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Tax cuts or hikes: Which way will Frydo swing

  • May 11 2021
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Tax cuts or hikes: Which way will Frydo swing

By Maja Garaca Djurdjevic
May 11 2021

The government is said to be “committed to lowering taxes”, but the Treasurer has not yet made his intentions clear heading into tonight’s big budget reveal.

Tax cuts or hikes

Tax cuts or hikes: Which way will Frydo swing

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  • May 11 2021
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The government is said to be “committed to lowering taxes”, but the Treasurer has not yet made his intentions clear heading into tonight’s big budget reveal.

Tax cuts or hikes

We know the budget will be a continuation of the government’s post-COVID recovery, and while a number of measures have already been leaked, no clear word has been given on the government’s tax intentions.

By the book, the next stage of the government’s tax plan is stage three tax cuts, and while they’re not supposed to commence until 1 July 2024, the Treasurer has alluded to the possibility of bringing these forward.

The stage three tax cuts are the largest and most controversial reform to the current system, with all Australian workers earning between $45,000 and $200,000 set to receive the same flat 30 per cent tax rate.

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“We will continue to drive lower taxes, whether it’s for businesses or individuals; these are announcements that have already been made and policies that are currently being implemented,” the Treasurer said last week.

But given COVID has rocked Australia’s workforce, with wage growth said to remain stagnant for some time to come, experts are hoping the government will see to it that low- and middle-income earners maintain the existing tax offset.

“As it stands, there are no personal tax cuts for 2021-22,” said Mark Chapman, director of tax communications at the H&R Block.  

“In fact, if things stay as they are, low- and middle-income earners face a tax rise because of the abolition of the low and middle income tax offset. Tax rises will be between $255 and $1,080, with the worst affected earning between $48,001 and $90,000 per annum,” Mr Chapman warned.

Contrary to this year, last year it was clear that the tax cuts were at the top of the government’s agenda heading into the October budget.

Mr Chapman suspects that the government simply didn’t notice, in which case the tax hike might be reversed tonight, or didn’t care, and plans to spin its way out of trouble by focusing on tax cuts for high-income earners. 

“Either way, the day of reckoning is fast approaching, so the government needs to take action to prevent this highly damaging tax rise by extending the availability of the offset through until 1 July 2024,” Mr Chapman said.

“I don’t see any great need to bring forward the stage three cuts, scheduled to start on 1 July 2024. The COVID-19 pandemic had the most dramatic impacts on those with lower incomes, who won’t really benefit from these tax cuts,” he noted.

If the government really wants to boost the economy, Mr Chapman believes it could do so by a combination of targeted tax cuts for those earning less than $90,000 and an increase in the JobSeeker payment, both of which, he noted, would be spent rather than saved.

“The 2020-21 tax cuts are often compared (by the government) with the figures for 2017-18. This is pure smoke and mirrors since it ignores the low and middle income tax offset (introduced in 2018-19) and hence maximises the apparent size of the tax cuts. If the low and middle income tax offset was included, the tax cuts (at least to the extent that they apply to low- and middle-income earners) would be far less dramatic,” he concluded.

Follow our live budget analysis tonight.

Tax cuts or hikes: Which way will Frydo swing
Tax cuts or hikes
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About the author

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Maja Garaca Djurdjevic is the editor of nestegg and Smart Property Investment. Email Maja at [email protected]

About the author

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Maja Garaca Djurdjevic

Maja Garaca Djurdjevic is the editor of nestegg and Smart Property Investment. Email Maja at [email protected]

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