The federal government’s planned stage three tax cuts will overwhelmingly benefit older Australians, leading economists say.
The government is determined to stick with its stage three tax cuts for those earning more than $200,000 a year, while remaining tight-lipped about extending the widely popular low- and middle-income tax offset (LMITO).
These sweeping reforms to Australia’s tax system will mostly benefit older Australians, while leaving younger Australians worse off, economists are warning.
“There aren’t many Australians in their 20s earning more than $200,000 a year,” says Dr Richard Denniss, chief economist at The Australia Institute.
“When a government chooses to spend $15 billion on tax cuts for high-income earners, there’s no doubt it’s chosen to give a far bigger boost to older Australians than to young Australians.
“When the stage three tax cuts come in, people earning $200,000 a year will get a $9000-a-year tax cut.
With Australians likely heading to the polls in May, the government would be risking millions of younger votes by announcing the end of LMITO in Tuesday night’s Budget.
But similarly, announcing any changes to the stage three tax cuts would risk losing a large chunk of older voters.
With the stage three cuts not due to come into effect until the 2024-25 fiscal year, Treasurer Josh Frydenberg can afford to delay any announcements about the cuts until after the election.
But he still refuses to say whether the LMITO will be dropped in this year’s Budget. Introduced in 2018 as a temporary measure, the LMITO has been extended each year since then due to the economic effects of the pandemic.
“The LMITO was designed as a fiscal stimulus at a time when the economy had been hit by the greatest economic shock since the Great Depression,” Mr Frydenberg says.
“It was always meant to be temporary; it was not meant to be a permanent feature of the tax system.”
But introducing what would effectively be a large tax hike at a time when most Australians are facing cost of living pressures not seen in years, and still recovering from the effects of the pandemic, would be a risky move.
The government has described LMITO as an unsustainable “tax cut” for low- and middle-income earners, but H&R Block’s director of tax communications, Mark Chapman, says this way of looking at it is not entirely correct.
“This measure ensures that 10.2 million low- and middle-income Australians will not see a tax hike of up to $1080 next year,” he says.
“However, let’s call this what it is and ignore the government spin; this isn’t a tax cut, it’s simply the deferral of a tax rise.”
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