Budget 2018: Scott Morrison gives tax system a shake-up in pre-election plan aimed at low-income earners

Updated

Small tax cuts and more relief over the next seven years are at the heart of the federal budget, with a dramatic shake-up of the tax system beginning in July.

Key points: Tax overhaul forms the main plank of the 2018 budget

Big money also earmarked for older Australians, mental health and infrastructure spending

Superannuation funds also targeted with ban on exit fees

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There will be up to $200 a year for low-income earners and up to $530 extra a year for people on middle incomes.

In a concession it is a modest amount, Treasurer Scott Morrison said it was "what can be responsibly afforded while keeping the budget on track".

But he argued $530 could be used for a new set of tyres or a quarterly electricity bill.

The tax break will be delivered through a new low-income tax offset (LITO).

Mr Morrison said another 210,000 people would get tax relief as the income bracket is lifted from $87,000 to $90,000 before they start paying the 37 per cent tax rate.

In a budget clearly targeted at the next election, Mr Morrison is promising to deliver bigger tax relief in five years' time by lifting the two middle thresholds.

He said that would keep tax rates down for more than 2 million people.

Asked whether the tax sweeteners were an attempt to buy swing voters at the next election, Mr Morrison said it was "to reward working Australians who have seen it tough".

"I trust Australians to look after their own money and spend it on what they think is most important to them," he said.

If the seven-year plan is delivered in full, people on higher incomes will start to see big tax cuts.

Someone earning $140,000 would get nearly $3,000 extra a year.

That would be achieved by abolishing the 37 per cent tax bracket completely and lifting the top threshold to $200,000.

The tax plan might not be delivered in full. Shadow treasurer Chris Bowen said the Opposition would support the first round of cuts due to start from July this year, but Labor has not yet said if it will back the rest of the tax changes,

Treasurer insists tax cuts are not a 'giveaway'

Mr Morrison said cutting taxes would strip $13.4 billion out of the budget over four years and cost $140 billion over 10 years.

The Treasurer defended it as affordable and funded, and insisted it was not a "giveaway".

"We are not giving anything away, it is their money. They earned it. They pay us tax," he told 7.30's Leigh Sales.

"We are saying when taxes rise too high, we've got to give the money back. If you run taxes too high as an economy, it ends up costing them their own jobs, their own investment, their own futures."

He said the budget would be back in surplus a year earlier than forecast — in 2019-20.

But it will be a skinny $2.2 billion surplus, lifting to $11 billion the following year.

Industry Super Australia chief economist Stephen Anthony warned the surplus had to be questioned, "especially as they are handing out tax cuts".

Mr Anthony said it was based on a "heroic set of assumptions" and he did not consider it a conservative forecast of economic conditions.

Older Australians, superannuants set to benefit

Sorry, this video has expired Video: Treasurer says budget to return to surplus earlier (ABC News)

Older Australians are a key element of this budget, with a promise to create 14,000 new aged care places to go some way towards fixing the shortage of about 100,000 places — costing $1.6 billion over four years.

There will also be $83 million to improve mental health services in nursing homes.

While the next election could be a year away, Mr Morrison has used his third budget to pitch to voters, not only with the tax cuts, but also with promises on superannuation.

Superannuation funds will be banned from slugging people with exit fees when they change funds.

The Treasurer is also promising to stop super funds from forcing people under 25 to pay for life insurance policies they don't need or want.

There were few surprises in Mr Morrison's third budget; massive spending on infrastructure projects across the nation had already been announced, with the rail line to the Melbourne airport the biggest project.

While the Senate has refused to fully implement the plan for company tax cuts, the 10-year plan to reduce corporate rates is a key part of the announcement.

Topics: government-and-politics, budget, federal-government, tax, work, australia

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