Scott Morrison says a household with both parents working could save up to $1,000 a year and raises ambition for flat tax

This article is more than 2 years old

This article is more than 2 years old

Low and middle-income earners have emerged as the biggest winners from the government’s planned tax cuts, with a dual-income family potentially saving $1,000 a year on their annual tax bill.



The measure is part of a three-point plan to overhaul the Australian tax system, with the government flagging its plans to install a flat tax rate past the next election cycle.

That would eventually see a worker earning $41,000 paying the same tax rate as someone earning $200,000.

But it is the next election that appears to be Scott Morrison’s immediate priority, with his personal income tax plan delivering immediate relief for those earning up to $90,000 a year.

Under the plan, low-income earners with wages of up to $37,000 a year will have their tax offset by an extra $200 on top of established offsets.

Those earning between $37,001 and $47,999 will receive a tapered reduction up to a maximum of $530 a year, while those earning between $48,000 and $90,000 will receive the maximum offset of $530.

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The average Australian wage is $84,600 and people earning that would be considered in the top 25% of Australian income earners.

“For middle-income households, with both parents working on average wages, this will boost their ‘kitchen table’ budget by more than $1,000 every year,” Morrison said in his speech.

Those earning more than $90,000 will receive a tapered tax offset of up to $125,000 – meaning the more they earn the less they will receive as an offset.

The tax savings won’t be found in pay packets each week, with the intention that the offset be used as tax returns are being filed. Someone who reduces his or her taxable income to zero but still has some low and middle-income tax offset available will not get the remainder as a refund.

Morrison said funding for the government’s plan would not be “clawed back by other tax increases”, remaining committed to maintaining the Medicare levy at its current level.



It is the first of a three-step, seven-year plan the government intends on legislating, with the second step to cleave back bracket creep, first by raising the 32.5% tax bracket from $87,000 to $90,000 from 1 July 2018.

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Beyond that, the government has flagged further threshold changes in 2022-23, which is when the $37,000 bracket is earmarked to lift to $41,000, and the $90,000 threshold would be raised, again, to $120,000.

From there, Morrison has planned some of Australia’s biggest tax changes, with a proposal to abolish the 37% tax bracket in its entirety from July 2024, meaning all Australians earning from $41,000 up to $200,000 will pay a flat tax rate of 32.5%.

That would put 94% of workers in the same tax bracket, with the high-income earners on more than $200,000 paying the top marginal tax rate of 45%.

It is an idea that has gained favour with conservative US thinktanks in recent years.

Morrison said it was part of a plan to make the nation’s tax system “simpler”.

Quick guide 2018 budget at a glance Show Hide • Tax cuts for middle low and middle income earners with most saving between $200 and $530 a year on their tax bill through a tax offset • Ambition for a flat tax rate by 2024 of 32.5% for everyone earning between $41,000 and $200,000 • $4.5bn earmarked for roads, but major public transport projects will have to wait years for the lion's share of funding announced in the budget. $24.5 billion has been directed to new commitments, but only $4bn of that is being spent in the next four years • The controversial robodebt electronic debt recovery is to continue • Newly arrived migrants will have to wait another year to receive welfare assistance, while refugees will see their wait for Newstart doubled to 26 weeks • Superannuation funds to be banned from charging exit fees and fees for accounts under $3,000 will be limited to 3% • ABC to have its funding cut by $83.7 million over three years. Meanwhile a Captain Cook statue in Scott Morrison’s electorate is to be built at a cost of $25m • ‘Black’ economy is under the spotlight with government planning to claw back revenue it is losing to illegal tobacco. Home Affairs estimates it can earn $3.6 billion from a crackdown • Pensioners will be able to earn an additional $25 a week without reducing their pension. The pension loan scheme is also being expanded, which allows pensioners to use their homes as equity to boost their retirement incomes • $1.6bn is being spent to support an additional 14,000 additional high-level home care packages. A further $82.5m is being spent on mental health services for older Australians, including a $20m “loneliness” package, to help people “remain connected to their communities”. • New measures to help crack down on multinationals avoiding tax commitments. The government is also moving to add to previously announced measures to make sure income earned in Australia, can be taxed by Australia.

“Australians earning more than $41,000 will only pay 32.5c in the dollar all the way up to the top marginal tax rate threshold, which will be adjusted to $200,000, to account for inflation and expected wage movements over the next seven years,” he said in his budget speech.

“Under the Turnbull government’s personal tax plan, most working Australians earning above $41,000 are likely to never face a higher marginal tax rate through their entire working life.”

The plan extends beyond the budget forward estimates and into two election cycles.

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“This is not spending or a giveaway,” Morrison said. “We are simply enabling Australians to keep more of what they have earned.

“Everyone pays the price of higher taxes. It weakens the economy and costs jobs. You don’t have to punish some people with higher taxes, who are already paying the majority of tax, to give others tax relief.”

The plan enables the government to signal to higher income earners they will receive relief down the track, while also reassuring its base it remains committed to wider tax reform.

But it is also likely to provide Labor with further ammunition in its “fairness” crusade against the government, as the opposition seeks to highlight inequality between Australia’s earners.