Independent report casts doubt on Government wages growth forecasts

04 July 2017

The Parliamentary Budget Office has joined a long line of market economists and commentators in citing the risks in Scott Morrison’s 2017 Budget around its optimistic wages growth forecasts.


The PBO’s 2017-18 Budget: medium-term projections report says under ‘Risks’ that:


“The projected improvement in the UCB from strong growth in personal income tax receipts is based on the 2017–18 Budget’s projected sharp acceleration in wages growth over the forward estimates period and the medium term.  The significant slowdown in wages growth experienced in the past few years suggests that this projected increase is subject to downside risk” (emphasis added)


It’s clear that low- and middle-income Australians are paying for the Government’s $65 billion handout to big business in the form of rising personal income taxes.


The PBO report states that:


“Personal income tax receipts are projected by the PBO to increase by 1.6 per cent of GDP over the medium term, from 11.1 per cent of GDP in 2016–17 to 12.6 per cent of GDP in 2027–28 (Figure 1).  Once the tax ‘cap’ is reached, personal income tax receipts are projected by the PBO to continue to rise as a per cent of GDP as company tax receipts decline from 2023–24 as a result of the Government’s Enterprise Tax Plan.  The PBO projects that the average tax rate on personal income will rise from 22.7 per cent in 2016–17 to 25.9 per cent in 2027–28.” (emphasis added)[vii, 2017-18 Budget: medium-term projections, Parliamentary Budget Office]


In 2023-24, personal income tax is 12.4% of GDP while company tax is 4.5% of GDP.


By 2027-28, personal income tax is 12.6% of GDP while company tax is 4.2% of GDP.


So from 2023-24 to 2027-28, when the company tax rate is meant to decrease to 25% for all companies, personal income taxes rise 0.2 percentage points of GDP while company taxes decrease by 0.3 percentage points.


The 2017 Budget was an exercise by the Turnbull Government in feigning fairness while actually delivering on the Coalition’s long running campaign of attacking low- and middle-income Australians while giving big business and high-income earners another tax cut.