FEDERAL BUDGET 2018: What the income tax cuts mean for pay packets

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Treasurer Scott Morrison says his budget gives tax relief while ensuring the integrity of the tax system.

“The plan will result in more working Australians paying lower rates of tax. It will be enshrined in legislation,” he says.

He told a media briefing the tax relief, a three-part program, was a complete package designed to work together.

He will present it as a package and reject any attempt in parliament to separate the elements.

What he’s done in this budget is to make an adjustment to tax brackets, create a new lump sum rebate for lower income earners and present a plan to overhaul the system over seven years.

He says it’s important personal income tax does not act as a disincentive for those taking on additional work or seeking advancement.

From July this year, the top threshold of the 32.5% tax bracket will be shift to $90,000 from $87,000.

This will provide a tax cut of up to $135 a year to 3 million people and will prevent about 200,000 people from facing a marginal tax rate of 37%.

The top bracket of the 32.5% rate will then be further increased to $120,000 from $90,000 from July 2022, a saving of up to $1350 a year.

That change is projected to prevent about 1.8 million people moving to a higher marginal tax rate of 37%in 2022–23.

A new, non-refundable tax offset will provide tax relief of up to $530 to low and middle income earners from next financial year.

The offset will be a lump sum given at tax return time each year.

More than 10 million will get at least a part offset payment and about 4.4 million with incomes between $48,000 and $90,000 getting the full $530 benefit.

The third part of Morrison’s plan is simplifying and flattening the tax system from July 2024 by reducing the number of income tax brackets from five to four.

By increasing the top threshold of the 32.5% bracket, and removing the current 37% bracket, the same marginal tax rate will apply for incomes between $41,000 and $200,000.

The top marginal tax rate of 45% will remain for incomes above $200,000.

This change is projected to prevent about 1.8 million taxpayers from paying a marginal tax rate of 37% or more in 2024–25.

Morrison says his plan ensures about 94% of taxpayers are projected to face a marginal tax rate of 32.5% or less in 2024-25.

This chart shows how the impact of the tax offset and shift in the top threshold of the 32.5% tax bracket:

Morrison says the government is ensuring taxes afre kept under control so they don’t slow the economy down.

There were 2.4 million with taxable incomes above $87,000 in 2015-16, representing 23% of taxpayers, but paying 65% of personal income tax.

Next financial year someone earning:
$22,000 a year would pay $200 less tax,
$40,000 a year would pay $290 less tax,
50,000 a year would pay $530 less tax.

And those on the average wage of about $84,600 would also pay $530 less tax.

Here’s how the tax savings look over seven years:

And for higher incomes:

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