Over 11 million Aussies are set to pay less in tax as part of changes outlined in the government’s newly-unveiled budget, which sounds great, until you realise that it still ends up favouring the rich.
For most of us, these tax cuts will be temporary, while for those earning over $120,000, the changes are permanent.
Nevertheless, the government reckons everyone will be better off, which is technically true for the time being.
“Australians will have more of their own money to spend on what matters to them, generating billions of dollars of economic activity and creating 50,000 new jobs,” Treasurer Josh Frydenberg said.
Here’s what it means, and what might change in future.
How much will I save on tax?
The threshold for the lowest tax rate of 19% will be pushed up from $37,000 to $45,000, while the 32.5% threshold will be pushed from $90,000 to $120,000.
So, if you earn up to $45,000 per year, expect to pay 19% of that in taxes, which might be less than you paid last time around.
According to the government’s calculations, someone earning around $40,000 per year will end up paying 21% less tax this year than they would’ve three years ago.
These changes are a part of the government’s Stage 2 tax cuts due for 2022, but they’ve been brought forward to help cope with the economic shitstorm caused by the coronavirus pandemic.
On top of that, the Low and Middle Income Tax Offset (LMITO) will be kept for one more year, reducing people’s taxes by up to $1,080 per year.
This particular offset is only for people earning less than $126,000, and you probably received it last year automatically.
Can you break it down in even simpler terms?
Obviously everyone’s situation is different, but here’s your cheat sheet for the main savings:
- If you earn up to $35,000 a year, you’re set to pay $510 less in tax compared to 2017-18
- If you earn from $40,000 to $45,000, you’ll save between $1,060 and $1,935
- If you earn from $50,000 to $85,000, you’ll save $2,160
- If you earn from $90,00 to $120,000, you’ll save between $2,295 and $2,595
- If you earn more than that (lol), you’ll save $2,565, which is set to increase in coming years
When will I get my tax cut?
Starting from now, pretty much.
All of these changes have been backdated to July 1, so the ATO will be taking less out of your paycheques from here on out.
And if you’ve paid too much in the past few months, that can be sorted out in your tax return.
Will rich people or poor people be better off?
In the short term, we’ll all pay less in tax. However in the long run, only the rich will be significantly better off.
That’s because the bulk of lower and middle income earners will only get temporary tax cuts due to the LMITO being extended, rather than any huge changes.
After next year, those cuts will be gone, while only a handful of low and middle income earners will benefit from the tax thresholds moving.
THREAD on income tax cuts – the govt will trumpet the green column which gives a rolled up figure, but what's really going on is the yellow column is a one-off boost in 2020-21, and pink is the permanent increase.#auspol #Budget2021 pic.twitter.com/KaF6dvsN6W
— Paul Karp (@Paul_Karp) October 6, 2020
Meanwhile, people earning over $120,000 won’t get the offset. Instead, their tax cuts are permanent, as part of those Stage 2 tax cuts mentioned earlier.
These tax cuts were due to come into effect in two years but were brought forward due to the pandemic.
How does this help the economy?
The government reckons if Aussies pay less tax, they’ll instead spend that money on goods and services, thereby stimulating the economy.
The hope is that this financial year, all Aussies will be flush with with cash and keen to spend it ASAP.
However, this only focuses on people who actually have jobs. Prolonging (and even increasing) JobSeeker would also stimulate the economy in the same way, but that’s not on the cards.
Instead we’ve been given this extremely temporary band-aid, which just means the rich will pay less in tax in the years ahead.