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Supporting a strong economy

The tax threshold changes are expected to support long-run economic performance, and the Family Incomes Package overall has a modest, positive long-run impact on GDP.

Growing the economy

Overall, the Family Incomes Package increases nominal GDP by $3.0 billion over the five years to June 2021.

In the short-run, the Family Incomes package is expected to increase GDP through greater household spending. Stronger demand in the economy increases demand in the labour market, leading to employment growth and a 0.1 percentage point decrease in the unemployment rate.

There are some offsets to economic growth from higher imports, as consumption of goods and services increases. Increased spending is also expected to result in a modest increase in inflation. This leads to upward pressure on interest rates, although this occurs in a low interest rate environment.

Improving rewards for work

Taxes and government assistance affect labour supply by influencing individuals' decisions about whether to participate in the workforce, the number of hours they work and whether to migrate.

The labour supply impact of the Family Incomes Package is expected to be broadly neutral. However, each individual's labour supply responsiveness varies, and changes affect people differently. For example, the increases to income tax thresholds will improve the rewards for work, and encourage greater labour supply among low and middle income earners.

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