$420 tax break for 10 million Aussies included in the budget

A one-off tax relief payment of $420 will be offered to 10 million Aussies in the federal budget to help ease cost-of-living pressures.

Ten million Australians have been promised a tax break as the Morrison government attempts to address soaring cost of living pressures and hand down an election-winning budget.

The federal budget to be unveiled on Tuesday evening will include a one-off $420 cost of living tax offset for Australians earning up to $126,000 a year.

The rebate will come as part of an expansion of the low and middle-income tax offset (LMITO), which will increase to up to $1500 depending on how much each person earns.

Low and middle-income earners had been able to save up to $1080 under LMITO, with the rebates tapering off to zero at a taxable income of $126,000.

Adding the new cost of living offset to the LMITO rebates set out by the Australian Taxation Office, people earning $37,000 or less will be eligible for a total offset of $675.

People earning between $37,001 and $48,000 will be eligible for an offset of $675 plus 7.5 cents for every dollar above $37,000 up to a maximum of $1080.

Australians earning between $48,001 and $90,000 can save the full $1500 on offer, while those who earn between $90,001 to $126,000 will save $1080 minus three cents for every dollar of the amount above $90,000.

The scheme is due to expire in June at the end of this fiscal year and the government will top up the final rebates as it seeks to win over voters amid dwindling consumer confidence.

Questions have been swirling over how the government will address the cost of living in the federal budget, with higher inflation and disruption caused by the Russian invasion of Ukraine driving up the prices of petrol and other everyday items.

Mr Frydenberg has said in media interviews the budget would include “targeted, proportionate and temporary” relief, leading to speculation about the possibility of cash payments for low and middle-income earners.

The Morrison government confirmed it would increase and extend the LMITO, with Mr Frydenberg due to unveil the measure on Tuesday night.

The offset should be available from July 1 this year when Australians lodge their tax returns.

Treasurer Josh Frydenberg will announce an expansion of LMITO on Tuesday night. Picture: AFP

Scott Morrison introduced LMITO — the first stage of his three-stage tax cut plan — in his final budget as treasurer before he took on the prime ministership in 2018.

It was intended to be a temporary measure but it has already been extended twice, first in 2020 and again in 2021, at a cost of $7.8 billion. It is due to expire on June 20, 2022.

The Morrison government will at the same time move towards the third phase of their plan to reshape the tax bracket system by widening the lower income bracket.

When the government reaches stage three in the 2024-2050 financial year, people who earn between $120,000 and $200,000 are expected to get a tax cut of up to $9000 a year.

Critics of the plan say it will leave lower income earners worse off and having to pay as much tax as people earning significantly more than them.

This year’s LMITO top up will come as part of a major cost-of-living package tipped to form the centrepiece of the budget, which is also expected to forecast a significantly improved bottom line than previously thought.

Revenue will be higher than expected and the unemployment rate is forecast to fall to 3.75 per cent in the September quarter, its lowest since 1974.

Labor has in the lead-up to the budget honed in on problems of underemployment and the issue of stagnant wages which it says coupled with higher inflation means Australians’ wages are going backwards.

The Prime Minister is expected to call the federal election soon after the federal budget is handed down, with Australians due to vote for the next government by the end of May.