The budget is bouncing out of deficit and is set to stay in surplus for the decade to come. That’s what the April budget and the final budget outcome for 2018-19 tell us, and Thursday’s report from the Parliamentary
Budget Office doesn’t say any different.
It isn’t allowed to. The Parliamentary Budget Office is required to take the government’s surplus and deficit projections, economic forecasts and tax and spending decisions as given, whether realistic or not.
What it is allowed to do, and does once a year in a publication entitled medium-term fiscal projections, is to set out the implications of those projections.
Those implications, spelled out on Thursday, show the projected budget surplus to be so fragile as to be unrealistic, except the parts that rely on much higher personal income tax collections.
That’s right: much higher income tax collections per person, even after taking into account the coming decade of legislated tax cuts.
Middle earners hit hardest
But it won’t be higher for all of us.
The middle fifth of earners will pay far more of their income in tax in ten years’ time under the government’s projections, according to the PBO’s calculations. Instead of paying 14.9% of their income in tax, by 2028-29 they will pay 18.8%.
That’s after taking into account the long-term tax cuts the government pushed through parliament in May and went to the election on.
Without those legislated tax cuts, they would have been paying an extra 6.3% of their income in tax. With the legislated cuts (and others pencilled in by the PBO to keep the government’s tax take within its promised ceiling) they will be paying an extra 3.9%.
Put another way, the government’s tax cuts will undo some of the damage caused by bracket creep as more of each pay packet climbs into higher brackets, but not most of it.
It’s the same for pattern for the second-lowest fifth of earners. They will move from paying 5.3% of their income in tax to 9.9%, a near doubling, which is taken is taken into account in the surplus projections.
The second-highest fifth will move from paying 22% of their income in tax to 23.4%, even after the tax cuts. The bottom fifth, who don’t pay much tax, will move from paying 0.6% to 1.2%.
Highest earners escape
But workers in the top fifth, which at the moment is workers earning above A$90,000, won’t pay a cent more, at least not on average.
The government’s projections, as spelled out by the PBO, have them paying less of their income ten years from today than they do today.
Put another way, they are the only fifth of the population that won’t be expected to wear pain to keep the budget surplus.