News Election 2019 Tax cuts explained
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Tax cuts explained

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Scott Morrison’s tax cuts promise explained

All workers earning under $130,000 a year were promised a bigger tax refund in the April 2 budget – by up to $1080.

It would be paid immediately from July 1 when workers lodged their tax returns.

But there was a catch. The Treasurer announced on budget day that the government would not rush to legislate the changes because the election would be fought on who voters trusted to deliver tax reform.

The next day, the Prime Minister Scott Morrison was asked on Today if that meant workers could miss out on the tax promise because there wasn’t enough time for Parliament to pass the laws before July 1.

Mr Morrison said that wasn’t a problem because in the past the ATO had delivered the tax cuts “administratively” without legislation if it was clear there was bipartisan support. That meant the ATO planned as if the laws had passed in the expectation it was a done deal.

However, just a few days later the ATO released a statement to The New Daily warning it could not pay the $1080 offset – a cash lump sum – unless the laws passed and secured royal assent. The statement said it could not be delivered administratively.

The same day, April 8, the ATO released a “clarifying statement” noting that some things could be done administratively, such as changing the withholding schedules for PAYG tax. Or, if the laws failed to pass by July 1, it could pay the amount retrospectively. That means workers would get the $1080 eventually but not from July 1 as promised.

On April 10 the ATO Second Commissioner Andrew Mills told Senate estimates it was too late to change the withholding schedules for the 2018-19 year. The ATO needed “absolute clarity” on the laws and that meant they needed to pass Parliament.

On April 17, the Prime Minister again told reporters the ATO could “go ahead and admit the tax arrangements” if there was bipartisan support before the legislation passed.

The ATO declined to comment, referring any questions back to its original statement on April 8.

CPA Australia said it was clear the ATO could not pay cash refunds without legislation. It asked whether the government was “pressuring the ATO” to suggest otherwise.

Recap of how the tax cuts drama unfolded

  • April 2 – $1080 offset announced

The Morrison government announces a doubling of the existing low- and middle-income offset to $1080 from July 1. On the same day, the Treasurer confirmed it will not be legislated before the election. That leaves a tight timeframe to hand out refunds within 13 weeks.

Budget 2019: Treasurer Josh Frydenberg promises a surplus – but there’s a catch

  • April 3 – Prime Minister tells Today 

The morning after the budget, the Prime Minister said there was no problem. 

The ATO would “administer” the tax cuts regardless of the legislation passing before the election because the $1080 had Labor’s support.

“If the Labor Party says they support our tax cuts, then the Tax Office can administer it on that basis,” he said.

  • April 7 – Chris Bowen warns tax cuts in limbo as PM stalls on election date

Labor’s Chris Bowen warned the delay in calling the election was putting the tax cuts in limbo.

Tax cuts in limbo as PM Scott Morrison stalls on naming an election date

  • April 8 – Treasurer Josh Frydenberg tells The New Daily he can “guarantee” the tax cuts will be delivered from July 1

Not so, insisted the Treasurer, who said he could guarantee the tax relief would be delivered immediately from July 1.

Treasurer Josh Frydenberg guarantees July tax cuts for workers

But ATO says it can only administer the law.

The same day, the ATO warned it could only administer the law. It could not hand out $1080 unless the laws passed and had royal assent.

“The ATO requires law in order to deliver the measure as announced, and, as such, it cannot be delivered administratively,” ATO statement.

  • Next: ATO issues “clarifying statement” to original.

After providing a statement saying the tax cuts cannot be delivered administratively, the ATO said there were some things it could do.

“While we do need law change there are also things we can do administratively.

“For example, if the Labor Party agrees to support the Coalition tax cuts as announced, then we would be able to update the tax withholding schedules, to allow the tax cuts to be reflected in people’s take-home pay. However, we could not issue assessments based on the tax cuts until these are passed into law.

“If the law for these tax cuts passes after June, we could also retrospectively amend assessments to provide the tax cut once the law is passed.”

Plan B for tax cuts comes under fire

April 9 – Senate raises concerns about timeline on Parliament returning before July 1

Delayed federal election a threat to workers’ tax cuts

  • April 10 – ATO requires “absolute clarity” on tax cuts

But just two days later, ATO second commissioner Andrew Mills told Senate estimates it was too late to change tax schedules for the 2018-19 taxation year.

Taxpayers’ final assessment notices could only reflect existing law, requiring Parliament to pass legislation for the offset amount.

“We need the absolute clarity that there is identity between what’s proposed on one side and what’s agreed to on the other,” he said.

  • April 17 Pre Election Economic and Fiscal Outlook

PEFO again warns the $1080 can’t be paid until Parliament passes the laws.

“The immediate relief to low- and middle-income earners component ….requires the relevant legislation to be passed before the increase to the low- and middle-income tax offset can be provided for the 2018-19 financial year. If not legislated prior to 1 July, 2019, the revenue cost of this measure would need to be reassessed.”

No legislation, no tax cuts: Treasury firm on July 1 deadline

However, the Prime Minister again suggests the ATO can fix the problem

“What happens traditionally with the tax office is, where there is a bipartisan commitment to matters, that they can often go ahead and admit the tax arrangements on that basis,” Mr Morrison said.

“It is our intention to legislate them. As we were successful last time, we will be successful again.”

  • April 18 CPA Australia asks if the Morrison government is “pressuring the ATO”.

“The ATO said they can’t change the tax schedule now to make a difference. Well of course they can’t,” CPA spokesman Paul Drum said.

“It wouldn’t surprise me if the ATO might be being pressured by the government to say something else.”