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Australia’s finance minister is convinced that tax cuts on July 1 will not fuel inflation

SYDNEY (Reuters) – Australia’s Finance Minister Jim Chalmers said on Sunday he was confident income tax cuts from Monday would not exacerbate price increases as the country suffers cost of living amid stubbornly high inflation rates.

Consumer price inflation hit a six-month high of 4.0% in May, adding to the burden on families struggling with rising living costs and raising the likelihood of another interest rate hike by the Reserve Bank of Australia this year.

The central bank has kept its benchmark interest rate at a 12-year high of 4.35 percent for five meetings, but has raised it by 425 basis points since May 2022 as inflation exceeds its target range of 2-3 percent.

Addressing media in Brisbane, the capital of Queensland state, when asked about the impact of the tax cuts, which cut benefits for the rich and provide more relief to low-income earners, Chalmers said the government was “confident but not complacent about inflation in our economy”.

The tax cuts should ensure Australians “earn more and keep more of what they earn,” Chalmers said, according to an official transcript.

“Our strategy is to provide substantial, meaningful and responsible cost of living relief while fighting inflation,” he said.

Under the centre-left government’s policies, people earning up to 135,000 Australian dollars (US$88,763) will fall into lower tax brackets from July 1. Tax relief for some top earners will be almost halved, while savings will be diverted to low earners.

Labor Prime Minister Anthony Albanese said in January that Treasury had informed the government that the tax cuts would be largely revenue neutral, protect jobs and not fuel inflation.

(Reporting by Sam McKeith in Sydney; Editing by Christopher Cushing)

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