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Budget 2020: What could it mean for your taxes?

Samantha Menzies
·Contributing editor
·5-min read
Tax Cut arrow
What will the budget mean for Aussies' taxes? Image: Getty

The 2020 budget looks likely to hand out billions in fast-tracked income tax cuts in effort to pull Australia’s economy out of its deepest recession since 1930.

The Coalition locked in three stages of income tax cuts, the first round last year gave average income earners around $1,080 in tax relief.

Stage two, which was originally scheduled for 2022 and would cut taxes for people earning more than $90,000 a year as well as raising the threshold on the lowest tax rate. This stage is expected to be brought forward in effort to kickstart the economy.

Treasurer Josh Frydenberg has repeatedly hinted that Aussies may see scheduled tax cuts come earlier than expected, after the most recent GDP figures revealed that Australia officially entered its first recession in nearly 30 years.

“The tax cuts are in three different stages, and we are considering the timing of those tax cuts, and any announcements would be made in the budget,” he said earlier this month.

“But it is fair to say these are very substantial reforms to our tax system,” he added.

Frydenberg has previously indicated that the income tax cuts could be brought forward, and made similar remarks to the ABC in early July.

"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 at the time.

Finance Minister Mathias Cormann also all but confirmed last week that millions of working Australians will receive “more money in their pockets” by Christmas thanks to income tax cuts.

“We want to ensure we have the strongest possible economic and jobs recovery and that is why lower taxes and leaving more money in the economy rather than taking it out of people’s pockets is going to be an important part of the equation,” he told Sunrise.

“Leaving people with more of their own money means they will spend more and leaving businesses with more of the money they generate means they will invest more in their future success.”

2020 budget tax cuts - how much could I get?

If you earn under $18,200 you won’t see any changes from the anticipated tax changes.

The 19 per cent tax rate threshold is expected to increase to $45,000, from $41,000.

The 32.5 per cent tax threshold could see an increase to $120,000 from $90,000.

The 37 per cent tax threshold could then be extended to include income earners earning over $120,000.

This means Aussies earning $40,000 would see an extra $8.75 a week in their pocket, or $455 a year while those earning $60,000 or $80,000 could expect $10.38 extra a week or $540 a year.

And Aussies earning $100,000 a year would find an extra $21.63 per week in their pay packet, or $1,125 a year.

“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,” the Federal Treasurer said in July.

Fast-tracked tax cuts widely criticised

Former Reserve Bank officials and senior bureaucrats are among a group demanding Treasurer Josh Frydenberg look towards more social spending rather than bringing forward legislated income tax cuts.

Bernie Fraser, who served as Reserve Bank governor in the early 1990s, and Michael Keating, former secretary of the Department of Prime Minister and Cabinet, argue that the plan would not stimulate the economy as hoped because most of the recipients would just keep the money in the bank.

“The unfolding Covid-19 pandemic is a stark reminder to all policy makers of two fundamental truths: that while many of us work and spend in economies, we all live and die in communities; and, secondly, the most vulnerable groups in those communities are always hit the hardest in major crises like this pandemic,” Fraser said, as part of a campaign organised by The Australia Institute to prevent the cuts.

Fraser was joined by former deputy RBA governor Stephen Grenville who said cutting the top-rate income tax will only offer weak stimulus, while simultaneously undermining the “equitable and progressive tax structure”.

Former Liberal opposition leader John Hewson described the LNP as “naively” hoping the cuts are good politics, but won’t help Australia escape recession.

The Australian Council of Social Services (ACOSS) added its voice to the call to reconsider the tax cuts, arguing the cuts were inequitable.

“More tax cuts today mean service cuts tomorrow. The next stage of legislated tax cuts costs $12 billion a year and reduces tax for people on $130,000 or more by $47 per week. Most low and middle income earners get nothing,” Cassandra Goldie, CEO of ACOSS, said.

“Yet it’s only low income-earners that will spend most of any Government stimulus. Instead, it’s time to #RaisetheRateforGood by permanently increasing Jobseeker payments.”

Former secretary to the department of the prime minister and cabinet Michael Keating echoed her words, saying the tax cuts “massively favour the rich”.

For more Yahoo Finance stories on the 2020 Federal Budget, visit here.

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