Tax ‘hikes’ on the cards for 500,000 South Australians in next month’s federal budget

Hundreds of thousands of South Australians could soon pay more in tax, with the federal government considering scrapping $1080 tax offsets in next month’s budget.

More than 500,000 South Australians are facing tax hikes as the federal government considers scrapping its $1080-a-year tax offset to counter hurtling inflation rates.

Treasurer Josh Frydenberg would not be drawn on whether the offset for low and middle income earners would be scrapped in next month’s pre-election budget, but he made it clear it was “not a permanent feature” of the tax system.

From June 2021 to the end of December, more than 500,000 South Australian low and middle income earners enjoyed tax cuts of about $1440 each on average, through the $1080 offset and changes to personal income tax brackets for people earning up to $120,000 a year.

Treasurer Josh Frydenberg did not rule out scrapping the $1080 tax offset for low and middle income earners. Picture: NCA NewsWire / Gary Ramage

The total value of individual tax relief in SA over the six month period was about $985m.

The Advertiser understands the federal government is reconsidering the popular offset, included in the past two budgets, amid a strong rebounding economy, rapid inflation and ordinary Australians growing their nest eggs.

Mr Frydenberg did not rule out scrapping the $1080-a-year tax offset, telling Sky News he wasn’t going to “give a running commentary about what will or will not be” in the federal government’s pre-election budget next month.

“What we do know for that budget is that we need to lock in the recovery,” Mr Frydenberg said.

Shadow Treasurer Jim Chalmers in Townsville says millions of people could face tax increases. Picture: Caitlan Charles

“The low and middle income tax offset was not a permanent feature of the tax system when we introduced it, and I said as much at the time.

“We have legislated the most significant tax reform in decades with the abolition of a whole tax bracket – the 37 cents in the dollar tax bracket.”

The number of South Australians eligible for the $1080 tax cut varies each year.

Opposition treasury spokesman Jim Chalmers said “millions” of Australian families could face a “tax hike” on July 1, “a few weeks after the next election”.

“Let’s see what they propose in the Budget; we’ve always been supportive of genuine tax relief for people on low and middle incomes.”

Philip Lowe, Governor of the Reserve Bank, says interest rates may start to rise. Picture: Getty Images

Bank SA chief economist Besa Deda warned extending the tax offset would need to be “considered against a backdrop of recovering economic activity and rising inflationary pressures”.

“We expect the Reserve Bank of Australia to start raising the cash rate later this year to stem the rise in inflation,” Ms Deda said.

Inflation, currently at 3.5 per cent, is expected to outpace wage growth into next year, and there are fears extending the offset could worsen its effects.

Reserve governor Philip Lowe on Friday signalled interest rates could start rising in August.

Households grew their savings by $245bn during the Covid-19 pandemic, and $179bn for businesses. Mr Frydenberg recently described Australians’ bulging savings as a private sector “war chest” to propel the country’s economic recovery.

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