Tax cuts on the way for low and middle income workers in bid to boost spending

ScoMo is set to gift low and middle-income workers a massive tax relief in next month’s federal budget. Here’s how much you could get back.

Billions of dollars in bonus tax cuts will be handed to low and middle-income workers in a bid to ensure Australia keeps spending its way out of the COVID-19 crisis.

The Herald Sun can reveal a new round of sweeping income tax relief will be a centrepiece of the Morrison government’s economic recovery plan in next month’s federal budget.

About 10 million workers were due to lose the low and middle income tax offset – worth up to $1080 for everyone earning between $48,000 and $90,000 – on June 30 after it was slated in last year’s budget as a one-off stimulus measure.

But senior government sources have told the Herald Sun the budget will deliver extra relief to ensure workers are not forced to pay more tax in the next financial year.

It is understood the most likely option, debated by Scott Morrison’s budget razor gang this week, is to extend the low and middle-income tax offset for another 12 months. This would cost about $7bn.

Prime Minister Scott Morrison and Treasurer Josh Frydenberg. Picture: Getty Images

The offset is paid as a refund when workers lodge their tax returns, meaning the existing relief will flow from July this year. Extending the offset for another year would provide a guaranteed cash boost for millions of Australians in 2022.

It provides a tax cut of up to $255 for those on less than $37,000, which increases to $1080 for about 3.4 million Australians earning $48,000- $90,000. The offset then phases out for workers earning up to $126,000.

Research from the Bankwest Curtin Economics Centre, published earlier this week, showed withdrawing the offset would raise the effective marginal tax rate for a worker on $40,000 from 18.5 per cent to 26 per cent. It would also disproportionately affect women, who would face an average tax increase of $502 in the next financial year, compared to an average $385 increase for men.

But senior figures said the government did not want to increase the tax burden on Australians as the recovery continued, particularly as the short-term forecast for wages growth remained flat.

The Prime Minister said on Monday that the second phase of the government’s economic recovery plan, to be detailed in the budget, would retain “a clear focus on lower taxes”.

And Treasurer Josh Frydenberg said last week that the government was not ready to shift to budget repair, arguing further spending was needed to prevent economic “scarring”.

On Wednesday night, a spokesman for Mr Frydenberg said: “The government doesn’t comment on budget speculation.”

In October’s budget, Mr Frydenberg brought forward the second stage of the legislated tax cuts alongside the one-off extension of the offset. This was tipped to deliver a $12.5bn economic boost over two years.

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Originally published as Tax cuts on the way for low and middle income workers in bid to boost spending