90% of taxpayers could pay more this year
Ninety per cent of taxpayers face a tax hike this year as the fate of the low- and middle-income tax offset hangs in the balance.
The revealed on Monday that the Federal Government was mulling over the future of the offset that saw many taxpayers score a $1,080 bonus from the tax office last year.
The offset was intended to buoy the pandemic-stricken economy by encouraging consumer spending.
Treasurer Josh Fydrenberg said on Monday the offset was never meant to stick around long term.
Commentators have been quick to point out that axing the offset will be a tough political sell in the lead-up to a federal election and that tax cuts will likely remain on the table for both parties to win votes.
Where does this leave your money?
First, let’s rewind to budget time last year when the Treasurer announced an extension of the middle-income tax cuts that allowed people earning less than $90,000 to get up to $1,080 whittled off their tax bill.
Frydenberg also announced the Government would press ahead with its - announced as part of the 2018-19 Budget - by abolishing the 37 per cent tax bracket. This would mean people earning $45,000 and $200,000 would pay the same tax rate.
These tax cuts have been criticised for making the income tax system less progressive and disportionately benefitting high-income earners.
New found lower- and middle-income earners earning less than $90,000 a year - which is two thirds of taxpayers - would take a hit under the proposed changes to tax settings.
However, higher-income earners taking home more than $90,000 a year - which is one third of taxpayers - will be better off.
The numbers confirm that higher-income earners will benefit from the changes to tax settings and that these advantages will mostly flow to Liberal Party electorates.
The analysis also showed Labor Party electorates were set to lose the most if the low- and middle-income tax offset was cut and the stage-three tax cuts were waved through.
“Of the top 10 electorates that have the largest proportion of taxpayers who will receive the greatest benefit from the stage-three tax cuts, seven are Liberal, two are Labor and one is independent,” Matt Grudnoff, senior economist at the Australia Institute, said.
“While the benefits of a strong tax base are obvious, it’s time for a robust national debate about whether we want the tax system to make Australia more equal or less equal as Australians emerge from the pandemic.”
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