More tax in government coffers hailed by treasurer

A growing income tax take has been defended by the federal treasurer, who says it's a sign people are working and earning more.

The mid-year budget update revealed a vastly improved bottom line underpinned by strong commodity prices, jobs growth and rebounding migration after the pandemic. 

Treasurer Jim Chalmers said higher income tax revenue meant worker pay packets were growing and more people were employed.

"And both of those things are good things," Dr Chalmers told ABC radio on Thursday.

Treasurer Jim Chalmers
Treasurer Jim Chalmers says higher income tax revenue means worker pay packets are growing.

Worker pay has been increasing but not as fast as consumer prices have been rising, although Treasury expects wage growth to start outpacing inflation by early next year. 

Despite financial pressures on households, the mid-year budget update released on Wednesday contained no direct measures or handouts.

Dr Chalmers said it was never the intention to hand down a "mini-budget" and announce major policies, though he has kept the door open to more cost of living relief down the track. 

A cost of living relief package was announced in the May budget, including energy bill help and cheaper medicines.

The opposition said Labor should be doing more to help the Reserve Bank of Australia bring consumer price growth back within its two-three per cent target band.

Shadow treasurer Angus Taylor said the government should be pulling every lever at its disposal to bring down inflation.

"Spending in particular is important - you don't tax your way out of a cost of living crisis," he told reporters.

Angus Taylor
Shadow treasurer Angus Taylor says the best cost of living relief is to cut inflation.

Mr Taylor said while cost of living support measures target symptoms of inflation, it was important to tackle price pressures at the source. 

"The greatest cost of living support is to get inflation down," he said.

Anglicare Australia executive director Kasy Chambers said targeted cost of living relief would not add to inflation, unlike planned stage three tax cuts due next year.

“That means giving hundreds of billions of dollars to people who don’t want or need it - which could push up living costs for everyone else," she said.

But Dr Chalmers said the tax cuts could help reduce pressures.

"If people are keeping more of what they earn that will make it easier for them to make ends meet," he said.

"(The cuts) will provide some relief to people, they will also return some of this bracket creep."

CommSec economists Craig James and Ryan Felsman said the tax cuts could be a "very big deal" for the economy. 

If inflation is still high, the extra money in the economy could delay interest rate cuts, or be so stimulatory that the Reserve Bank may need to go higher. 

Anglicare's Kasy Chambers
Kasy Chambers says inflation would not be affected by cost of living relief.

On the other hand, the tax cuts could over support sluggish consumer spending as the lagging impact of interest rate hikes slow the economy next year.

"It all depends on the mood at the time, state of the job market and state of the global economy," they wrote in a note. 

Despite an improvement in the bottom line in the short to medium term, the federal budget still faces long term structural pressures from growing spending areas such as the health and defence.

Dr Chalmers said he would place a greater emphasis on longer term generational responsibilities rather than near term pressures in 2024. 

"Yes, there will be more effort on budget repair. Yes, there will be more effort on productivity and competition and dynamism," he told reporters on Thursday.

"We recognise that there is a lot of work to do in the budget, in the economy, near term and longer term."

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