Australia Slashes Taxes for Lower Earners

The Australian Treasury delivered tax cuts to the country’s lower- and middle-income earners in early May.

The move is part of a seven-year tax plan aimed at reducing cost pressures on households. Specifically, the Treasury will provide an income tax relief of up to A$530 (USD$430) per year to workers earning less than A$90,000 (USD$67,000) in 2018–19. The plan will also lift the third-highest tax bracket and double the Low-Income Tax Offset.

Interestingly, the move is a significant policy divergence for the incumbent Liberal-National coalition, which has previously made priorities of cutting both the national deficit and debt. However, analysts say that stronger economic fundamentals have given the government the freedom to roll back taxes. Specifically, the mining-driven Australian economy has benefitted from higher corporate and income tax receipts because of the spike in commodity prices, as well as an employment boom.

“This is not spending or a giveaway. We are simply enabling Australians to keep more of what they have earned,” said Treasurer Scott Morrison.

Morrison pointed out that despite the tax cuts, the country is still expected to return to a surplus by the 2019–20 financial year – a full year ahead of schedule.

However, not everyone is a fan of the plan. The Australian Labor party has decried the adjustments as insufficient. Moreover, while the government’s tax plan benefits lower earners now, a subsequent phase of it will benefit higher earners down the line.

“The government has also flagged its intentions for wider tax reform, introducing a flat tax rate of 32.5 percent for everyone earning between $41,000 and $200,000, while abolishing the 37 percent tax bracket entirely – but not until July 2024,” a Guardian commentator observed. “It’s a way the government can signal to its base and high-income earners that it has a plan for them. It may not be now – this is when the low- and middle-income earners get their sugar hit – but it is in the works.”

The bottom line? Australia is likely in for some major changes to its tax regime in the upcoming years. The recent tweaks for lower earners are just the start.