The Albanese government's tax cuts won't put more money in voters' pockets than they will lose to the rising cost of living, but they will take the edge off as Treasurer Jim Chalmers works to tame inflation.
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Next Tuesday's Federal Budget will forecast real disposable income to grow by 3.5 per cent in the next financial year, running just behind the current 3.6 per cent inflation rate that is expected to rise.
"Continued growth in wages will contribute to the improvement in household disposable incomes over the coming year," the Budget papers will say.
"Tax cuts will ensure households keep a greater proportion of their incomes to help navigate cost-of-living pressures."
Dr Chalmers said his third Budget was "all about ensuring Australians earn more and keep more of what they earn".
"We know people are under pressure," he said.
The Reserve Bank, which kept the cash rate on hold at 4.35 per cent on Tuesday, expects inflation to increase to 3.8 per cent and remain at that level until the end of the year.
Treasury forecasts the Budget's tax cuts - which will shave $1888 from the average Australian's tax bill - will contribute 1 percentage point to the 2024-25 growth in real disposable income. Wage growth contributes 4.5 percentage points.
"Compared to previously legislated settings, 11.5 million taxpayers will receive a larger tax cut," the Budget will say.
"In addition, the continued moderation of inflation, in part due to the Government's targeted cost-of-living policies will strengthen the purchasing power of households."
A strong labour market combined with the government's support for the Fair Work Commission's wage determinations had pushed up nominal wages, which "are now growing at their fastest rate in 15 years".
This meant that inflation was "expected to be a smaller drag on real incomes compared to recent years".
"Employment is expected to continue to grow next year, even as the labour market softens in response to weaker growth," the Budget will say.
Dr Chalmers said wages policies and tax cuts would be central to his third Budget, which will need to tackle inflation while also growing the economy and easing cost-of-of-living pressures.
"Decent wages and bigger tax cuts for more people are a big part of helping people earn what they need and deserve to provide for their loved ones," he said.
On Wednesday, the Treasurer confirmed there would be tax breaks for businesses as part of broader tax reform in the Budget, with incentives tied to the government's program to boost green manufacturing.
"What you'll see is an emphasis on tax reform that will incentivise the kind of investment that we want to see in the future of our economy and in a future made in Australia," he told ABC Radio. "We have indicated that we are prepared to use the tax system in the service of our big national economic objectives.
"The Budget will balance the cost-of-living help in the here and now - a tax cut for every Australian taxpayer - with our responsibilities to the future. And the tax system does have a role to play there ... People should expect to see more of that on Tuesday night."