Millions of Australians will have more money in their pocket within weeks, with the Federal Government to bring forward tax cuts by two years.
Key points:
- The Budget will bring forward income tax cuts scheduled for 2022
- The plan will cut taxes for anyone earning more than $37,000
- The Government hopes the extra money will lead to spending and kickstart the economy
The ABC understands tomorrow's Federal Budget will confirm tax cuts, scheduled to start in July 2022, are being brought forward and backdated to July this year.
Under the plan, the upper limit of the 19 per cent personal income tax bracket will rise from $37,000 to $45,000 and the 32.5 per cent marginal tax rate will lift from $90,000 to $120,000.
The low and middle-income tax offset, which is payable to people on incomes of more than $37,000 and worth up to about $1,000, will also remain.
The tax plan means people who earn between $45,000 and $90,000 will take home an additional $1,080 this financial year.
Workers who earn more than $90,000 will take home up to $2,565 extra, with people earning more than $120,000 receiving the maximum benefit.
Bringing forward stage two of the already-legislated tax plan would see workers earning $85,000 keep $42 extra a fortnight. A worker on $140,000 would hold on to $99 extra a fortnight.
The Federal Government hopes Australians will spend the additional cash, to offset the economic activity lost through international border closures, local COVID-19 shutdowns and consumer caution.
Treasurer Josh Frydenberg has previously outlined why the Government believed bringing forward tax cuts would be a good idea.
"We are looking at that issue and the timing of those tax cuts because we do want to boost aggregate demand, boost consumption, put more money in people's pockets, and that's one way to do it," he said in July.
But recent data has shown households have saved more than usual due to uncertain times.
In its pre-budget report, Deloitte Access Economics said tax cuts are fair and that bringing them forward was wise, however it questioned whether people would spend the money.
The report also pointed towards other effective stimulus measures such as infrastructure and generous unemployment benefits.
Labor backs the Government's stage two tax cuts but is yet to throw its support behind stage three.
"For some months we have said that we have got an open mind to tax cuts for workers on low and middle incomes," Shadow Treasurer Jim Chalmers said.
"We have raised concerns with stage three of the income tax cuts, stage three is the least responsible, least affordable, least fair, and least likely to be effective because higher income earners aren't as likely to spend in the economy as workers of more modest means."
One of Australia's key welfare groups has outlined its opposition to the tax cuts and has argued for other measures to be considered instead.
The Australian Council of Social Service's chief executive, Cassandra Goldie, said further welfare support was needed, which would instead help the economy.
"To grow more jobs — a key part of that is demand, is consumer expenditure and every economist is very clear that the dollars provided to people on the lowest incomes through the social security payment system, Jobseeker, and other key social security payments is the best expenditure the Government can do when it comes to putting additional dollars into the hands of people who will spend it," she said.
The JobSeeker payment is in place until the end of December and the Government has said that it will reassess the fortnightly payment later this year, well after the Budget is handed down.
The final stage of the tax cuts plan is set to be introduced from July 2024. It would abolish the 37 per cent marginal tax rate, creating a 30 per cent tax rate for all money earned between $45,000 and $200,000.
The ABC understands tomorrow's Budget will not change the timing of stage three, but the Government may revisit the matter next May.
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2020-10-05 05:21:00Z
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