Australia senate backs $110 billion tax cut plan to boost economy

Australia’s upper house Senate passed on Thursday A$158 billion ($110 billion) worth of tax cuts over the next decade, the centrepiece of the conservative government’s plan to boost an economy that is threatening to stall.

The plan was approved by the lower house of parliament on Tuesday but the vote was in doubt in the senate where the governing coalition does not have a majority.

In the end, the main opposition Labor party backed the legislation on the grounds that the economy needed immediate stimulus even though later tax cuts favored wealthy Australians.

“Low-and middle-income earners will keep more of what they earn and have more money in their pockets. This will ultimately boost household consumption, which will be good for the overall economy,” Prime Minister Scott Morrison said in a statement.

About 10 million middle- and low-income earners are expected to receive a rebate worth up to A$1,080 within a week of the bill’s passage.

The tax cuts are welcome relief to Australia’s central bank, which has said government action was needed to boost consumer spending in order to revive an economy that is growing at its slowest pace in a decade.

Data from the Australian Bureau of Statistics on Thursday showed retail sales rose a pedestrian 0.1% in May after falling 0.1% April, and below analysts’ forecast of a 0.2% gain.

Separate data also showed the number of job vacancies – a leading indicator for labor demand – fell 1.1% in the three months to May from the previous quarter, clocking its first decline since February 2016.

Economists have estimated the tax breaks would inject about A$7.5 billion into the economy over 2019/20, pleasing the RBA.

The central bank cut interest rates on Tuesday for the second time in two months.

The successful passage of the tax cuts is also a major legislative victory for Morrison.

The tax plan was at heart of his re-election campaign and, after retaining power in May in what he described as a “miracle”, he said the tax legislation was his government’s first priority.

Reuters

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell