- The cornerstone of last month’s federal budget successfully passed the Senate today thanks to support from the crossbench
- The approval means middle income workers will receive a $530 lump sum rebate from next financial year when they lodge their tax returns.
- By 2024, Australia will have just 3 tax rates, with 94% of workers earning between $41,000 and $200,000 paying 32.5% tax on their income.
The surviving two members of Pauline Hanson’s One Nation have combined with several other members of the senate crossbench to pass the Turnbull government’s plan for $144 billion in income tax cuts over the next seven years.
The plan was the centrepiece of last month’s federal Budget and the crossbench support has delivered a massive win to Treasurer Scott Morrison and Prime Minister Malcolm Turnbull.
The legislation was passed in the Senate by 37 votes to 33 just before noon on Thursday after 24 hours of argy-bargy and amendments between the lower and upper houses. The Senate had attempted to scrap the final stage of the cuts on Wednesday, but that was rejected by the House of Representatives, where the government has a majority.
Today, Hanson’s opposition to the full package ended, with the One Nation leader declaring her party’s support “was the only fair thing to do”.
She accused Labor of not “looking after the battlers”.
While Labor supported the initial stage of the three-part roll out, it was seeking to delay the ultimate outcome of a 32.5% tax bracket for around the 94% of taxpayers earning between $41,000 and $200,000 by 2024.
The passing of the legislation today gives Opposition leader Bill Shorten the options of either going with the government tax plan or fighting next year’s election with a promise to roll back income tax cuts – giving the government the opportunity to once again argue Labor is the party of higher taxes.
The final tranche of the cuts for upper income earners were also opposed by the two Centre Alliance (the former NXT party) senators, but senator Rex Patrick said his party did not want “to stand in the way of low to middle-income earners receiving tax cuts”.
Low to middle income workers will receive up to $10 a week increase in their pay packet as part of an initial $22 billion package, from July 1, but it’s delivered with a catch.
It comes as a lump sum rebate known as the low-income tax offset (LITO) after lodging your tax return.
Workers with annual incomes of up to $37,000 will have their tax bill reduced by up to $200 – a cup of coffee a week – in a lump sum.
The same LITO will deliver a $530 lump sum payment, or around $10 a week, for people earning between $37,001 and $48,000. A dual income household with both people earning a wage in that range, will get a lump sum payment of just over $1000.
Around 4.4 million taxpayers are expected to get the lump sum rebate.
For incomes between $48,001 and $90,000, the tax threshold will increase by $3000 to $90,000 from July 1, delivering a $135 tax cut to around 210,000 workers now in the 32.5% bracket.
For incomes between $90,001 and $125,000, the $530 lump sum still applies, but tapers off to zero at $125,000.
Four years from now, the plan is to increase the 19% tax threshold to $41,000, giving around 500,000 people a tax break that would save them another $540.
Also in 2022, the 32.5% marginal tax rate will lift from $90,000 to $120,000.
By 2024, there will be just three income tax brackets, with the current 37% rate, paid by Australians earning between $87,001 and $180,000, abolished.
Someone on $125,000 can expect to see their tax bill fall by around $140 annually – about $2.69 a week – from next financial year thanks to that change in the 32.5% threshold to $90,000.
In the long run it’s a big win for those earning above $90,000 a year, but in the short term the benefits go to low-to-middle income earners. Scott Morrison’s Budget changes effectively end the bracket creep most often experienced by taxpayers earning just a few thousand dollars over the average annual income of around $84,000.
In the meantime, everyone earning between $90,000 and $180,000 will still pay 37 cents in the dollar in tax for the next four years.
And if you make above $180,001, you’ll keep paying tax at 45% until July 2024, when the 37% tax bracket is scrapped.
The good news at that point though is that anyone earning above $200,000 a year will be around $7000 a year better off.
Pauline Hanson told the Senate today that people on incomes above $200,000 would barely notice the extra money.
Next on the government’s agenda is its $50 billion company tax plan to cut the tax level to 25%.
Hanson and One Nation have reneged on an earlier deal to back the plan – a move that led to her falling out with former colleague NSW senator Brian Burston, who backs the plan and this week defected to a rebadged version of Clive Palmer’s eponymous party, now known as the Australia United Party.
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