SENATOR THE HON KATY GALLAGHER
Minister for Finance
Minister for Women
Minister for the Public Service
Senator for the ACT
Date: Friday, 2 February 2024
HARRY SEKULICH: Katy Gallagher, thank you so much for joining the Daily Aus today.
SENATOR THE HON KATY GALLAGHER, MINISTER FOR FINANCE: Thanks very much for having me on.
SEKULICH: I just want to start by going back to the very basics. How would you explain Stage Three tax cuts to someone who's never heard of them? What are they and why is everyone talking about them?
GALLAGHER: So, what's known as the Stage Three tax cuts were tax cuts that were part of a bigger tax package and there were three stages to them – one, two and three – and they were passed through the parliament in 2019. So, about five years ago. And basically, Stages One and Two have happened and then Stage Three is due to happen on 1 July. And the final stage of the tax package under Prime Minister Morrison’s plan overwhelmingly gave big tax cuts to higher income earners.
So, people over say $180,000 a year – they got the majority of the tax cuts and people on lower incomes, and particularly those who were perhaps earning under $45,000, either got nothing or got a very small amount of the tax cuts. And what's happened in the last week is we won the election in 2022, and so now we're making decisions. And we made a decision about two weeks ago to basically redesign Stage Three so that more people could get a bigger tax cut and it could be more fairly distributed through the income scales.
SEKULICH: As you've mentioned there, Anthony Albanese and the Labor team, heading into the 2022 election, did promise it wouldn't change the Stage Three tax cuts. It's been nearly two years of questions over will they, won't they change them? So why have you waited until now to announce that you have changed them?
GALLAGHER: So, we did go to the election and indeed in our first budgets post the election we didn't change them. I guess what's changed in the lead up to that is, really, you know, cost-of-living and interest rate increases and inflation being as high as it was, particularly in the last 12 months, has meant people are really under a lot of cost-of-living pressure. And we had to work out a way, I think, that was about how do we provide some relief to people in a way that doesn't make the inflation problem worse. And the tax cuts were an obvious way of looking at doing that. So, we had a couple of choices. We could have kept going and not changed our position in order – you know, a lot of people would have missed out on tax cuts or certainly bigger tax cuts – or we could just accept that we've changed our position, economic circumstances have changed. And, you know, be upfront and argue that. And that's what we've been doing in the last week, which is why there's been so much media coverage about them.
SEKULICH: But cost-of-living pressures and strains are nothing new. This time last year, people were saying that they were really feeling the pinch of high inflation. So, I go back to my question, why now and why not 12 months ago?
GALLAGHER: Well, again, the answer – well, I think we've had a number of interest rate increases. We've had 12 of those. So, that has changed over the last year, the interest rate increases just continuing. And that has really impacted people on middle incomes particularly and some of the analysis that led up to the decision we took confirms this. And I think one of the things the Treasurer, myself and the PM considered over the summer – as we were talking about this – was how do we reach people who haven't benefited from those other cost-of-living measures we've put in place. And again, you know, the advice from our departments was clear. One of the options available to you is to look at how you can provide tax relief. And under the plan we've announced, 84 per cent of taxpayers will get a bigger tax cut. And governments have to make these tough decisions. Even if there's political consequences to it, we felt that it was the right thing to do.
SEKULICH: So, men still stand to benefit more from these new tax cuts than women do. So that's 58 per cent of tax cuts will go to men, while 42 per cent will go to women. Why is that? And what would it take to make that number 50/50?
GALLAGHER: Yeah, so a couple of things there. This is certainly an improved tax package for women, but you're right. The reason men get more of a beneficiary is essentially because you see more men in the higher income brackets and the higher income brackets still get a pretty reasonable tax cut under the revised plan. So that's largely it. Women are in the lower –
SEKULICH: So why not bring in more tax relief for people on lower incomes rather than providing higher relief for people on higher incomes?
GALLAGHER: Sure, you know, I think that's a valid question. And one thing we've tried to do here is ensure that everyone gets a tax cut, which wasn't the case under the previous plan. So, our starting point is everyone gets a tax cut. More Australian workers get a bigger tax cut. 90 per cent of women get a bigger tax cut. But that everyone gets a tax cut. Because you know, the Stages One and Two had primarily focused on low- and middle-income earners. So, you know, this is a much better deal for women and for women working in those highly feminised industries that we know they're located in like childcare, nursing, teaching. You know, aged and disability carers, where 80 per cent of the workforce is women. They stand to get a significantly bigger tax cut.
