Government Tax Cuts: What You Need To Know
What the new tax cuts mean for you.
The federal government's controversial, massive package of tax cuts has passed the parliament today, after weeks of furious horse-trading, negotiation and tricky parliamentary tactics.
The seven-year, three-stage, $144 billion plan will eventually see nearly 95 percent of Australians paying 32.5 percent tax or less, slashing the top tax rates for those earning up to $200,000.
Those on lower incomes will get the biggest immediate relief, with a tax cut of up to $530 for those under $80,000 kicking in from next financial year, while millionaires will get more than $7200 in tax cuts from the 2024-25 financial year.
WHAT'S THE PLAN?
The package is split into three parts -- stage one to come in from 2018-19, stage two from 2022-23, and stage three from 2024-25.
The most immediate impacts will be felt at tax time, when increased tax offsets in stage one of the plan will mean:
- those on $40,000 will save $5.58 per week ($290 a year)
- those on $60,000 will save $10.19 a week ($530 a year),
- those on $100,000 will save $9.90 a week ($515 a year),
- those on $130,000 or above will save $2.60 a week, or $135 a year.
Later stages of the plan will see the ceiling on the 32.5 percent tax rate raised from $90,000 to $120,000, and then the 37 percent tax rate abolished entirely.
By 2024-25, the plan would effectively mean everyone earning between $41,000 and $200,000 will pay only 32.5 cents in the dollar in tax.
Morrison and Prime Minister Malcolm Turnbull framed the tax cuts as a protection against "bracket creep", as passing time and inflation increase workers' incomes, pushing them into higher tax brackets. The government said it wants people to give people incentive to work harder and earn more.
WHO ARE THE WINNERS AND LOSERS?
The government has also tried to frame the tax cuts as a win for low- and middle-income workers, but some analysis has shown changes will see lower-paid people paying a higher share of the total tax burden than they do now. This modelling, from the Grattan Institute, also forecasts the bulk of the cost of the cuts -- $15 billion of the $25 billion annual cost -- is in tax cuts for the top 20 percent of earners.
Other modelling, from Deloitte Access Economics, claims top earners will end up paying even more than they do now.
Analysis from the Parliamentary Budget Office showed the third stage of cuts would see men get $30 billion of benefit, and women only $11 billion, due to the gender pay gap -- which is even more pronounced at higher incomes.
While the end results are in dispute, it is clear lower-income workers will get the most immediate benefits. In seven years time, however, millionaires will be paying many thousands less in tax.
WHAT'S BEEN HAPPENING IN PARLIAMENT?
In short, a lot.
Stage one of the cuts, aimed at lower-income workers, had wide support. However, Labor and the Greens opposed stages two and three, for higher-income workers. The left-wing parties asked the government to split the income tax plan into sections, so lower-income workers could have their tax cuts sorted out quickly, and debate could continue on cuts for richer workers.
However, the government refused. It led to drawn-out debate and parliamentary procedure this week. The income tax bill passed the House of Representatives quickly but was blocked in the Senate, where the government does not have a majority. Labor, the Greens and several crossbenchers teamed up to vote down the bill in the Senate, calling for changes.
The government then gagged debate in the Senate, the bill was sent back to the House where debate was again gagged -- a Labor source said simultaneously stopping debate in both houses was an extraordinary and unprecedented step.
The House passed the bill again, then -- thanks to the newfound support of One Nation and the Centre Alliance -- it finally passed the Senate on Thursday morning.
Hanson was accused by Labor of selling out lower-paid workers by giving millionaires a tax cut.
Well, the changes kick in from 2018-19. However, as many have pointed out, the later tax cuts don't initiate until 2022. By then, Australia may have had two federal elections, including one due by early next year.
Labor is likely to strip away the stage two and three changes if they win a future election before the later tax rates kick in, but for now, the government has won a major victory which will likely endear them to many workers ahead of the coming poll.