The Australian government's surprise income tax cuts in its recently announced budget will not impact the Reserve Bank's policy path nor the country's near-term growth and trimmed inflation, ANZ Research said in a Wednesday note.
On Tuesday, the Albanese government vowed to reduce the tax rate from 16% to 15% by July 1, 2026, equivalent to AU$3 billion in tax cuts for fiscal 2026 to 2027. The rate will further be lowered to 14% by July 1, 2027, taking the income tax cuts for the fiscal year to AU$6.7 billion. The relief is applicable to all tax payers.
"While we had not anticipated the tax cuts contained in the Budget, their 1 July 2026 start date and their modest size means they are within the envelope of the fiscal easing we expected in the Budget over the next few years," ANZ Research wrote.
The firm said a combination of a stronger-than-expected economy and lower-than-expected spending on certain areas have helped boost the country's coffers and offset the cumulative cost of net policy decisions.
The Treasury forecasts a deficit of AU$27.6 billion, equivalent to 1% of GDP, in fiscal 2025 and AU$42.1 billion, or 1.5% of GDP, in the succeeding fiscal year.
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