It’s prompted complaints that the tax cuts, which include axing the 37 per cent tax rate and increasing the upper threshold for the 19 per cent rate, are unfair. There is also growing concern that high-income earners won’t spend as much of their tax windfall compared to low income workers who traditionally spend a larger proportion of their weekly wage.
Mr Frydenberg said the government’s tax cuts had always been focused on low and middle-income earners, adding its plan was for the tax system to remain progressive.
But recognising the economy is heavily dependent on consumer spending, the Treasurer signalled there would be assistance for all income levels in Tuesday’s budget.
“We also believe more people having more money in their pockets right now will help economic activity across the economy. More spending will mean more jobs,” he said.
“We do know that putting more money into people’s pockets means more economic activity and means more jobs.”
Household savings have climbed to their highest level since the mid-1970s while there has been a surge in the number of $50 and $100 notes in circulation as consumers became wary about the state of the economy.
Mr Frydenberg said he expected saving levels to fall as restrictions on economic activity were dropped.
Extra assistance to low-income earners and those on welfare plus pulling forward the tax cuts will result in a budget deficit for this financial year of more than $220 billion.
Tuesday’s budget is expected to contain tax relief for businesses including a special investment allowance and the introduction of a loss carry back provision which will enable firms that have recently paid tax but are now facing a substantial loss to qualify for a tax refund.
The stage two and three tax cuts were finally supported by the Labor Party last year after the government put them into a single omnibus bill.
Shadow treasurer Jim Chalmers said the party’s ongoing concern about the cost and focus of the stage three tax cuts remained unchanged.
“We’ve said throughout that stage three is the least affordable, it’s the least responsible, it’s the least fair, and it’s the least likely to get a good return in the economy because higher-income earners are less likely to spend in the economy,” he said.
“It won’t surprise people to learn that remains our view about stage three, especially if it comes at the cost of other more important initiatives and more cost effective initiatives like social housing, and in other parts of the economy which need help.”
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.
David Crowe is chief political correspondent for The Sydney Morning Herald and The Age.