How much will I get from the 2020 federal budget tax cuts? More if you earn over $100,000

The government has chosen to stick with tax cuts as its big-ticket stimulus measure and so medium-income earners will get a tax cut of up to $1,080 for one year.

It has done this by bringing forward the stage two cuts ... with a twist.

Despite what the government would have you to believe, the stage two (and the stage three cuts, which have not been altered) were not about delivering cuts to low and medianincome earners – but those earning more than $100,000.

It is all because of a weird thing

called the low and middle income tax offset (LMITO) that the government introduced last year. This is not a change in the tax rates, but was a bonus designed to raise the level at which you start owing tax.

It meant an effective tax cut for those earning between $50,000 and $90,000 of $1,080 a year.

The stage two cuts involved raising the 19% marginal tax rate threshold from $37,000 to $45,000. That would produce a tax cut for those earning between $50,000 and $90,000 of $1,080. Sounds great! Double win!

Except stage two also involved abolishing the LMITO, which meant if you were on the median annual income of around $60,000 you would be getting a $1,080 tax cut while losing the $1,080 tax cut from the LMITO.

And that equalled a zero dollar tax cut in stage two.

That clearly was not going to fly in a year in which low and medium-income earners have been utterly savaged by the pandemic (to be honest it really shouldn’t fly in any year).

And so what the government has done is keep the LMITO for an extra year.

But this is where we need to be wary of the government spin.

In the budget papers the government has lots of nice tables showing that middle-income earners get a tax cut of $2,160.

But that is compared with 2018-19 – ie, it is including tax cuts we already have received.

Those on the middle income of $60,000 will get a $1,080 ($20.77 a week) tax cut this year compared with what they are paying now.