The federal government is expected to extend a popular tax cut for at least another year, as it seeks to placate voters ahead of the upcoming federal election.
A key tax offset supporting millions of working Australians looks set to be extended for another 12 months when the Federal Budget is announced on 29 March.
The low- and middle-income tax offset (LMITO) allows Australians earning between $37,001 and $126,000 to offset between $225 and $1080 on their tax returns each year.
The LMITO was introduced in 2018 as a temporary tax relief measure until the government could implement more permanent tax reform. Since then, the world has been hit with the full force of the COVID pandemic.
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As the economy slumped and with households hurting throughout 2020 and 2021, the government opted to extend the tax break.
The offset costs the Treasury around $8 billion in lost tax revenue each year and Treasurer Josh Frydenberg has expressed a desire to remove it, saying it was always meant to be only a temporary measure.
But as the economy moves slowly into its post-pandemic phase, the military situation in Ukraine is causing fuel prices to soar placing renewed pressure on the wallets of ordinary Australians.
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“The low- and middle-income tax offset is not a permanent feature of the tax system,” Mr Frydenberg says.
“When we introduced the LMITO, it was in response to the particular economic circumstances we faced at the time. We haven’t made a decision about the low- and middle-income tax offset.”
Almost 10 million Australians are beneficiaries of the scheme, and some government MPs are worried taking it away from such a large chunk of voters right before an election is political suicide, especially with cost-of-living pressures rising.
“COVID led to supply chain disruption, which has seen inflation emerging for the first time in 40 years, and the Ukraine war is also going to put pressure on prices,” Liberal backbencher Jason Falinksi told the Sydney Morning Herald and The Age.
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“Maintaining LMITO while people are feeling cost-of-living pressures is an open question for the treasurer.”
Economist Saul Eslake told The New Daily the government had backed itself into a corner on what was initially meant to be a temporary fix.
“Households just below the average income will face a tax increase of close to $1000 at a time when their incomes haven’t been growing and interest rates might be going up,” he said.
“There’s an awful lot of votes in this area.”
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