Tax cuts brought forward to help small business

Millions of Australians will have more money in their pockets within weeks, as the Federal Government plans to bring forward and supercharge tax cuts in tomorrow's Federal Budget, with the Government trying to support business to create new jobs.

Key points:

• The Budget will bring forward income tax cuts scheduled for 2022
• The plan will cut taxes for anyone earning more than $37,000
• The Government hopes the extra money will lead to spending and kick start the economy

Leaks for the budget are out already and tax cuts seem very likely to happen, with those scheduled to start in July 2022, being brought forward and backdated to July this year.

The Government hopes the cuts will take effect by month's end, injecting up to $12 billion into take-home pay in 2020-21.

Under the plan, the upper limit of the 19 per cent personal income tax bracket will rise from $37,000 to $45,000 and the 32.5 per cent marginal tax rate upper threshold will lift from $90,000 to $120,000.

The tax plan means people who earn between $45,000 and $90,000 will take home an additional $1,080 this financial year.

Workers who earn more than $90,000 will take home up to $2,565 extra, with people earning more than $120,000 receiving the maximum benefit.

With Labor not expected to oppose the move, the Government believes the new tax scales could be in place within as little as two weeks.

But by that stage, four months of the financial year will have passed — which means four months of notionally lower taxation for millions of workers.

To address this, it is understood the tax cuts would be built into the last eight months of wages.

For example, a worker on $85,000 would be entitled to $42 extra a fortnight over 12 months, but will instead get tax relief of about $63 each fortnight for the remainder of the financial year, before it drops back to $42 in 2021-22.

A worker on $140,000 who would be entitled to $99 extra a fortnight would instead keep about $148.

It will be tricky implementing changes well into the year, adding complexity to administration and accountants, but circumstances are such, that the Government will take the risk. Think tanks have long held we need to reduce our tax, which some say will benefit the rich over the poor, but in these unprecedented times, the Government are looking at who will be creating jobs.

Terry Murphy

Last updated: 6th October 2020