Home Business Election 2019 Will tax cuts really stimulate the economy?

Will tax cuts really stimulate the economy?

As both parties make big promises.

Senior Digital Journalist, Your Money

As party leaders enter the first full day on the election campaign trail, tax cuts are grabbing the headlines once again.

While both the Coalition and Labor have promised tax cuts amounting to $1080 for workers earning between $48,000 and $90,000, Labor has said it will further reduce taxes to 2.9 million more lower income earners.

Labor has also pitched for zero tax cuts for people earning between $120,000 and $200,000, while the Liberal party is calling for a cut of $135.

Importantly, the government has said it would introduce a flat tax of 30 per cent by 2024 for 94 per cent of Australians, cutting the taxes of the countries highest income earners.

The Opposition argues its policy represents a fairer distribution of wealth, but the government says Labor’s tax plans will cost Australia $387 billion.

On Friday, Scott Morrison lashed out at Labor’s proposed higher tax cuts, arguing it would slow the economy and “hold us all back.”

“[It] will just bring us down, hold every Australian back in every job and every home, right across the country,” he told the media.

Opposition leader Bill Shorten said his policies would help kick the economy into gear and go toward supporting his newly announced cancer funding initiative.

“We’ve got a positive plan for the future of Australia. I think Australia’s over the fact that we can’t take action on climate change and that our energy prices are going up,” Shorten told the media Friday.

While tax cuts are proven to be an effective tool for winning electoral votes, how effective will it prove to be for the strength of Australia’s economy?

InvestSmart chief market strategist Evan Lucas told Trading Day it depends who you listen to.

“Taxation cuts do clearly impact the individual and it clearly means your ability to spend on consumption goes up, so that’s a GDP positive. Tax cuts to business helps the private investment side of the GDP, because it would expect business to expand,” explained Lucas.

However as Australia’s population continues to grow and age, Lucas believes reducing taxes may not be the answer.

“If we want to continue to have healthcare the way that we have it, education the way that we have it, welfare the way that we have it, taxation is going to have to increase to meet our aging population, the size of the population, all of those kinds of movements,” he said.

The question of how economies with rapidly ageing populations should be taxed has become part of a global debate in recent years, with some analysts pointing to the Scandinavian model of high taxes and high government services.

“It’s just how you argue that. Does it mean that we lose it from consumption and it goes into government? Is that a bad thing? Again it depends on which side of politics you want to sit on and how you debate that question.”

Watch the discussion in the video above and visit our election page for more coverage.

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