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The Treasurer of Queensland has called on federal Labor to elucidate why it is decreasing spending on infrastructure to tackle inflation instead of reconsidering contentious tax cuts for high-income earners.
Steven Miles has intensified the pressure on the Albany government regarding cuts to infrastructure in an op-ed in the Courier-Mail, arguing that it is “too late” to curtail projects to combat inflation, and instead, the three tax reductions should be phased out.
On Monday, Catherine King, the Minister for Infrastructure, confirmed that some of the 250 projects in the $120 billion infrastructure pipeline that have not commenced construction will need to be canceled or postponed to cover at least $33 billion in cost overruns.
Last week, the International Monetary Fund cautioned that the increased expenditure on infrastructure projects, mostly from states, was a significant factor propelling Australia’s economy beyond its full potential and fueling inflation.
However, Miles contended that “inflation is set to spiral out of control by late 2021 – prior to the most recent federal election.”
“Naturally, all government expenditure contributes to demand in the economy,” he penned.
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“This necessitates the Australian Government to justify why funds earmarked for infrastructure should be prioritized for reductions rather than funds assigned to other priorities – such as reductions in taxes for affluent households.”
The third phase of tax reductions, which were passed by the Morrison government in mid-2019, will commence in July 2024. These reductions eliminate the tax bracket of $120,000 to $180,000, raise the top tax bracket to $200,000, and decrease the marginal tax rate for everyone earning between $45,000 and 30% over $200,000.
The Greens and the crossbench have urged Labor to reconsider the third stage of tax cuts, which would reduce tax revenue by $320 billion over 10 years, citing that the largest benefits go to individuals with higher incomes.
The federal treasurer, Jim Chalmers, has affirmed that there will be no modifications to Labor’s plan to retain the tax cuts, arguing that they help mitigate bracket creep as income earners confront higher tax rates when they transition into higher tax brackets.
Miles argued that “investing in productivity-enhancing infrastructure is likely to alleviate inflationary pressures in the long run.”
“When comparing options for budget cuts, the issue with focusing on infrastructure is that you cannot cut projects that are already under construction; only future projects can be affected,” he stated.
“Therefore, any impact on aggregate demand is likely to take several years, followed by a negative consequence on productivity.”
Miles contended that this was “particularly true” for Queensland, which is experiencing “remarkable population growth,” partially due to what he referred to as the federal government’s “plan to massively expand immigration.”
The Albany government has only increased the number of permanent migrants by 35,000 to 195,000 – but Australia has witnessed a surge in net overseas migration as borders reopened following the relaxation of Covid restrictions.
Queensland is lobbying the federal government for a permanent 50:50 funding arrangement for the Bruce Highway, a vital national road connecting the southeast to regional areas, as well as heavy rail to the Sunshine Coast. The Morrison government has scaled back funding commitments to the heavy rail project, and the Albany government has opposed filling the substantial funding gap, resulting in a standoff with the Queensland government.
On Monday, King pledged to continue the construction of the 300 ongoing projects, but stated that another 250 projects face cancellation or delays as a result of an infrastructure review set to be released “soon.”
King stated that the federal government is engaged in discussions with the states and appreciates their assistance in rectifying the “mess” left by the previous government.
She declined to rule out cuts in specific states, stating that “the entire pipeline was not managed well by the preceding government.”
Guardian Australia reached out to Chalmers and King for comment.