The contrast between this week's high inflation figures with the long-awaited commencement of the stage three tax cuts shows how the government gives with one hand while taking with the other.
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Annual inflation to the end of May was 4 per cent, higher than the previous month's figure of 3.6 per cent. Worryingly, inflation may have stabilised in the 3.5 per cent to 4 per cent range: after 12 months of falls to late 2023 it has trended slightly up from December to May.
There is increasing pressure on the RBA to raise interest rates again. Certainly, any relief for mortgage holders seems further away than at any point in the past six months.
Mortgage holders will benefit from the commencement of the stage three tax cuts next week. However, with inflation running at 4 per cent, the benefit of those cuts will be eaten away surprisingly quickly.
This runs contrary to the prevailing narrative that the stage three tax cuts were overly generous.
Indeed, previous CIS research demonstrated that even under the original stage three tax cuts, the compensation provided to the main beneficiaries would be less than the cumulative bracket creep since 2010-11 (the last time there was a comprehensive tax package). A tax package that doesn't even get you back to where you started cannot be considered generous - much less overly so.
Nevertheless, if you consider how many years of 4 per cent inflation it will take for someone to be paying the same amount of tax they are........