Australia currently has five tax brackets,
with people starting to pay tax when they earn more than $18,200 per year.
Phase one of the plan is directed towards low and middle income earners, with a
four-year Low and Middle Income Tax Offset (LMITO) received at the end of the
year as part of the regular tax refund. The only bracket change in this phase
will see the 37 percent tax threshold that currently sits at $87,000 increasing
to $90,000. People who earn up to $37,000 will see their tax bill reduced by
$200 in phase one, with the maximum offset of $530 affecting those earning
between $48,000 and $90,000.
Phase two will start in 2022, when the 32.5
percent tax bracket will be lifted from $37,000 to $41,000, and the 37 percent
bracket will be lifted from $90,000 to $120,000. While this will do nothing for
low-income earners, it will have a positive effect on upper-middle and
high-income earners. Phase three is the most ambitious part of the plan, with
the 37 percent tax bracket removed entirely. Once again, this will only affect
upper-middle and high-income earners, with a single tax bracket of 32.5 percent
affecting all income between $41,000 and $200,000.
According to Mr Morrison, “Under the
Turnbull government’s personal income tax plan, most working Australians
earning above $41,000 are likely to never face a higher marginal tax rate
through their entire working life... This is not a spending give-away. We are
simply enabling Australians to keep more of what they have earned. This plan is
affordable and funded. Under our personal tax plan, 94 per cent of Australian
taxpayers will pay no more than 32.5 cents in the dollar. That compares to 63
per cent if we leave the system unchanged."
If they are implemented and the Government
manages to stay in office, these tax cuts will cost $13.4 billion over the next
four years. The long-term impact of these changes will be much more
significant, however, with Finance Minister Mathias Cormann saying that he
expects the income tax reforms to cost a whopping $140 billion in lost revenue
over the next 10 years. Along with tax reform, the budget’s economic stimulus
policy will see an extra $24.5 billion spent on infrastructure projects across
the country, including major road and rail projects in the capital cities.
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