Bill Shorten has been promising “bigger, better and fairer tax cuts” for workers earning under $125,000 for nearly a year now.
But the big question on budget night is whether Scott Morrison will match them.
If the Prime Minister does, Labor signalled on Sunday it is prepared to match them again, confirming it will consider more generous tax cuts for low- and middle-income earners to relieve cost-of-living pressures.
As it stands, Labor is offering working Australians earning up to $130,000 a year a better deal on tax cuts from July 1, 2019.
The ALP argues a teacher on $65,000 will secure up to $928 a year, and a couple earning $90,000 and $50,000 will secure a $1855 tax cut under Mr Shorten’s plan.
The difference between the two rival tax-relief plans would see workers earning under $125,000 up to $400 a year better off under Labor.
But the Coalition’s tax cuts, announced in the 2018 budget, are a 10-year proposition.
They are much more generous over time, particularly for middle- and high-income earners.
For example, by 2024 someone earning more than $200,000 a year could secure a huge tax cut of $7000.
“The government’s tax cuts are bigger in terms of more dollars, but they take longer to get there,” explains Deloitte Access Economics’ Chris Richardson.
Of course, there’s no guarantee those tax cuts will ever prove “real” if the government changes hands.
That’s because Labor is pledging to repeal the tax cuts for high-income earners.
The Liberals are expected to offer more relief for low- and middle-income earners in Tuesday night’s budget.
On Sunday, Treasurer Josh Frydenberg stressed the Coalition is the party of “lower taxes” but refused to be drawn on whether the legislated tax cuts will be brought forward to start earlier.
“In terms of taxes they’ll always be lower under the Coalition, and what we delivered in last year’s Budget was $144 billion of tax cuts which will see 95 per cent of taxpayers better off,” he told the Nine network.
— Josh Frydenberg (@JoshFrydenberg) March 31, 2019
“Bill Shorten wants to reverse those legislated tax cuts. And it doesn’t matter if you’re going to run a business or go to work or put extra money in super or buy a property or buy a share, you’ll pay higher taxes under Labor.”
That could trigger a tax auction, with Labor banking big revenues from the negative gearing changes and the franking-credits changes.
“In relative terms they [low- and middle-income earners] are not the group that pays the bulk of all tax. So the government has the ammunition to do more,” Mr Richardson said.
“It’s just that because the ALP has banked more on the tax front already, it also has more ammo to respond.”
"The Treasurer changes from Budget-to-Budget, it seems. But the fact that they don't meet the wages forecast doesn't change."
— Insiders ABC (@InsidersABC) March 30, 2019
The Liberals’ 10-year income tax plan
Parliament passed the government’s three-phase tax cuts in June 2018.
Under the first phase, 10 million taxpayers are already securing tax relief, with nearly half set to secure the full $530 benefit when they put their 2018-2019 tax return in.
The Liberals argue that when their full tax-relief plan is in place, a public school teacher in Victoria would pay between $800 and $1200 more tax every year under Labor’s plan. (But not until 2024.)
That’s because Labor will repeal the second and third stages of the government’s already legislated personal income-tax plan on current policy settings.
Phase one: Relief for low- and middle-income earners – 2018-19
More than 10 million taxpayers have already secured tax relief in 2018-19, with 4.4 million Australians receiving the full $530 benefit.
“The Coalition has already delivered that tax cut, but it’s not yet in voters’ hot little hands. It’s already there, but you don’t know it,” Mr Richardson said.
“What Labor did was to get that first stage and basically multiply it by 1.75, not quite double it.
“That’s great politics and it’s cheaper and it delivers bigger tax cuts to the bulk of people.
“Given that, I would say the Coalition absolutely has to do more for those on low to middle incomes.”
The first stage of the Coalition’s tax cuts that started in July 2018 is designed to directly target low- and middle-income earners with a Low and Middle Income Tax Offset (LMITO).
The offset is designed to ensure the tax cuts don’t flow through to all taxpayers and instead remain tightly targeted.
The other change is an increase in the income threshold for the 37 per cent rate to $90,000.
Phase two: High- and middle-income earners – 2022
The second tranche of the Coalition’s promised tax cuts for higher-income earners doesn’t kick in until July 2022.
That’s when the income threshold for the 32.5 per cent tax bracket will increase from $37,000 to $41,000.
At the same time, there’s a big jump for the 37 per cent bracket, which will leap from $90,000 to $120,000.
During this phase, the value of the LMITO for workers earning from $50,000 to $90,000 is lost and they no longer secure a substantial tax cut in these years.
Phase three: High-income earners – 2024
The biggest bang to the tax cuts that Mr Morrison is promising don’t kick in until 2024.
That’s when the Liberals would abolish the 37 per cent tax bracket altogether.
Instead, a 32.5 per cent tax rate would apply to earnings between $41,000 and $200,000.
A new top tax threshold of $200,000 is also established for the 45 per cent tax rate. Currently that top tax rate kicks in at $180,000.
High-income earners will secure a huge tax cut under this plan worth just over $7000.
Labor offering a better deal for workers earning $125,000 – for now
On Sunday, opposition treasury spokesman Chris Bowen said that the Coalition will have to dig deep to match the size of Labor’s tax cuts for workers earning under $125,000.
“You’re right to say that firstly, the government has a lot of catching up to do,” he said.
“We have bigger tax cuts, 75 per cent bigger than the ones the government has offered, for every Australian who earns less than $125,000 a year. That’s 10 million Australians.”
Mr Bowen made clear the ALP was also prepared to match any bigger tax cuts for low- and middle-income earners if the Coalition tries to outbid Labor.
“We’ll look at the budget on Tuesday night and in the days following through an air of responsibility, and obviously if there’s sensible things which help the cost of living, we’ll support them,” he said.
“Certainly, you can afford tax cuts when you’ve made the right decisions elsewhere in the budget, like we have.
“Difficult decisions to get the budget back into surplus like negative gearing reform, capital gains tax reform, dividend imputation refundability reform and family trusts as well.”
Mr Bowen also confirmed that Labor will have a mini-budget later this year if elected.