The Australian flag flies outside the Reserve Bank of Australia (RBA) headquarters in Sydney, Australia. (Photographer: Brendon Thorne/Bloomberg)

Turnbull Woos Australians With Tax Relief as Election Looms

(Bloomberg) -- Malcolm Turnbull’s government is dumping a planned tax hike, giving a clear signal it will use next month’s budget to offer relief to Australians ahead of an election due next year.

Treasurer Scott Morrison on Thursday confirmed he’s shelved a 0.5 percentage point increase to the national health levy which was designed to raise A$8.2 billion ($6.2 billion) over three years.

“This is very, very good news,” Morrison said in a radio interview. “Wherever we can, the Turnbull government will relieve the tax burden on Australians for one simple reason: it’s their money.”

The decision shows Turnbull may use improved economic conditions and boosted revenue to ease taxes in the May 8 budget, instead of returning the books to surplus sooner than its promised goal of 2021. Trailing in polls, the prime minister is seeking to cut levies for big businesses while also giving relief to personal taxpayers.

“Improving global and local economies are raining revenue on the federal budget,” Deloitte Access Economics said in an April 23 report. Still, it warned against the government potentially sacrificing the “long-awaited surge to surplus” through measures such as its flagged personal tax cuts.

Back Flip

Morrison announced plans last May to increase the levy that funds Medicare, the nation’s universal health care system, saying it was needed as new coverage for disabled people rolls out. His back-flip comes as strong employment growth and higher commodity prices ease pressure on the government’s bottom line.

The May budget will contain details of “targeted” and “measured” tax cuts for middle to lower income earners, Morrison said on Thursday.

In its half-yearly budget update in December, the government forecast a narrower budget deficit this fiscal year as swelling corporate profits boosted the tax take.

The underlying cash deficit in the 12 months through June 2018 was forecast at A$23.6 billion, compared with a May estimate of A$29.4 billion. Morrison said on Thursday that the budget position had continued to improve, with tax receipts up to February A$4.8 billion higher than estimated in December.

Axing the health-levy increase is “a win for the budget because we’re still absolutely on track to bring the budget back to balance” by 2021, Morrison said on Thursday. “We always live within our means, we don’t let expenditure run away.”

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