The targeted, low and middle-income tax offsets in this month’s budget will provide immediate tax cuts for those earning up to $125,000 per year.
Australian Conservatives leader Cory Bernardi says he supports those cuts along with the longer term proposal to increase the top threshold of the 32.5 per cent bracket from $87,000 to $120,000 commencing in 2022.
An opinion piece in the Sydney Morning Herald reveals this would come close to removing bracket creep for many middle-income earners, providing them with years of tax relief compared with the status quo.
The second hefty change is to eliminate the 37 per cent tax bracket from 2024-25.
This would constitute the most substantial change to the income tax system for years. And it would mean that by 2024-25, around 94 per cent of taxpayers would face a top marginal tax rate of 32.5 per cent or less compared with 63 per cent if the system was unchanged.
Yet it is precisely these more substantial changes that are being so roundly criticised. In his budget reply speech, Opposition Leader Bill Shorten claimed the tax cuts were handouts to the wealthy. This is misleading.
While it is true that those who earn a higher income will receive a greater benefit in absolute terms, this is because they pay far more tax than lower-income earners to begin with.
Permanent and sustainable tax cuts will not be in the offing until a broader discussion is had about what spending is going to be reduced. And no amount of tinkering with offsets, marginal rates or bracket creep will change that fact.
Senator Bernardi has told Sky News he doesn’t think the government will be able to get the tax cut package through without splitting it.
To read Daniel Wild’s full article, click here.
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Picture: Treasurer Scott Morrison and Finance Minister Mathias Cormann