Income tax cuts hang in the balance as politicians consider twin tax packages

IF YOU were hoping for a July 1 boost thanks to the Turnbull Government’s tax cuts, you’ll probably be disappointed.

THE end-of-financial year is fast approaching and some Australians may have been hoping for some tax relief from July 1.

But unless the Turnbull Government is able to convince senators to support their plans, low and middle income earners may be disappointed.

Even if they do get their plans through, much of the benefit won’t be felt until next year.

Here’s where we are at.

WHAT’S ALREADY LOCKED IN

In a word, nothing.

None of the promised tax offsets and rebates have been passed in Parliament yet.

The package will be debated in the Senate for the first time on Monday.

WHAT DO THE PARTIES AGREE ON?

Labor backs two tax changes that will start from July 1, but opposes further changes in 2022 and 2024.

Proposals that Labor supports include giving low and middle income earners a tax offset from July 1. This will be on top of the existing low income tax offset. People will be able to use the offset to reduce the amount of tax they pay until the year 2021-2022.

People earning up to $37,000 a year would get a maximum offset of $200, while people earning between $37,000 and $90,000 would get a maximum offset of $530.

The Government also wants to increase the 32.5 per cent tax bracket from $87,000 to $90,000. This would save a person currently earning $90,000 about $135 in tax.

“The July the first tax cuts should flow and in fact they should be more generous,” Labor shadow treasurer Andrew Leigh told Sky News.

Labor wants the Government to separate these tax cuts from other measures it doesn’t support.

But Treasurer Scott Morrison is standing firm and has ruled out splitting or amending the tax packages.

It’s also worth noting that even if these changes are passed, taxpayers won’t feel the benefits of the offsets until after they lodge their 2018/19 return next year, when they will receive a lump sum back.

But if changes to the tax bracket are approved, this will mean more money in the pay packets of those earning more than $87,000 starting on July 1.

WHAT THE PARTIES DON’T AGREE ON

Some believe if all of the Government’s income tax rates changes are passed they would overwhelmingly benefit higher income earners.

A briefing paper released by The Australia Institute showed the highest income earners got 62 per cent of the benefit from the Government’s plan, compared to the 30 per cent of Australians on the lowest wages, who only got a 7 per cent benefit.

The Government’s seven-year tax plan revealed in last month’s federal Budget wanted to reduce income tax for higher income earners starting in 2022.

Under the plan, from 1 July, 2022 the 32.5 per cent tax bracket would be lifted to include those earning between $90,000 to $120,000, providing a tax cut of up to $1350 per year.

Two years later the 37 per cent tax bracket would be removed completely as the 32.5 per cent bracket would be gradually lifted from $120,000 to $200,000.

This would mean about 94 per cent of all taxpayers would be paying tax at a rate of 32.5 per cent or less in 2024-25. At the moment just 63 per cent are expected to be paying this rate.

Those earning over $200,000 would continue to pay a rate of 45 per cent on this.

RELATED: Are Australians expecting too much?

Treasurer Scott Morrison after speaking at a press conference in Budget Lock up at Parliament House in Canberra. Picture: Kym Smith

DECISION TIME

The Government doesn’t seem to be budging on splitting or amending plans on its tax cuts.

Labor is keeping its cards close to its chest, saying it would give the Senate the opportunity to pass its own income tax package, which would mean more tax cuts for people earning less than $125,000 a year.

“We are prepared to support the tax cuts that start next month and we also will give the Senate the opportunity to vote for a better package, a package that delivers more for more Australians,” Labor shadow minister for foreign affairs Penny Wong told Insiders on Sunday.

When pressed on whether Labor opposed a tax cut for higher income earners “under all circumstances”, Senator Wong said: “I’m focused on winning the two votes that I just described.”

Labor Leader Bill Shorten has described the plan as “pretty dodgy”, although he’s willing to work with Prime Minister Malcolm Turnbull to vote for the cuts due this year.

“If you want to give promises of tax cuts in more than two elections’ time, fight the next two elections and see where we are going then,” Mr Shorten said.