The largest income tax cuts in Australian history have passed the Senate, bringing in what the Treasurer is calling a system that “works for all Australians”.
The $144 billion income tax cuts, outlined in the 2018-19 federal budget, are a “win for working Australians who want to get ahead”, Prime Minister Malcolm Turnbull and Minister for Finance Mathias Cormann said on Thursday.
They argued the tax plan will prioritise low and middle income earners while addressing a tax system that is “killing aspiration and preventing Australians from being rewarded for their effort”.
Breaking it down
The tax plan, which passed through the upper house with 37 votes to 33, has three parts:
1. The first stage will see low and middle income earners receive an annual offset of up to $530 in the 2018-19, 2019-20, 2020-21 and 2021-22 financial years.
This offset will provide a benefit of up to $200 for those with taxable incomes of $37,000 or less and then increases by 3 cents per dollar to a maximum benefit of $530 for those earning up to $48,000.
Those with taxable incomes of $48,000 to $90,000 will be eligible for the maximum $530 benefit.
If you’ve got a taxable income of $90,001 to $125,333 the offset will reduce at a rate of 1.5 cents per dollar.
2. The 19 per cent tax bracket will be lifted to apply to those earning from $41,000, rather than $37,000, from 1 July 2022.
The second stage will see the 32.5 per cent tax bracket lifted from $87,000 to $90,000 from 1 July 2018 and then to $120,000 from 1 July 2022.
From 1 July 2024 this 32.5 per cent rate will include those earning up $200,000.
3. The final stage will see the 37 per cent tax rate removed entirely, meaning from 1 July 2024, the 32.5 per cent tax rate will apply to those with taxable incomes of $41,001 to $200,000.
According to ANZ economists, the tax cuts will be largest for low and middle income earners from 1 July 2018, however the benefit shifts over to higher income earners from 1 July 2022 and 1 July 2024.
In opposing the third stage, Labor noted this and argued the tax cuts flowed disproportionately through to higher income earners and favoured male taxpayers, and has promised to repeal the second and third stages of the cuts if its wins the next election.
Speaking in the wake of the tax cuts’ successful passage, senator Stirling Griff from the Centre Alliance party said his party’s “hands were tied”, as passing the whole package was preferable to losing out on income tax cuts for low and middle income earners.
“If Labor gets in after the next election, we are more than happy to support any moves they make to unravel the third stage of the bill,” Mr Griff said.
“And, if the economy suffers any setback between now and 2024, when the third phase kicks in, it is incumbent on any government – whether it be Coalition or Labor – to do the right thing and reverse the high-end cuts.”
The Australian Council of Trade Unions echoed Mr Griff, finding the tax cut for people earning $200,000 would cost $24 billion.
Secretary Sally McManus said, “The very rich simply need to pay their fair share of tax. We must not lower the tax rate for the rich elite, including most politicians, while someone who makes barely more than the minimum wage struggles to keep their head above water.
“We need to be improving wage growth, investing in education and healthcare, cracking down on tax evasion, wage theft, superannuation theft, and the exploitation of vulnerable workers, not giving a big handout to people earning 2.5 times the average wage.”
However, Deputy Prime Minister and leader of the Nationals Michael McCormack said in a statement the tax cuts would benefit regional Australians and small businesses.
“Allowing hard working people to keep more of their own money in their own pockets is a real win for rural Australians,” he said.
“Tax cuts lead to higher wages, economic growth and more jobs while fulfilling the government’s commitment to helping families, small businesses and farmers.”
Mr McCormack said Labor’s opposition was tantamount to “ripping” $70 billion in income tax from working Australians’ pay packets.
Join the nestegg community
We Translate Complicated Financial Jargon Into Easy-To-Understand Information For Australians
Your email address will be shared with nestegg and subject to our Privacy Policy
Join The Nest Egg community
We Translate Complicated Financial Jargon Into Easy-To-Understand Information For Australians
Your email address will be shared with nestegg and subject to our Privacy Policy
Savvy scammers exploiting Aussie taxpayers
Child care subsidy changes would incentivise working parents
Tax planning crucial for Aussie expats
Tax refund burning a hole in your pocket? 5 ways to holiday at home
Did you google ‘tax refunds’ this July?
Retail reaches turning point: Why consumers will spend more in 2019
most viewed
Estate planning
Australians not prepared for ‘largest’ transfer in history
Salary
What are the 15 emerging jobs in 2020?
Cash
QE could drive populism rather than the economy
Expenses
Is AMP slowing down insurance payments?
Listen to
What the heck is with robots and tech - ETFs explained
More podcasts
Find super’s sweet spot
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.