After the cost-of-living and interest rate rises of the past couple of years, Australians are due some good news, surely. The last thing most of us want to hear right now is that we’re about to start paying more tax. But with the impending expiry of tax offsets introduced a few years ago, that’s exactly what’s about to happen.
Next month’s Federal Budget will mark the end of a tax offset introduced as part of the Turnbull government’s original three-stage tax cut plan. Implemented in the 2018-19 financial year, the offset will be discontinued by Treasurer Jim Chalmers, Nine reports.
The consequences of this will be far-reaching for lower income earners. Those with an annual income of under $126,000 will feel the pinch, losing up to $1500 in after-tax income. Because of the way the offset was originally set up, its removal will significantly affect take-home pay.
A person earning $100,000 annually will have about $23 less per week in their pockets once the tax offset ceases. If you are earning half that amount, you will lose even more. You’ll receive $29 less per week after tax.
Is Labor ‘failing families’?
Opposition Leader Peter Dutton claims the removal of the tax offset – known as the Low and Middle Income Tax Offset and more colloquially as the lamington – is another example of Labor failing families. Shadow Treasurer Angus Taylor has echoed Mr Dutton’s sentiments.
“Already under Labor, families are suffering with higher interest rates, with higher electricity prices, with higher bills wherever they go as a result of the decisions that the government’s made,” he said. “And now they’re $1500 a year worse off under this government.”
In response, Dr Chalmers says the criticisms are “completely bizarre” and “characteristically dishonest”.
“Angus Taylor was in the Cabinet that decided that this payment would end last year. It is characteristically dishonest of him to pretend otherwise,” said Dr Chalmers. The tax offset was extended for one final time in last year’s Budget, with both parties supporting that extension. But Dr Chalmers says neither party ever considered extending the tax offset beyond 2022-23.
Offsetting the loss of an offset
The news is not all bad, depending on your income. The Stage 3 tax cuts formulated as part of the Turnbull government’s original plan will provide some relief for those earning more than $45,000. It will, to a degree, offset the loss of the earlier offset.
On the other hand, those Stage 3 cuts will not kick in until next year. What’s more, they will still leave most worse off than they are now.
Ahead of next month’s Budget, Dr Chalmers said the removal of the offset was necessary, given current budgetary pressures. He added that no-one should be surprised.
“Both before the election and after the election, we made it clear we couldn’t afford to extend the low- and middle-income tax offset,” he said.
Labor will save at least some money when the Stage 3 tax cuts are introduced. The Albanese government announced in February legislation that will double tax earnings on super accounts with more than $3 million. The rate will go from 15 per cent up to 30 per cent from 1 July 2025.
Were you aware those tax offsets had an expiry date? Will that have a significant impact on your potential tax refund? Share your thoughts in the comments section below.