Leading economist warns stage three tax cuts will push up inflation and delay interest rate cuts

One of Australia’s leading economists has urged the federal government to delay stage three tax cuts, warning that moving ahead with the proposed timeline will further inflate prices.

The controversial tax cuts will give Australians earning more than $200,000 a yearly tax break of up to $9000 from next year.

Speaking on ABC’s Q+A on Monday night, Chris Richardson warned the tax cuts are “too big” and “too soon”.

“I don’t think they are as unfair as people think they are … but they’re too big and they’re coming too soon if you have an inflation problem,” Mr Richardson said.

NED-8902 Budget Stage 3 Tax Cuts

He said the tax cuts will put billions of dollars back into the pockets of the highest-earning taxpayers who will pump it back into the economy.

“What the Reserve Bank is doing is taking money out of the economy and stopping you spending in the hope that slows inflation down,” Mr Richardson said.

“This is putting a large amount of money into the economy so it works the other way.”

The proposed stage three tax cuts will give $14bn in relief to the country’s highest earners from July next year.

They were legislated by the Morrison coalition government and the Labor Albanese government committed to their introduction.

Mr Richardson warned Australia would lag behind other countries in delivering interest rate cuts if the government persists with stage three tax cuts.

“The rest of the world can start to expect interest rates to be cut in six months time. In Australia, maybe a year because these big tax cuts are coming,” he said.

When pushed for a timeline, Mr Richardson said there was “good case” to delay the tax cuts by at least 12 months.

Host Patricia Karvelas posed the question to Assistant Treasurer and Financial Services Minister Stephen Jones, asking whether the government would consider delaying the tax cuts.

“I will be blunt and direct in the answer – our position on Stage 3 hasn’t changed,” he replied.

“We’ll look at the circumstances in the years ahead, but our position as stated by the Prime Minister and the Treasurer on Stage 3 hasn’t changed.”

The stage three tax cuts are proposed to come into effect on July 1, 2024.

The tax overhaul changes the threshold for marginal tax rate for everyone earning between $45,000 and $200,000.

Australia’s Cash Rate 2022

Wealthy Australians earning more than $200,000 will get a yearly tax break of up to $9000 from next year.

On Melbourne Cup day, the Reserve Bank of Australia lifted lift the official cash rate again by 25 basis points to 4.35 per cent, saying it was necessary as progress on lowering inflation had been slower than anticipated.

Rate Rise Calculator

A rebound in property prices, still-hot services inflation and the resilience of the jobs market meant inflationary pressures were more persistent than the RBA had forecast, forcing the central bank to hike rates in order to return inflation to the bank’s 2 to 3 per cent time frame.

The final RBA board meeting to decide on the rate for the final time this year will be held on Tuesday December 5.

The RBA will release the minutes of that meeting on Tuesday, which will give an insight into the board’s thinking on where interest rates could go.