Future Tax Cuts are Fiction
The 2018 Federal Budget proposes changes to the tax rates over 7 years which almost certainly will not happen.
Just as the proposed increase in the Medicare Levy to 2.5% was withdrawn in the last couple of weeks by the same Government that announced it, the newly announced tax cuts that stretch out across many future federal budgets, are fiction.
Tax scales need to change with inflation over time to account for ‘bracket creep’ and variations occur over time depending upon the success or otherwise of political parties pandering to their electorates, while also trying to achieve desired economic outcomes depending upon business conditions over time.
Adjusting tax scales is not ‘tax reform’ (as suggested across the media today), and shifting a threshold from $87,000 to $90,000 only gives back a bit of the ‘bracket creep’.
Even in May 2018 the Government’s crystal ball does not reveal how the economy will perform for the almost completed 2018 financial year. Any suggestion that the Government can make economic forecasts going out 7 years and set in stone tax rate changes that will be suitable in future, is not credible.
In the near term, assuming at least the short-term changes come in, though even these are not guaranteed with the Government intending to link these tax changes to the controversial corporate tax cuts that have been stuck in Parliament for many months.
The only change, from 1 July 2018 is:
· A shift in the threshold from $87,000 to $90,000, where the 32.5% rate increases to 37%.
The ‘never never’ tax cuts, from 1 July 2022:
· A shift in the threshold from $37,000 to $41,000, where the 19.0% rate increases to 32.5%;
· A shift in the tax threshold from $90,000 to $120,000, where the 32.5% rate increases to 37.0%.
The ‘over the rainbow’ tax cats, from 1 July 2024:
· All income between $41,000 and $200,000 will be taxed at a flat 32.5% (the 37% rate will be eliminated);
· The top rate of tax of 45% will only apply to income over $200,000.
A combined Low Income Tax Offset of (up to) $445 and (new) Low & Middle Income Tax Offset of (up to) $530 means lower tax for people earning up to $125,333. These offsets are ‘non-refundable’. This means taxpayers earning more than $125,333 will not get any benefit from these offsets, and will be in this form only for 4 years. It is expected only one ‘low income tax offset’ with a higher dollar value, will apply thereafter.
And you will need to lodge your tax return to get these prizes from the ATO, as they will only be determined and provided on assessment, rather than as part of your pay packet.