KPMG responds to tax cuts

Today, the Senate passed the government’s’ flagship tax cuts package.

The immediate tax relief of stage one will put money in the hands of those who will spend – and the stimulus to a tepid economy will be important, given that the RBA rate cuts will only do so much. As things stand the next move on that front could be non-conventional monetary policy, and we need to look outside the RBA for our economic stimulus.

Stages 2 and 3 will have less short-term impact although they should boost confidence by setting a signal to wage earners of higher take-home pay in the years ahead.  But it is important the government doesn’t put all its eggs in one basket – targeted infrastructure and measures to boost productivity are essential. We also still need reforms rebalancing tax receipts away from Corporate and Personal Income taxes and towards a higher consumption tax mix.

Reforms in state taxes are also important, including improvements in commonwealth-state relations on tax issues. Giving businesses a boost through asset write-offs, as the Trump administration did in the US, should also be considered.

If the government can take forward a strong reform agenda to boost productivity and the economy then by the time we get to the later stages the tax cuts will fit well in the policy mix. But if in five years’ time the economy is still in its current mode then the cuts will seem expensive.

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