‘The lost generation’: How hundreds of thousands of young Australians will take a $5,000 hit to their annual salary that many may NEVER recover from
- Australians starting work could lose eight per cent of salaries due to COVID-19
- Average starting salary is around $65,000 meaning $5,000 could be lost
- Within five years these workers could still be earning up to 3.5 per cent less
- Government set to backdate tax cuts to July this year in bids to help economy
- Treasurer Josh Frydenberg will reveal the Federal budget on Tuesday evening
Young Australians could lose $5,000 to their starting salaries next year, sparking warnings they may become a ‘lost generation’ who may never recover.
School leavers and university graduates are warned they could be the victims of scarring after the global health crisis led to Australia’s first recession in almost 30 years.
Scarring, which in economics refers to the medium to long term damage following a financial downfall, is more likely to impact young people who are attempting to get their foot in the door.
Treasurer Josh Frydenberg told news.com.au: ‘For young people, it’s the Treasury’s estimate that young people will be earning on average about eight per cent less in their first year in the job market as a result of COVID.
‘And even in five years’ time they will be earning about 3.5 per cent less.’
Young Australians starting their first job out of university could see $5,000 less in their salaries as a result of the COVID-19 pandemic (pictured young woman in Sydney working at the Royal Randwick Racecourse)
The average starting salary for university graduates is around $65,000 according to Graduates Australia – meaning an eight per cent loss would equal to around $5,000.
The tax cuts can give young workers $1,080 back, but this will still leave them with around $4,000 less than normal on their salaries.
‘This is what we are in. So what we are really focused on is getting people back to work to avoid what economists call the scarring effect,’ the treasurer said.
Shadow Treasurer Jim Chalmers warned Tuesday’s Budget needed to ensure young people didn’t become a ‘lost generation’ due to the impacts of recession.
‘This is an incredibly important budget. It’s framed in the teeth of the deepest, most damaging recession we’ve seen in Australia for almost 100 years,’ he said.
‘We confront a full-blown jobs crisis in this country… At risk here is a lost generation of Australian workers sacrificed to the first recession in this country in three decades.
‘The test for this budget is what it means for unemployment. If unemployment is too high for too long, then this budget and this Government would have failed its central task.’
Unemployment – which is now up to 6.8 per cent – and people competing for jobs is another reason why wages would be much lower than in previous years.
My Frydenberg noted that while young people and women were some of those suffering the most financially from the pandemic, these groups were ‘recovering faster’ and returning to work.
Due to higher numbers working in retail and hospitality, women made up 54 per cent of the jobs that were lost.
However, out of Australians who have already returned to work, women make up 60 per cent.
Young people made up 38 per cent of those unemployed as a result of lockdowns, but 39 per cent of them have already got their jobs back.
Treasurer Josh Frydenberg estimated young people going into their first full time jobs could see an eight per cent reduction on their salary compared to other years
Meanwhile, 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.
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.
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
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
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.
Deputy Prime Minister Michael McCormack said the tax cuts would give Australians more freedom with their money.
‘What we want to do is make sure more Australians have more of the money that they earn,’ he told reporters on Monday.
‘It’s their money and we want to be able to give them the opportunity and the choice to spend it.
‘Yes, if they want to save it, that’s a good thing too.’
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.’
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.
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