Are we getting tax cuts earlier than expected?

author-avatar By on July 09, 2020
Are we getting tax cuts earlier than expected?

Image source: Josh Frydenberg (Twitter)

Yesterday, both the Prime Minister and Treasurer alluded that the legislated tax cuts from 2022 could be brought forward.

Phase two and three of the legislated tax cuts are due on 1 July 2022 and 1 July 2024 respectively.

Under phase two, there will be an increase to the low-income tax offset from $645 to $700, raising the 19% marginal threshold from $37,000 to $45,000, and raising the 32.5% ceiling from $90,000 to $120,000.

Phase two is estimated to cost the federal budget $20 billion and could leave middle-income earners up to $2,565 a year better off.

Phase three includes reducing the 32.5% bracket to 30%, abolishing the 37.5% bracket entirely, with workers earning $45,001 to $200,000 paying a 30% marginal rate.

The top tax rate will be 45% for workers earning more than $200,001, as opposed to $180,001 where it sits now.

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*Data accurate as at 04 August 2020. Rates based on a savings balance of $10,000. Sorted by total interest rate. Refer to providers' websites for bonus rate conditions. Note that the base rate will apply once the introductory term has passed.

But yesterday, both Prime Minister Scott Morrison and Treasurer Josh Frydenberg alluded to these tax cuts potentially being brought forward.

In a press conference, Mr Morrison said any tax plans would be "matters for the Budget", which is due to be delivered in October.

"So that's a matter that the Treasurer and I will address in the context of the Budget, not today," he said.

Yesterday morning, Mr Frydenberg told ABC Radio the Government is "looking at that issue".

"We’re creating one big tax bracket between $45,000 and $200,000, where people pay a marginal rate of no more than 30 cents in the dollar," he said.

"So we are looking at that issue, and the timing of those tax cuts, because we do want to boost aggregate demand, boost consumption, put more money in people’s pockets, and that is one way to do it."

Mr Frydenberg also told the Australian Financial Review that "bringing forward tax cuts is under active consideration".

The Government indicates more than 4.5 million taxpayers earn between $48,000 and $90,000, or just less than half of the taxpaying workforce. 

The COVID-19 pandemic and associated stimulus measures are estimated to have hit the budget by more than $100 billion, however JobKeeper's cost was overestimated by about $60 billion after some reporting errors were uncovered.


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author-avatar
Harrison joined Savings in 2020. He is a journalist with more than four years of experience, with previous stints at News Corp and financial comparison site Canstar. With a keen interest in personal finance, Harrison is passionate about helping consumers make more informed financial decisions.

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