Federal Budget 2018: Tax relief for five million families

FIVE million families will benefit from a radical $140 billion tax overhaul that starts with a $530 cash boost next year — but the real joy will come seven years from now.

FIVE million families will benefit from a radical $140 billion tax overhaul that starts with a $530 cash boost next year — but the real joy will come seven years from now.

Treasurer Scott Morrison’s centrepiece economic reform will bump up tax relief for 10.1 million taxpayers. It begins with annual payments of up to $530 to be dished out over the next four years and ends with setting in stone a permanent low rate of tax for everyone earning from $31,000 all the way up to $200,000. In this radical move, the 37 per cent tax bracket will be abolished within seven years.

And by 2025, workers earning between $18,200 and $41,000 will pay a 19 per cent marginal tax rate.

Treasurer Scott Morrison after handing down his Budget speech. Picture: Gary Ramage

Those with incomes of $41,00-$200,000 will pay 32.5 per cent.

In his speech last night, Mr Morrison said the plan was “not spending or a giveaway”.

“We are simply enabling Australians to keep more of what they have earned,” Mr Morrison said. “Our tax cuts are also not being achieved by increasing taxes elsewhere. Everyone pays the price of higher taxes. It weakens the economy and costs jobs.”

That will leave families like the Hostettlers in Port Macquarie, where Stefan works as a chef and Liz cares for their children, be better off by $520 every year in the next four years and by $3160 in total by July 2025.

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Liz and Stefan Hostettler with their children Freycin 10, Camille 8, Harvey 2 and Elke at Shelly Beach in Port Macquarie. Picture: Nathan Edwards

Mr Hostettler said “more in our pockets is better”.

“Every $10 counts,” he said. “It’s good not to get punished for working hard.”

With the refund boost and the increased threshold in the 32.5 per cent bracket, a couple with three children earning a combined income of $170,000 would be better off by $1195 next year, and $8425 over the life of the seven-year plan.

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Overall, those earning $50,000 will see proportionally bigger benefits in less tax paid — about 7.5 per cent of their annual income — than those on higher salaries.

People on bigger salaries will reap between 5 per cent and 6 per cent of their annual income by the end of the seven-year period too.

Single taxpayers earning around the average wage of about $75,000 — including tradies, nurses and high school teachers — will save $530 next year and $3740 in total by July 2025.

But a PwC analysis conducted for The Daily Telegraph shows the benefits of the initial tax cut is smaller than that of the higher childcare rebate announced earlier this year.

A family of two with two children, with both parents earning $75,000, will get a $1433 childcare rebate bump. Picture: Nathan Edwards

A family of two with two children, with both parents earning $75,000, will get a $1433 childcare rebate bump compared to a $1060 tax rebate increase.

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Mr Morrison could move in Parliament to legislate the entirety of the tax plan, unveiled in yesterday’s federal Budget and costing $14.3 billion in the next four years, as early as today.

The top threshold for the 32.5 per cent marginal tax rate will rise this July from $87,000 to $90,000 under the plan — then to $120,000 in July 2022 and $200,000
in 2024.

The tax bracket’s lower threshold will rise from $37,000 to $41,000 in July 2022, leaving more people in the lowest tax bracket.

While Labor is expected to argue the tax cut is outweighed by higher medical costs and insurance premiums, it will be welcomed by economists who warn inflation is pushing people into higher tax brackets in “an ungainly and unfair way”.

Deloitte Access Economics analysis released last month found families had paid $4 billion more in income taxes since 2014 because of inflation.

“So, unless policy
changes, personal taxpayers will fork out more,” Deloitte analysts wrote.

An increase in the threshold from $37,000 to $41,000 for the lowest tax rate — 19 per cent — in 2022 will prevent around 500,000 taxpayers from moving into a higher tax bracket.

The increase in the top threshold from $90,000 to $120,000 for the 32.5 per cent tax bracket, also due in 2022, will stop 1.8 million taxpayers facing a higher tax bracket.