“This tax relief will lift household incomes, ease cost of living pressures and boost spending at local businesses,” he said in his budget speech.
Australians rushed to get their hands on the offset at the start of the new tax year. By the end of October, the ATO reported it had mailed back 7.9 million returns – 800,000 more than the same period last year.
Total refunds worth $22 billion have gone out to workers, up $5 billion on the $16.9 billion recorded for the same period in 2018. But the average size of tax refunds has only increased to just under $2800 from $2379.
Economists that had been tipping the refunds to deliver a much needed boost to the economy had factored in much larger tax refunds.
Retail trade figures have shown barely any growth with the September data, to be released Monday, expected to report a modest 0.5 per cent increase for the month.
Accountants believe one reason for the smaller-than-expected refunds is tied to the rush by many Australians to lodge their tax. A record high 42 per cent of income tax returns lodged with the ATO have been done by individuals rather than via an accountant or tax agent. Individual returns are up almost a quarter on last year.
While income details are pre-filled on the myTax website, deductions which tax agents carefully monitor are not.
There have also been a large number of warnings from the ATO about the over-claiming of work-related deductions.
Last week ATO assistant commissioner Karen Foat urged people who had yet to submit their tax return to make sure it was accurate.
“Where people put off their returns and lodge at the last minute or even after the deadline, we also start to see some easily avoidable errors,” she said.
AMP Capital chief economist Shane Oliver said the modest increase in the size of refunds pointed to the economy being more subdued than expected by both the Reserve Bank and the government.
The RBA board meets on Tuesday with Dr Oliver expecting it to hold official interest rates at their current record low of 0.75 per cent.
“The RBA should be easing again given the long way the economy has to go to achieve full employment and to end the chronic undershooting of the inflation target, but it looks reluctant to cut rates again just yet,” he said.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.