While the budget has earmarked money for roads, rails and seniors among other things, most of the public are interested to find out what they will be getting back through tax cuts. And for the most part, the government has delivered, announcing income tax-relief for low- and middle-income wage earners.
While the benefits to these Australians can be had immediately, Treasurer Scott Morrison has also included huge tax cuts for high-income earners. However, the caveat is that they would have to wait seven years before those tax cuts start kicking in.
Here’s what tax cuts you’ll receive, depending on your income.
If you earn up to $37,000
Those earning up to $37,000 a year will have their tax bill slashed by a maximum of $200, which amounts to $3.85 a week. However, the tax cut would not be seen in your weekly pay packet. It would be delivered in a lump sum via a tax offset in your annual tax return from July 1.
If you earn up to $37,000-$48,000
Australians who earn over $37,000 a year can expect to get a maximum of $530 per year back in their pockets through the same annual tax offset.
If you look at it as a lump sum, it’s sufficient to purchase a washing machine, cover your car rego or settle your family’s quarterly power bill. If you look at it as a weekly pay bump, it amounts to $10.20, which is around the cost of a fancy burger or a bottle of water at Sydney Airport.
The government plans to prolong the tax breaks in 2022-23 by lifting the 19c tax threshold from $37,000 to $41,000, which will prevent half a million Australians from paying the higher 32.5c rate.
If you earn up to $48,000-$90,000
Roughly 4.4 million Australian taxpayers can be found in this income bracket, and they too can receive a maximum of $530 in tax relief.
The government has also made public its plans to modify the income tax thresholds to ward off bracket creep, which happens when pay rises and overtime bonuses are eaten up by higher taxes.
The 32.5 per cent tax bracket would be extended from $87,000 to $90,000 from July 1, which means 210,000 Aussies who are earning over $87,000 would no longer pay the 37c rate.
If you earn up to $87,000-$200,000
The tax offset will also be implemented to those earning more than $90,000 a year, but would taper off to zero as incomes reach $125,000. But plans are afoot to give major tax relief to those that earn big money further down the track.
In 2022-23, the government would lift the marginal tax rate of 32.5 cents in the dollar from $90,000 to $120,000.
Then in 2024-25, it will remove the second highest tax rate of 37c, reducing the number of income tax brackets from five to four, by lifting the 32.5c marginal tax rate threshold from $87,000 to $200,000.
This means 1.8 million taxpayers would not have to pay the higher 37% rate and 94% of Australians would pay no higher 32.5c.
“Under the Turnbull Government’s personal tax plan, most working Australians earning above $41,000 are likely to never face a higher marginal tax rate through their entire working life,” Morrison said in his speech about the Budget.
This is a substantial adjustment to Australia’s progressive tax system, which is geared to guarantee that those who earn more, pay more tax.
Under the 2024-25 system, Aussies on incomes between $41,000 and $200,000 would effectively pay the same tax rate of 32%. (The 45c tax rate for incomes over $200,000 will remain.)
The government insists the top 20% of taxpayers would still carry the biggest tax burden, which is about 61% of all income tax.
This promise should be viewed with a bit of apprehension, because it’s incumbent on the government staying in power for the next seven years, or at least another two elections.