Uncertainty surrounds income tax offset, think-tank warns scrapping it leaves most worse off

By Jackson Graham

February 16, 2022

Treasurer Josh Frydenberg says Australia needs to be part of international commitments for greenhouse gas emissions to be cut to net zero by 2050. 
Treasurer Josh Frydenberg. (AAP Image/Lukas Coch)

Federal treasurer Josh Frydenberg says the government is yet to make a decision on whether it will keep the low- and middle-income tax offset, as a think-tank highlights cutting it would leave most taxpayers worse off. 

Frydenberg said this week he would not preempt what was in next month’s budget but highlighted the offset responded to “particular economic circumstances we faced at the time” when it was introduced for the 2018-19 financial year. 

It followed Nine’s papers reporting the offset could be cut because of growing inflation pressures. 

Matt Grudnoff, of the left-leaning Australia Institute, says in new research that scrapping the offset in the 2022-23 financial year would lead to 90% of taxpayers paying more tax. 

“The net effect of the two tax changes will be that the two-thirds of taxpayers on less than $90,000 a year are worse off, while the third of taxpayers on more than $90,000 a year are better off,” Grudnoff said. 

His analysis finds the electorates with the biggest proportion of taxpayers receiving the most benefit from the current offset are held by Labor. 

The government has also committed to bring in “stage three” tax cuts in July 2024, when the top tax bracket will increase from $180,001 to $200,001, and lower the income tax rate to 30% for a wider bracket between $45,001 and $200,000.

Grudnoff points out the biggest gains from these tax cuts are for high-income earners, while National Party electorates are unlikely to benefit overall. 

“The top 10% of taxpayers get most of the tax cut (53%), while the bottom 20% of taxpayers get nothing,” he says. 

Frydenberg said earlier this week that new Tax Office and Treasury analysis showed young women had benefited most from the government’s tax cuts. 

They have benefited from the various initiatives that we’ve had in place, like the lower- and middle‑income tax offset,” he said. 


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