Cash splash! How Budget tax cuts will be backdated to July this year giving Aussies a tax rebate of up to $2,565 and more money in their pay packet each month
- Stage two tax cuts would give those earning $100,000 an extra $1,665 each year
- Those earning $120,000 will get an extra $2,565 under the government’s plan
- The changes were originally due in 2022 but will be backdated to July 2020
- This means they will take effect instantly, meaning Aussies pay less each month
Millions of Australians will keep more of their money this year as the government plans to backdate tax cuts.
With the country in recession for the first time in almost three decades, income tax cuts originally earmarked for July 2022 are set to be backdated to July 2020.
The stage-two cuts will benefit middle-to-high income earners, giving those earning $100,000 an extra $1,665 each year and those earning $120,000 an extra $2,565.
Millions of Australians will keep more of their money this year as the government plans to backdate tax cuts. Pictured: A tradeswoman at work
This is how much you will get back after stage two tax cuts compared with the 2017-18 financial year. Most of these changes are already in place after stage one tax cuts. The difference this time is that Aussies earning more than $100,000 will get $1,665 back and those on more than $120,000 will get $2,565 back. Under current tax rules those on $120,000 only get back $315
They build on stage-one cuts already introduced which give those earning $50,000 to $80,000 an extra $1,080.
Backdating the stage-two cuts, which raise the threshold for the 37 per cent tax bracket from $90,000 to $120,000, means they will kick in as soon as they are passed by parliament.
Those who benefit will have to pay less tax each month and the government hopes this will help drive spending and boost the economy after it was hammered by coronavirus.
Another stage of tax cuts, which helps high earners and is due to take effect in 2024, is likely to be brought forward.
The third stage of tax cuts abolishes the 37 per cent tax bracket and creates a 30 per cent tax bracket for those earning $45,001 and $200,000.
The slashing of tax brackets, from five to four for the first time since 1984, will see those at the top end on $200,000 receive a tax cut of $11,640 compared with the 2017-18 financial year.
Sources told the AFR that stage two and stage three tax cuts will be presented to parliament in a single bill.
Labor supports stage two but not stage three, setting up a potential battle in the senate where the government lacks a majority.
Critics say high earners will save their extra cash instead of spend it, but Treasurer Josh Frydenberg insisted spending levels will increase as coronavirus restrictions are lifted.
He told the Nine Network on Sunday: ‘Putting more money into people’s pockets means more economic activity and means more jobs.
‘Once those restrictions are eased and people are getting back to work and life is coming back to a Covid-safe normal, then more money would be spent and the savings ratio would go down.’
The third stage of the federal government’s tax cuts was designed to give generous relief to those on six-figure salaries from July 2024. This could be accelerated in Tuesday’s budget. This table shows how much you will get back after stage three compared with 2017-18
Scott Morrison (pictured in his office in Canberra) has said Tuesday’s budget is the most important since World War Two
Mr Frydenberg will announce his budget in a speech to parliament at 7.30pm on Tuesday.
Prime Minister Scott Morrison has described it as the ‘most important budget since the Second World War.’
The budget is normally announced in May, but the government pushed it back to better analyse the impact of the pandemic and prepare a more thorough response.
In September ministers learned that in the three months until 30 June, the economy shrank by seven per cent, the biggest contraction since quarterly records began in 1959.
On an annual basis the economy took a 6.3 per cent hit, the worst figure since the depths of the Great Depression when it shrank by about 10 per cent, and a greater contraction than after the Second World War in 1945 when growth tumbled by 5.1 per cent as troops returned home.
Not only is the government dealing with a fragile economy, but also a rapidly growing mountain of public debt after spending billions of dollars on coronavirus policies.
Measures to soften the impact of restrictions such as the boosted JobSeeker allowance and the JobKeeper payment have economists predicting a budget shortfall of more than $200billion this year.
This graph shows how the economy has been hammered by coronavirus compared with previous downturns
This graph shows how employment nosedived due to lockdowns. But more than 700,000 jobs have come back since June as restrictions were lifted
Australia’s three stages of tax cuts
Tax cuts of $255 for those earning between $18,200 and $37,000 were legislated in July 2019.
Those earning $48,000 to $90,000 saw their tax cuts double from $530 to $1,080.
The government’s tax cuts package, announced in the April 2019 pre-election Budget, had three stages.
Stage one increased the threshold for the 32.5 per cent personal income tax bracket from $87,000 to $90,000, over four years until 2022.
Stage two, from July 1, 2022, would increase the 19 per cent personal income tax bracket from $41,000 to $45,000. It also raises the 32.5 per cent personal income tax bracket from $90,000 to $120,000.
Stage three would see the 37 per cent tax bracket abolished from July 1, 2024 and a new 30 per cent tax bracket created for all individuals earning between $45,001 and $200,000. The number of tax brackets would be slashed from five to four for the first time since 1984