Extension of federal government’s $1080 tax offset passes parliament

James HallNCA NewsWire
Not Supplied
Camera IconNot Supplied Credit: istock

The $1080 tax offset will be extended for more than 10 million Australians after the handout passed through parliament on Thursday.

Confirmation comes after the Morrison government rolled the low and middle income tax cut over in the 2021 federal budget, which is worth $1080 for individuals and $2160 for partners.

The offset will be available for Australians in the 2021-22 financial year for singles earning under $126,000, which is payable when a tax return is lodged.

“This is more money to spend in local businesses, giving them the confidence to take on an extra worker, offer an extra shift or buy a new piece of equipment,” Treasurer Josh Frydenberg said when the budget was handed down in May.

HOW THE OFFSET WORKS

Grattan Institute economist Tom Crowley said the Morrison Government’s tax plan rollout had changed so many times it was hard to keep up but it was worth revisiting the original architecture.

“The first iteration of the plan had three stages,’’ he said. “The centrepiece of stage 1 is the Low and Middle Income Tax Offset (LMITO or Lamington).

“The Lamington cuts taxes for taxpayers who earn less than $126,000 a year.

“Taxpayers receive this as a lump sum when they file their tax returns at the end of each financial year.

“The Lamington was meant to be temporary, replaced in 2022 by stage 2: an extension of the middle tax bracket and an increase to an existing offset, the Low Income Tax Offset (LITO). Stage 2 was designed to preserve the simplicity of the tax system by avoiding ‘baking in’ the Lamington.”

WHAT HAPPENS IN STAGE 3

Stage 3, scheduled for 2024, delivers a much bigger tax cut for the highest-income earners by introducing a single flat tax rate on every dollar earned between $45,000 and $200,000.

There had been speculation the Morrison Government might bring forward the tax cuts for high income earners but that idea has been scotched.

Josh Frydenberg Presser
Camera IconThe Treasurer said the offset is a relief for lower and middle income earners. NCA NewsWire/Martin Ollman Credit: News Corp Australia

COVID’S DOUBLE TAX CUT

Last year, the Morrison Government fiddled with the tax plan again delivering a double tax cut to stimulate the economy.

“Instead of using stage 2 as a Lamington replacement — as originally intended — the government brought it forward to 2020-21, delivering stages 1 and 2 at the same time for one year only,’’ Mr Crowley said. “The intention then was to remove the Lamington the following year and thereafter revert to the original plan.

“But this has created a political problem … Removing the Lamington as legislated would create the awkward appearance of a tax rise in 2021-22 for most taxpayers.

“Perhaps uncomfortable with this prospect heading into an election year, the government is now expected to keep the Lamington alongside stage 2 for another year.”

Mr Crowley said this “casts doubt over whether the Lamington will ever be removed”.

“For as long as stages 1 and 2 remain in place together, the government’s tax cut for low- and middle-income earners is four times larger than it originally intended,’’ he said.

“Every extra year with the Lamington in place costs about $7 billion. But this still pales in comparison to the ongoing cost of stage 3, which will hit the forward estimates for the first time this budget.

“Baking in the Lamington is also a messy way to design a tax policy — almost certainly not the way the Treasury would have designed a $2000 tax cut for middle-income earners if it were designing this from scratch.”

— with Samantha Maiden

Originally published as Extension of federal government’s $1080 tax offset passes parliament

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

Sign up for our emails