Tax cuts to buoy recoveryS
BILLIONS of dollars in bonus tax cuts will be handed to low and middle-income workers in a bid to ensure Australia keeps spending its way out of the COVID-19 crisis.
A new round of sweeping income tax relief will be a centrepiece of the Morrison government’s economic recovery plan in next month’s federal budget.
About 10 million workers were due to lose the low and middle-income tax offset — worth up to $1080 for everyone earning between $48,000 and $90,000 — on June 30 after it was slated in last year’s budget as a one-off stimulus measures.
But senior government sources say the budget will deliver extra relief to ensure workers are not forced to pay more tax in the next financial year.
It is understood the most likely option, which has been debated by Prime Minister Scott Morrison’s budget razor gang this week, is to extend the low and middle-income tax offset for another 12 months. This would cost about $7bn.
The offset is paid as a refund when workers lodge their tax returns, meaning the existing relief will flow from July this year. Extending the offset for another year would provide another guaranteed cash boost for millions of Australians in 2022.
It provides a tax cut of up to $255 for those on less than $37,000, which increases to $1080 for about 3.4 million Australians earning $48,000 to $90,000. The offset then phases out for workers earning up to $126,000.
Research from the Bankwest Curtin Economics Centre, published this week, showed withdrawing the offset would raise the effective marginal tax rate for a worker on $40,000 from 18.5 per cent to 26 per cent.
It would also disproportionately affect women, who would face an average tax increase of
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But senior figures said the government did not want to lift the tax burden on Australians as the recovery continued, particularly as the short-term forecast for wages growth remained flat.
Mr Morrison said on Monday the second phase of the government’s economic recovery plan, to be detailed in the budget, would retain “a clear focus on lower taxes”.
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And Treasurer Josh Frydenberg said last week the government was not ready to shift to budget repair, arguing further spending was needed to prevent economic “scarring”.
“The best way to repair the budget is to repair the economy,” he said.
In October’s budget, Mr Frydenberg brought forward the second stage of legislated tax cuts alongside the one-off extension. This was tipped to deliver a $12.5bn economic boost over two years.