Millions face impact of tax offset removal

Colin BrinsdenAAP
A $1080 tax offset for low and middle income earners is due to finish at the end of June.
Camera IconA $1080 tax offset for low and middle income earners is due to finish at the end of June. Credit: AAP

Millions of Australians will be worse off when a tax stimulus measure finishes at the end of this financial year.

The $1080 low and middle income tax offset (LMITO), which benefits people with a taxable income of between $48,000 and $90,000, is due to end in June.

Analysts at the Bankwest Curtin Economics Centre estimate some 3.4 million taxpayers will lose out from its removal, 50 per cent of whom will be women.

The LMITO, which is claimable when people submit their tax return, was due to end in the 2019/20 financial year.

But it was subsequently extended as a stimulus measure in the last budget when a series of other personal income tax changes were also introduced.

Bankwest Curtin analysts say the removal of the LMITO effectively cancels out the benefits of these changes to tax thresholds for $48,000-$90,000 earners, making them no better off than they were in 2019/20.

Treasurer Josh Frydenberg is due to hand down his 2021/22 budget on May 11.

Whether Mr Frydenberg has a change of heart over the LMITO remains to be seen.

“The government doesn’t comment on budget speculation,” a spokesperson for the treasurer told AAP.

A survey by the Australian Financial Review found 61 per cent of the 530 people polled believed the treasurer should be focused on stimulating the economy, while 31 per cent say he should be repairing the budget.

Economists expect the budget will be in a far better shape than predicted just a few months ago given the boost to revenues from a much stronger than expected economy, sharply lower unemployment and rising commodity prices.

In the mid-year budget review released in December a $197.7 billion budget deficit was forecast for the 2020/21 financial year and a $108.5 billion deficit for 2021/22.

AMP Capital chief economist Shane Oliver believes the deficit could now be $125 billion for 2020/21 and around $50 billion 2021/22.

In the government’s most recent monthly financial accounts, it showed the deficit for the 2020/21 financial year to February was $134.6 billion, $23.1 billion smaller than had been anticipated after eight months.

Notably, the iron price struck a 10-year high of $US178 per tonne on Friday compared with $US55 per tonne assumed at the time of the mid-year budget review.

As a rule of thumb, for every $US1 rise in the price of iron ore, the government gains $A250 million in revenue a year.

Get the latest news from thewest.com.au in your inbox.

Sign up for our emails