Low and middle-income earners could pocket their $1080 refund – stage one of a three-part $158 billion Morrison Government promise – as early as next week if the legislation successfully passes through the Senate this week.
As the Reserve Bank of Australia (RBA) announced a second consecutive cut in official interest rates – to one per cent, the lowest on record – Treasurer Josh Frydenberg said the Australian Tax Office (ATO) had informed him that workers could receive tax relief as soon as next week.
“People will get it next week,” he said, “once they put in their tax returns. If they put in their tax return next week, then they will get it just days after.”
The first stage of the tax promise, which passed through Parliament on Tuesday, will deliver up to $1080 to low and middle-income earners when they lodge their tax returns. It increases the amount of money available through the low and middle-income tax offset from $530 to $1080.
The second stage will top up a low-income tax offset, which means more people – earning up to $45,000 instead of $41,000 – will get a 19 per cent tax rate.
The final stage would take effect from mid-2024 and flatten the tax rate from 32.5 per cent to 30 per cent for people earning between $45,000 and $200,000.
The anticipated tax cuts are likely to benefit many older Australians, according to YourLifeChoices’ most recent survey, 2019 Ensuring Financial Security in Retirement, which found that 39.4 of people aged 55 to 70 were working full or part-time.
Senior economist with The Australia Institute, Matt Grudnoff, said any tax relief packages needed to be “well-targeted if they are to maximise economic growth”.
“Low and middle-income taxpayers are more likely than high-income taxpayers to spend their tax cuts and stimulate the economy,” he told The Guardian.
“The increased low and middle-income tax offset in stage one (a) will cost the budget less money and proportionately benefit more people than stage 3(a).
“The stage 3(a) income tax cut is expected to cost the budget $95 billion over five years.
“The Government will spend more on this part of the tax cut than it is expected to spend on the Pharmaceutical Benefits Scheme over the same period.”
The RBA announced the 0.25 percentage point rate cut – the first back-to-back cuts since 2012 – at a board meeting in Darwin.
KPMG chief economist Brendan Rynne told The Age the move put pressure on the Government to consider other ways to boost the economy and made the unlegislated cuts particularly important.
“The RBA is sending a signal to the market, to politicians and to the community at large, that the Australian economy is not firing on all cylinders and, as one of the guardians of national welfare, the RBA is looking to help out where it can,” he said.
“So this really puts the onus on the Government to bring forward fiscal stimulus – by getting new targeted infrastructure projects up and running and ensuring the proposed tax breaks are brought into law soon as possible.”
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