SEKULICH: The Daily Aus has a young audience. So, for example, plenty of uni students listening to these podcasts and they earn less than $18,200 a year and some will earn above that threshold, which is the tax-free threshold, but still earn below $45,000 a year. Will the government announce any further measures for those people and what cost-of-living relief exists for them at the moment?
GALLAGHER: So, the tax-free threshold under our plan stays the same. So, people, as you point out, earning $18,200 don't pay any tax. And then for people who move into – and they're easily, you're right, there's a lot of young people in the first tax bracket which is between $18,200 and $45,000. They will get a tax cut because we're lowering the tax rate for that threshold from 19 cents to 16 cents. So, they will see a tax cut and under the previous Stage Three – under the Morrison Stage Three – they didn't receive a tax cut at all. So, that is improved for them. But yeah, I mean, how we can provide additional cost-of-living relief across the board – I think there's particular demographics that are doing it tough. I know a lot of our housing investments are really about trying to free up, increase supply, because young people are really feeling it on the rental front. And so, the more work we can do there, the better it is. And you know, we're putting a huge amount of effort into that. But this is an ongoing piece of work before government. How can we manage the budget. Manage the inflation challenge – which is real at the moment, we've had some excellent numbers today that show inflation continuing to moderate – and provide cost-of-living relief at the same time. That's the challenge before us and the tax plan is part of that
SEKULICH: Rent, energy and grocery prices. They're all soaring beyond what some people can afford. And as I mentioned, this is also nothing new. So, given that the highest income earners in the country will pay $4,500 less tax per year, does that send the wrong message to low-income earners at this particularly trying time?
GALLAGHER: I guess what we're trying to do is we're trying not to pit, you know, one group of income earners against another. What we've tried to do with this plan is make sure that everyone gets a tax cut. Higher income earners pay more tax, for example, than lower income earners because we have a progressive tax regime. And so, it's fair that we provide relief through the income brackets because everyone in those income brackets are paying tax. Some are paying it at a higher rate than others and that's appropriate –
SEKULICH: But more relief the more you earn?
GALLAGHER: You know, if you're in those higher income brackets, you are paying more tax on the dollar you earn and providing more tax as a whole back into the system. So, I think what we've tried to do is find a way that gives everyone a tax cut, but shares that more fairly through the income brackets, and then target our additional cost-of-living relief, for example, to those on lower incomes, and that's what we've been trying to do. Like our billions of dollars that we put into energy rebates was not targeted at any household in Australia, it was targeted to those who are on low incomes in receipt of concessions or pensions. That's how you do it. You've got to come at this in a variety of ways, but I think that where we landed was that it was right that we should return as much tax as we could back into people's pockets through the income scale, but more fairly share it through the income brackets and making sure that low- and middle-income Australians are the major beneficiaries.
SEKULICH: So, here's what's going to happen next. These reworked tax cuts that the government has announced aren't necessarily a sure thing. You, as a government, still need support from the Greens and crossbenchers or the Coalition to get them through the parliament. Do you feel confident that the measures will pass?
GALLAGHER: Well, they'll definitely pass the House of Representatives, they'll come to the Senate, where I sit. And that's an area where we do – the government doesn't have a majority of votes. So, we do have to rely on the support of other senators in that chamber. But I would be very surprised if we had opposition to 11.5 million Australians getting a bigger tax cut. We hope that the Coalition will support them. But at the end of the day, it's like any other piece of leg. In order for us to get it through, we have to work with Crossbench colleagues, the Opposition, but I'm very optimistic that when those final votes come – even though there might be a bit of noise around them, a bit of turbulence in the chamber – when that final vote comes that the chamber will support them. Because you know, everybody knows cost-of-living is the main game and this returns more money back into people's pockets. It's the right thing to do.
SEKULICH: Senator Katy Gallagher, thank you so much for joining us at the Daily Aus. And I guess the biggest takeaway is that Gen Z have a new term for legislation. They can just call it leg now, I guess.
GALLAGHER: You can say a Gen X gave something to Gen Z.
SEKULICH: Intergenerational contribution, we love it. Thank you so much again.