Federal Budget 2020: Massive problem with your tax cut

Treasurer Josh Frydenberg has promised workers extra cash in their pay packets from this month, but the vast majority will be forced to wait.

Treasurer Josh Frydenberg has promised average workers a $2160 tax cut in their pay packets from this month, but the vast majority of workers will be forced to wait for half the cash.

The fine print of the Budget reveals that anyone earning under $90,000 – the majority of workers – gets half the tax cut now and half later.

Instead, they will get $1080 rationed out in their pay packet now – a modest $20 a week – and another $1080 rebate when they lodge their tax return.

Bizarrely, anyone earning over $100,000-a-year will get the full tax cut of about $2500 – or about $50 a week – upfront and won’t have to wait.

That means the rich will get double the weekly tax cut in their pay packet now, while average workers have to wait for the rest.

Blueprint Institute chief economist Steven Hamilton told news.com.au it would be better to pay the tax cuts in full to average workers now or even offer direct cash stimulus.

“Lower income earners are the people who need the money the most and they are more likely to spend it,’’ he said.

“That provides the biggest bang for buck in terms of stimulus. So this is backwards. This stimulus backwards. There’s not much stimulus going out in the Budget in the next three months.”

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A lot of workers will have to wait for their extra cash. Picture: istock

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The reason for the delayed tax cut is the result of the low and middle income tax offset (LMITO) also known as “The Lamington” that is only paid as a lump sum at the end of the financial year to workers earning less than $90,000.

The offset or ‘Lamington’ was meant to end when stage two of the Government’s tax cuts came in 2022, but while those tax cuts are being brought forward the LMITO isn’t being dumped essentially doubling the tax cut.

High income families were never eligible for ‘The Lamington’, which means they don’t have to wait and can start getting tax relief in their fortnightly or monthly pay right away.

In other words, even though average workers and high income workers get a similar tax cut of between $2160 and $2565, the rich get double the tax cut upfront in their actual pay packets until the end of the financial year.

“Why does it need to be rebate? The people on lower incomes have the least savings and the biggest credit card debt. They can least afford to wait until July next year,’’ economist Steve Hamilton said.

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A lump-sum payment will also be offered to all workers to cover the backdated tax cut they have missed out on between July 1, 2020 and whenever the legislation passes parliament. That’s likely to push the $1080 tax refund for most workers by about $300.

This is despite senior ministers speculating that the ATO could adjust the tax tables to ensure the extra amount was paid during the rest of the year.

And to secure the maximum tax cut of up to $5490 a year for dual income couples promised you will both need to be pulling in $120,000-a-year each or a combined income of $240,000.

For singles, you will need to be earning $120,000 a year to secure the maximum tax cut of $2745. Workers earning $40,000 a year will only secure $1060.

That rises sharply to $2160 when you’re earning $60,000. While workers earning $120,000 will secure $2745 if you earn $145,000 it drops down again to $2565.

Treasurer Josh Frydenberg signalled on Budget night he wanted parliament to pass the tax cuts “sooner rather than later.”

Labor’s treasury spokesman Jim Chalmers confirmed on Tuesday night that workers won’t have long to wait, with Labor likely to back the tax cuts.

“We will support income tax cuts for low- and middle-income earners and have said for some months we will support that. We now are told by media, actually, there will be one bill with all the business tax measures in it as well,’’ he said.

“We are inclined to support those. But we only saw them for the first time a few hours ago. We are inclined to support it but I think people will understand we will also take a bit of time, whatever time we have available to us, to go through the details and make sure we are getting bang for buck for an extraordinary amount of money.”