

    The Australian economy – like all economies – is about people. And yet too often company profits are used as a judge of economic health. Throughout the pandemic and in the years since, company profits have soared while the real wages of workers has fallen. This situation is inherently unsustainable with an economy dependent upon household consumption. As policy director Greg Jericho writes in his Guardian Australia column, we are beginning to see households struggle to keep going.

    The Budget delivered this month by Treasurer Jim Chalmers revealed that the next financial year starting in little over a month is set to be one of the worst in the past 40 years. Household consumption is expected to rise just 1.5% – the 5th worst since 1985-86. Even worse if we account for an expected 1.7% rise in population this means in a per capita sense, real household spending is about to fall.

    And when household spending slows, so too does the entire economy.

    We have already see the beginnings of this with sharp slowing in the volume of retail spending being done, all while the amount of money we are spending rises. In effect we are paying more for less. This means the “nominal” figures in the retail trade data hides the weakness in the economy and the pain households are going through.

    With mortgage repayments rising nearly 80% in the past year, households are switching from spending in shops and on services that employ people, to paying off their loans – driving up the profits of banks ever more, but in doing so actually slowing the economy.

    The Reserve Bank is getting what it wanted – a slowing economy, less money being spent and rising unemployment. But with conditions only seen in recessions expected in the next year, the risk that this slowing will lead to the economy stopping completely is rising, and the Reserve Bank must not raise rates any further and be extremely mindful of the pain they have already caused to households struggling from the fastest increase in loan repayments in over 30 years at the same time as real wage fall faster than they have on record.

    The post Real wages falls and interest rates rises signal tough times for households and the economy appeared first on The Australia Institute's Centre for Future Work.

  • Don’t worry about a budget surplus, worry about a slowing economy

    The Budget announced this week by Treasurer Jim Chalmers revealed a projected surplus in 2022-23 before returning to a deficit in the future years. In response many commentators and economists have suggested that the budget is therefore expansionary and will fuel inflation. But as policy director, Greg Jericho notes in his Guardian Australia column given the projected slowing economy, if anything the budget should be more expansionary.

    Most of the claims around the budget fueling inflation are based on the movement of the budget from surplus in 2022-23 to deficit in 2023-24. And usually, this would suggest that the government is stimulating the economy. But when we look at the actual figures within the budget, the overwhelming reason for the shift from surplus is due to parameter changes relating to oil, gas, coal and iron ore prices. The spending measures the government is proposing are hardly expansionary at all. Their direct impact on total household income is minimal, and the largest spending is on reducing medical and energy bills rather than directly giving households more money.

    When we look at the forecasts for public demand growth we see a level of expansion that is more akin to an austere budget than one attempting to stimulate the economy.

    But when we also look at the forecasts for economic growth over the next two years we see an economy slowing quite abruptly in a world that is teetering on a global recession. In the past, such weak forecasts for household spending and GDP growth would have seen governments spending more and lifting economic growth.

    This budget appropriately deals with the concerns of inflation by directly lowering the costs of energy and medical bills – it demonstrates that governments do have a role to play in lowering inflation and that it need not be done purely by the traditional view that the government must slow the economy. The economy is already projected to slow, and by this time next year the calls will likely be less about why the budget is not in surplus and more about what is the government doing to simulate the economy

    The post Don’t worry about a budget surplus, worry about a slowing economy appeared first on The Australia Institute's Centre for Future Work.

  • Commonwealth Budget 2023-24: Significant Progress

    This briefing reviews the main features of the budget from the perspective of workers and labour markets. Some of its measures are very positive, such as fiscal support for higher wages for aged care workers, increased JobKeeper benefits, and enhanced Commonwealth Rent Assistance.

    Contrary to concerns that a big-spending budget would exacerbate inflation, this budget will have little impact on overall aggregate demand. In fact, it will pro-actively reduce inflation through its new $500 energy relief plan. Contrary to conservative economists who claim this budget will fuel inflation, in reality the forecasts confirm historically slow growth in public demand in both 2022-23 and 2023-24.

    Despite these positive measures, the budget also contains disappointing aspects. Most importantly, the Stage 3 tax cuts remain on schedule. And while they are only set to begin in 2024-25, they hang over these budget figures like a dark spectre.

    The budget papers also confirm the economy is far from buoyant. The next 18 months are expected to see economic growth well-below average. Households are reacting to three years of falling real wages, and eleven painful increases in interest rates, by severely constraining consumer spending. Slowing job creation and declining real wages are taking their toll on overall economic growth, highlighting again that the key to a strong economy is strong employment and wage growth.

    Please read our research team’s full review of this historic budget.

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