(Bloomberg) -- Australian Prime Minister Scott Morrison secured the votes needed to enact the most sweeping changes to the nation’s tax system in more than a decade, delivering a major legislative victory for his newly elected government and injecting stimulus into the slowing economy.
Four independent and minor-party senators on Thursday indicated they will support the legislation, meaning it’s set to become law in an upper house vote later in the day. That will bring A$158 billion ($111 billion) of income tax relief to more than 10 million workers and fulfill a pledge that was the cornerstone of Morrison’s bid for re-election in the May 18 ballot.
“Today there’s very good news for millions of working Australians who will get to keep more of their own money,” Finance Minister Mathias Cormann told reporters in Canberra on Thursday. He thanked the four senators for their support of the bill.
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The cuts will be phased in and by 2024-25, new streamlined brackets will ensure 94% of Australians pay 30% income tax or less. The package includes immediate rebates of as much as A$1,080 for low- and middle-income earners, a much-needed sugar hit for the faltering economy that will be welcomed by the central bank.
Beyond the tax cuts and previously announced infrastructure spending, the policy agenda for the third-term government looks thin, other than tackling red tape and a review industrial relations laws to crack down on union corruption. Reserve Bank of Australia Governor Philip Lowe is urging the government to consider stronger action including increased infrastructure investment and structural reforms.
“There are options other than monetary easing for putting us on a better path,” Lowe said on Tuesday after the central bank cut interest rates to a record-low 1%. “We will achieve better outcomes for society as a whole if the various arms of public policy are all pointing in the same direction.”
Lowe’s (NYSE:LOW) sense of urgency has been stoked by a litany of data that shows Australia is on track to record its weakest fiscal year since the last recession in 1991, dragged down by record household debt, moribund wages and two years of tumbling housing prices.
The Labor opposition is calling for the government to speed up the cuts instead of waiting until 2022-23, while there are concerns a loss in tax revenue may result in less spending on public services, especially if economic conditions further deteriorate.
The legislation ensures the top income tax rate of 45% kicks in at A$200,000 instead of the current A$180,000, and removes the 32.5% rate. By 2024-25, there will be three brackets:
The Australian Council of Social Service, a group that lobbies for poverty reduction, welcomed the immediate rebate, which will see those earning between A$48,000 and A$90,000 getting A$1,080 of relief.
Still, in a statement earlier this week, it labeled the long-term tax cuts as “too expensive, too risky, too unfair, and too late.”
While six independent and minor party lawmakers collectively hold the balance of power in the Senate, the government only needs to win the support of four of them to pass legislation following the election. By the end of the last parliament, it had to court eight of the 10 so-called cross-benchers.