Tax relief could be taken away from millions of Aussies

The federal government appears torn on whether to continue a relief measure that benefits most taxpayers by up to $1080.

Federal Treasurer Josh Frydenberg has yet to confirm or deny whether a key tax break for millions of Australians will be extended ahead of the upcoming federal election.

Almost 10 million Australians are beneficiaries of the low- and middle-income tax offset (LMITO). Those earning taxable income between $37,001 and $126,000 are eligible for a tax offset of between $225 and a maximum of $1080 per annum.

Initially introduced in 2018 as a temporary measure until more permanent tax reform could be passed, the LMITO was extended during the pandemic and is only legislated to be in effect until the end of the 2021-22 financial year.

With an election on the horizon, tax experts say the government cannot afford to make many working Australians worse off if it wants to be re-elected.

Read: Could an inheritance tax be reintroduced?

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.”

Behind the scenes, the federal government is reportedly locked in an internal battle between those who wish to extend the offset to secure votes, and those who want to use the May Federal Budget to repair the economy post-COVID.

Publicly, the Treasurer has made it clear the LMITO will not be around forever but conceded the government had yet to finalise its position.

Read: Top election issues for older Australians

“The low- and middle-income tax offset is not a permanent feature of the tax system,” Mr Frydenberg said.

“When we introduced the low and middle income tax offset 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.”

While the LMITO is a sure-fire vote winner, a yearly lump sum payment may deprive the government of revenue it needs for pandemic support and recovery.

Government debt has skyrocketed, and a sound economic argument for ending the LMITO can be made.

Read: Cost-of-living increases are affecting age pensioners more than others

But H&R Block tax director Mark Chapman told 7News that letting the offset expire would cost the government at the upcoming election.

“Despite the suggestions from some in government, there is no realistic chance that the government won’t extend the LMITO,” Mr Chapman says.

“To abolish it before an election would quite simply be electoral suicide.”

Would it influence your vote if the government removed the LMITO? Or do we need to get the Budget back under control? Let us know in the comments section below.

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Written by Brad Lockyer

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