$11,640 hidden tax cut for super rich
THE Federal Budget handed down by Treasurer Josh Frydenberg has been hailed as a generous cash splash to win the votes of lower and middle income Aussies.
But it will also give a serious tax break to high-income earners.
If the government is re-elected, it has big plans to flatten out tax rates, which would lead to big cuts for the wealthy.
The government wants to lower the marginal tax rate - which covers those earning $37,001 to $87,000 - from 32.5 cents in the dollar to 30c.
But then it wants to go a step further and abolish the second highest tax rate of 37c by lifting the 30c marginal tax rate threshold from $87,001 to $200,000.
This would give an additional tax cut to everyone earning between $45,000 and $200,000 - more than 94 per cent of all Australians.
It would cut the number of income tax brackets from five to four, and would mean everyone earning between $45,001 and $200,000 would effectively pay the same tax rate.
This is a significant change to Australia's progressive tax system, which is based on the principle that those who earn more should pay a higher percentage in tax.
If implemented, it would mean an Aussie on $50,000 a year would receive a $1205 tax cut based on 2017-18 levels. Someone on $200,000 would receive a whopping $11,640.
Mr Frydenberg insists, however, the tax system will remain "highly progressive".
"The top 5 per cent of taxpayers (will pay) one-third of all income tax collected," the Treasurer said in his Budget speech.
"And someone earning $200,000 (will pay) 10 times as much tax as someone on $45,000."
All that said, don't hold your breath on these structural changes. They are not scheduled to kick in until 2024-25, so the Morrison Government would need to win the next two elections to implement them.
WHAT'S THE BIG IDEA?
The new, bigger tax cuts are an acknowledgment by the government that people are feeling the pinch. Six weeks out from an election, they are hoping it will be a decider for swing voters.
"This tax relief will lift household incomes, ease cost-of-living pressures and boost spending at local businesses," Mr Frydenberg said.
The Treasurer is also keen to paint Labor as the party of higher taxes.
In his Budget speech on Tuesday night, he mentioned the word "tax" 44 times.
The most repeated line in the speech was that the government would create a stronger economy "without increasing taxes". In fact, he used the phrase "without increasing taxes" 10 times in the speech.
CAN WE AFFORD IT?
The tax cuts announced yesterday will cost the government $19.5 billion in lost revenue over the next four years.
If you include the larger structural changes to the tax system, the reforms cost $158 billion to the Budget bottom line over the next decade.
Mr Frydenberg announced a Budget surplus on Tuesday night - the first in 12 years - of $7.1 billion and has predicted surpluses to continue over the next four years.
If his projections prove to be correct, the government will have a $45 billion in surpluses over the next four years.
But many critics have pointed out a projected surplus is not actually a surplus.