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Budget 2019: What personal tax cuts are on offer?

BudgetTaxCutsWith a federal election just around the corner, both major parties have put personal tax breaks front and centre of their Budget plans. Make sure you understand each party’s tax policy as you head to the polls this autumn.

This year’s federal Budget saw the major parties go head-to-head to ease the cost of living for low and middle-income earners. However, long-term tax policy is a major point of difference, with the Coalition’s plan to flatten tax rates and provide “incentives for working Australians” branded a “ticking debt bomb” by the opposition. Here, we compare their policies in detail.

Immediate relief: cash-backs for low and middle-income earners

Under the Coalition’s plan, Australians earning under $126,000 will benefit from a boost to the “low and middle income tax offset” (LMITO) with effect from the 2018­–2019 year. This is a lump sum reduction in the individual’s annual tax bill, meaning they will receive the benefit of this offset after completing their tax return for the current year. The offset runs for four years until (and including) 2021­–2022.

The Coalition has increased the maximum available offset to $1,080, up from the $530 promised in last year’s Budget. The amount available is as follows:

Individual’s taxable income Amount of LMITO
up to $37,000 $255
$37,001 to $48,000 $255 plus 7.5 cents per dollar of income exceeding $37,000
$48,001 to $90,000 $1,080
$90,001 to $126,000 $1,080 less 3 cents per dollar of income exceeding $90,000

So how does the opposition’s offering measure up? Labor will match the Coalition’s immediate tax relief – and they go one step further by committing an extra $1 billion to provide a larger tax offset for low-income earners.

Under Labor, those earning between $48,000 and $126,000 would receive the same tax reduction as under the Coalition’s plan, but the $3.6 million Australians who earn under $48,000 would receive a bigger offset.

For example, a worker earning $37,000 would receive a $350 offset (compared with $255 under the Coalition) while a worker on $40,000 would receive $549 (compared with the Coalition’s $480).

This puts Labor slightly ahead on immediate relief for low and middle-income earners – but how do the parties stack up on long-term policy?

The Coalition’s new, flatter tax plan

The Coalition has used this year’s Budget to further expand the significant personal tax rate reform it began last year. The consolidated reform plan is as follows: from 1 July 2022, the upper limit for the 19% tax bracket will increase to $45,000. From 1 July 2024, the 32.5% rate will drop to 30% and the 37% bracket will be abolished – creating a vast “middle” bracket of taxpayers earning between $45,000 and $200,000 on a marginal rate of 30%. The Coalition argues this will improve incentives for working Australians. The following table shows the Coalition’s plan from 1 July 2024:

up to $18,200 no tax
18,201 to $45,000 19%
$45,001 to $200,000 30%
$200,001+ 45%

However, if elected Labor will not proceed with these reforms, declaring it will not back “a scheme that would see a nurse on $50,000 paying the same tax rate as a surgeon on $200,000” and labelling the Coalition’s cuts a “ticking debt bomb”. Labor would unwind the future measures the Coalition has already successfully legislated, essentially bringing future taxes back in line with today’s rates.

Clearly, higher-income earners are major winners under the Coalition’s long-term policy; an individual earning $150,000 would save over $6,000 in tax compared with today’s tax rates, while someone on $200,000 would save over $11,000. But the Coalition’s plan does not fully come into effect for five years – that’s at least two federal elections away. Will the promise of future tax cuts be met with voter cynicism or prove an effective inducement for higher-income voters?

We’re ready to help

As the upcoming election plays out, it will be vital to keep abreast of reforms that may affect your tax planning. Talk to us for expert advice and support to guide you through the changes.