Discussion paper

Tax cuts or spending: what is the most effective stimulus?

Publisher
Income tax Taxation Budget Economic stimulus Government expenditure Australia
Description

The Australian government is considering bringing forward tax cuts to help stimulate the economy. The Federal Treasurer has claimed that this will help stimulate the economy by putting more money in consumers’ pockets. This will in turn increase spending creating more demand, more production and more employment.

The ultimate way to measure the success of any stimulus project is by how much additional employment it creates. This paper will estimate the additional employment that bringing forward stage 2 of the tax cuts to 2021-22 might create. It will then be compared to spending the same amount of money on employment intensive industries. This is done to judge how effective bringing forward the tax cuts might be as stimulus.

Key findings:

  • Bringing Stage 2 of the income tax cuts forward by one year would cost $13 billion.
  • Investing that amount of money across university education, childcare, healthcare, aged care and the creative arts would create 162,000 jobs.
  • That is between seven and 12 times as many jobs as the tax cuts can be expected to create (13,000 to 23,000).
  • General consumption creates 1.79 jobs for every $1 million spent.
  • The rate of job creation per million dollars spent in the service sector is vastly greater.
Publication Details
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All Rights Reserved
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open