Sun. Feb 25th, 2024

    Anthony Albanese WILL break election promise to overhaul phase three tax cuts, with workers earning less than $150,000 the biggest winners – here’s what it means for you

    The federal cabinet has reportedly signed off on a major overhaul of tax cuts in the third phase, despite an election promise to implement the package as legislated on July 1.

    The opposition has already opened fire on political power, calling the backlash to Morrison-era changes ‘the mother of all broken promises’

    Low and middle income earners will be the winners from the government’s changes to statutory tax cuts, but high income earners will get less than expected.

    Under the original tax changes, which will apply from July 1 this year, the marginal tax rate of 32.5 percent would be reduced to 30 percent, while the 37 percent tax bracket would be abolished.

    The top rate threshold of 45 percent would have increased from $180,000 to $200,000.

    Prime Minister Anthony Albanese (pictured right with partner Jodie Haydon) had previously said the phase three cuts would come into effect as laid down in law

    The reported new Phase 3 tax cuts at a glance

    For those earning up to $45,000, nothing will change.

    Income between $45,000 and $135,000 is subject to a marginal tax rate of 30 percent (from 32.5 and 37 percent).

    Income above $135,000 to $190,000 is subject to a 37 percent tax rate.

    The top rate of 45 percent comes to $190,000 instead of $180,000.

    Workers earning up to $150,000 could be better off overall under the changes, as they will benefit from lower tax rates for every dollar they earn up to $135,000.

    However, it would make those with incomes above $150,000 relatively worse off.

    Under the original Phase Three package, the 32.5 percent marginal tax rate would be reduced to 30 percent and the 37 percent would be eliminated, and the 45 percent tax rate threshold would be raised from $180,000 to $200,000.

    But the government, under pressure over living costs and criticism of the generosity of tax cuts for higher incomes, has backed away from the package.

    The Cabinet met Tuesday and approved changes expected to lower tax rates for those earning between $45,000 and $135,000.

    The 37 percent rate will no longer be abolished, but will be introduced at $135,000.

    The top marginal tax rate of 45 percent will remain, but will apply to an expected $190,000 instead of the statutory $200,000.

    Under the changes, all income earners will receive a tax cut, but for those with higher incomes the relief will be less than under the Morrison-era tax package.

    The treasurer’s office declined to comment on the reports.

    It is understood that the changes, which will come into effect from July 1, will have no impact on the budget outcomes.

    In his only media appearance on Tuesday, Prime Minister Anthony Albanese said people were “hyperventilating” over the rumours, after previously promising the government would stick to the tax plan before the election.

    “I support tax cuts and everyone gets a tax cut,” the Prime Minister told Kyle and Jackie O, the country’s highest-paid radio stars, on KIIS FM.

    The changes are expected to be agreed by Labor MPs on Wednesday at the urgent cost-of-living talks Mr Albanese spoke about last Saturday.

    Like the Greens, who have called for the tax cuts to be scrapped, the government is unlikely to face major obstacles in passing legislation to update the tax package through parliament.

    The changes will reportedly benefit workers earning between $18,200 and $135,000

    But the coalition has gone on the attack over the government’s “broken promise” and said it would strongly oppose any changes to the tax package already legislated.

    Speaking on Sky News, Shadow Treasurer Angus Taylor said that ‘abandoning every aspect of the tax cuts in phase three would be the mother of all broken promises.’

    “The Treasurer and the Prime Minister have collectively committed to these tax reforms more than 100 times,” Taylor said.

    “If they break this promise, there it is. But you know, it’s not too far for the Albanians to break promises.’

    Before Tuesday’s Cabinet meeting, David Pocock, a key Senate senator, said the tax cuts should be changed from their original form.

    “This is a difficult task for the government, but I am really concerned that you go ahead with these (tax cuts) and then we will have to find other money to cover living costs,” Mr Pocock said.

    “The phase three tax cuts in their current form are poorly designed and I believe they are the wrong policy for the current economic climate.”

    On Tuesday, a coalition of business groups warned that any amendment would “undeniably damage the government’s credibility.”

    In a joint statement, the Business Council of Australia, the Australian Chamber of Commerce and Industry, the Australian Industry Group and the Minerals Council of Australia said “tinkering around the edges would mean a promise has been broken”.

    In response to criticism that the tax cuts are unfair, the organizations said it was important to view the tax cuts as part of a package, and not in isolation.

    “It is easy to forget that the first and second phases of the 2018 reform package focused primarily on lower- and middle-income taxpayers and that the entire package is much more balanced,” they say.

    But the ACTU called on the government to end the tax cuts altogether, citing the benefits high earners received.

    “The government must abandon the third tax cuts,” said ACTU secretary Sally McManus. ‘We need more help for people who are really under pressure on the cost of living, and these tax cuts will especially help those who need them least.’

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