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Labor vs Liberal: What will happen to your taxes

Liberal vs Labor: Tax. Source: Getty Images
Liberal vs Labor: Tax. Source: Getty Images

Yahoo Finance will have the election covered this Saturday. Stay tuned to the website and your inbox for our coverage.

One of the key deciding issues for the forthcoming election is tax.

The impact that each party’s proposals will have on the hip pocket of voters will no doubt be front of mind for many when they go to the polls in May.

But what is each party actually proposing and what will it mean for you?

Well, it’s time to get beyond the party political spin and examine what Labor and the Liberals will each do for your personal budget.

Federal Election 2019: Labor vs Liberal – Who should you vote for?

Here’s my rundown of what we know about each party’s tax policies:

If the Liberal-National Coalition wins the election...

In the recent Federal Budget, the government announced plans to cut personal income taxes for all individuals earning up to $126,000 each year.

The cuts would be worth up to $1,080 for individuals or $2,160 per year for dual-income households per year.

Up to 4.5 million Australians on middle incomes will enjoy the full tax cut. About another 5.5 million will receive a tax cut of roughly half those amounts.

The cut will be provided by extending the Low and Middle Income Tax Offset, first announced in last year’s Budget.

The offset will apply for the 2018-19 year and will be claimed through your tax return.

So, if you’re eligible for the tax cut, you’ll receive it by lodging your tax return at Tax Time this year.

Looking further ahead, the Liberals also intend to make additional changes to personal taxes to come into effect in 2024-25.

Under the changes, the 37 per cent tax rate, which currently applies to annual earnings of between $90,001 and $180,000 would be scrapped entirely, and the 32.5 per cent tax rate (covering annual earnings of $37,001 to $90,000) would be cut to 30 per cent.

The lowest tax band, charged at 19 per cent on earnings of $18,201 to $37,000, would be expanded to cover earnings of up to $45,000, while the highest tax band, which currently kicks in on earnings over $180,000 would be only apply to incomes over $200,000.

The effect of the changes is that all taxpayers on salaries of between $45,001 and $200,000 would pay tax at the lower rate of 30 per cent.

If Labor wins the election...

The Labor party has also announced income tax cuts.

Essentially, the Labor proposals for Low and Middle Income Tax Offset are the same as the Liberal ones. They have, however, promised a bigger tax cut for those earning less than $45,000.

Labor has also promised to increase the top rate of tax for those earning more than $180,000 by 2 per cent (from the current 45-47 per cent).

Labor will not implement the later tax cuts and threshold changes (see above) that the Liberals propose to implement in the first half of the next decade.

Am I a winner or a loser?

It’s difficult to generalise about questions like this but, in essence, most taxpayers earning between about $45,000 and $180,000 will pay the same amount of tax under either party because their immediate tax cut proposals are broadly the same in relation to this group.

Anyone earning less than $45,000 will typically be better off under Labor because they are targeting a bigger tax cut at this group compared to the Liberals as the following table shows:

Source: H&R Block
Source: H&R Block

In the short term, anyone earning above $120,000 will pay roughly the same amount of tax under either party but over the longer term, the Liberals are looking to reduce the reduce the 32.5 per cent rate to 30 per cent and abolish the 37 per cent rate altogether, which will lead to significant tax reductions for higher earners but not until well into the next decade.

Anything else to be aware of?

The headline analysis above also doesn’t take into account some of the more targeted tax measures that Labor has announced that will only affect certain groups, such as the restriction on negative gearing to new properties only (which could hit some property investors), the franking credit restrictions (which could hit some taxpayers with valuable share portfolios but low incomes) and the proposed tax on discretionary trust distributions (which might affect some small business owners, amongst others).

Federal Election 2019 – The key issues:

Labor vs Liberal vs Greens: If you care about tackling climate change…

Labor vs Liberal: What to know about franking credits

Labor vs Liberal: Who to vote for if you’re a parent or childcare worker...

Labor vs Liberal: Who should you vote for in the 2019 Federal Election?

Labor vs Liberal: Who to vote for if you’re a migrant or refugee...

Labor vs Liberal: Who to vote for if you’re a small business owner

Labor vs Liberal… Who to vote for if you’re worried about your super

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