A brief look at changes to Australia's personal income taxation scheme from Morrison to Albanese

 

Then Treasurer, Scott Morrison, announced the Government’s Personal Income Tax Plan (PITP) in the 2018–19 Budget. The PITP reduced personal income taxes over the next seven years through a combination of changes to tax offsets for low and middle income earners and changes in income tax thresholds. The changes were to be implemented over three steps, commencing in 2018–19, 2022–23 and 2024–25. The 2018–19 changes were targeted at low and medium income earners, with the changes in 2022–23 and 2024–25 applying to individuals on higher taxable incomes. [Australian Parliamentary Library, Budget Review 2018–19 Index]

In 2018 the Treasurer placed a tentative costing on his seven-year tax scheme change of $140 billion.

In 2019 the Morrison Government began Stage 1 of what it characterised as a 'flattened' personal income tax scheme which abandoned in large measure Australia's progressive tax scales.

At the time it was expected to cost $18 billion in 2019-20. It mainly comprised a Low and Middle Income Tax Offset (LMITO) worth up to $1,080 a year for taxpayers on $30,000 to $126,000. High income-earners (the top 20% of taxpayers on $90,000 or more) have already gained up to $135 p.a. from an increase in the upper threshold of the 32.5% tax rate to $90,000 in 2018. Overall, Stage 1 mainly went to middle income-earners on $30,000 to $90,000.

Stage 2 began in July 2022. It was projected to cost $16.4 billion in 2023. Stage 2 saw the end of LMITO on 30 June 2022 under the cessation schedule revised by the former Morrison Government. This was the end of targeted offset tax relief for those earning between $66,668 – $126,000.

The scaled Low Income Tax Offset (LITO) is still available for those earning between $37,500 or less and $66,667.

The Australian resident tax rate for 2020-21 to 2023–24.

Australian Taxation Office Table, retrieved 25 January 2024.

There were no changes to any resident personal income tax rates or threshold in the four financial years up to 2023-24.

Stage 3 of the tax scheme commences in July 2024 and as originally legislated, would have seen the 32.5% marginal tax rate will cut to 30% for one big tax bracket between $45,000 and $200,000. This was intended to closely align the middle tax bracket of the personal income tax system with corporate tax rates. While the 37% tax bracket was be entirely abolished at that time. It heavy favoured high income earners. By November 2023 it been found that this last round of tax cuts were estimated to cost around $69 billion over the forward estimates period (to 2026-27). This estimate was higher than previously provided and reflects an additional year in the forecast period, along with updates to economic parameters.

Stage 3 was amended by the Albanese Labor Government in January 2024 to reduce the largess awarded high income earners and lessen the impact of the sustained cost of living pressures.

On Thursday 25 January 2025 in a joint press release by the Prime Minister, Treasurer and Minister for Finance it was announced:

From 1 July 2024, the Albanese Labor Government will:

• Reduce the 19 per cent tax rate to 16 per cent (for incomes between $18,200 and $45,000).

• Reduce the 32.5 per cent tax rate to 30 per cent (for incomes between $45,000 and the new $135,000 threshold).

• Increase the threshold at which the 37 per cent tax rate applies from $120,000 to $135,000.

• Increase the threshold at which the 45 per cent tax rate applies from $180,000 to $190,000.

As a result of these changes, on July 1:

• All 13.6 million taxpayers will receive a tax cut – and 2.9 million more taxpayers will receive a tax cut compared to Morrison’s plan.

• 11.5 million taxpayers (84 per cent of taxpayers) will now receive a bigger tax cut compared to Morrison’s plan.

• 5.8 million women (90 per cent of women taxpayers) will now receive a bigger tax cut compared to Morrison’s plan.

• A person on an average income of around $73,000 will get a tax cut of $1,504 – that’s $804 more than they were going to receive under Morrison’s plan.

• A person earning $40,000 will get a tax cut of $654 – compared to nothing under Morrison’s plan.

• A person earning $100,000 will get a tax cut of $2,179 – $804 more than they would receive under Morrison’s plan.

• A person earning $200,000 will still get a tax cut, which will be $4,529. [reduced from est. $9,075] 

In addition, the Government will increase the Medicare levy low-income thresholds for 2023-24.

See full press release at:

https://www.pm.gov.au/media/tax-cuts-help-australians-cost-living

UPDATE 1 February 2024

SEE: https://treasury.gov.au/tax-cuts

MAIN SOURCES

The Guardian, Scott Morrison seeks backing for budget tax cuts without full costings, May 2018

ACOSS briefing notes, The Government’s tax cuts:

Who gains? What do they cost?, June 2019

H&R Block 2023 Federal Budget Tax Updates, undated

Australian Tax Office, Tax rates – Australian resident, September 2023 and Individual income tax rates and threshold changes, January 2024

Treasury Question Time Brief, Personal Income Tax - Stage 3, November 2023

Australian Parliamentary Library, Budget Review 2018–19 Index, Personal income tax cuts and the Medicare levy

National Press Club Address by Prime Minister Anthony Albanese, January 2024 

The Treasury, Tax cuts to help with the cost of living, January 2024

Another time bomb left behind by a politically & fiscally incompetent current member of the World Wide Speakers Group and sometime Liberal MP for Cook, Scott John Morrison

 

Then Prime Minster Scott Morrison & Treasurer Josh Frydenberg - political mates and housemates before the Liberal-Nationals Coalition sank the ship of state. IMAGE: The Australian, 26 August 2020

 

On 5 July 2018 then Australian Treasurer & Liberal MP for Cook Scott Morrison unveiled his plan to overhaul the Goods & Services Tax (GST) state distribution scheme.

This involved changes which ‘would protect all taxpayers, update the grants commission process and deliver certainty to States and Territories. “This problem has been kicked down the road for too long and it is time we now got on and fixed it,” he said. “A fair and sustainable transition to a new equalisation standard will be ensured, through an additional, direct, and permanent Commonwealth boost to the pool of funds to be distributed among the States."

By 12 November 2018 the Australian Coalition Government now lead by Prime Minister Morrison introduced Treasury Laws Amendment (Making Sure Every State and Territory Gets Their Fair Share of GST) Bill 2018 which was duly passed by Parliament and became law on 29 November 2018.

On 25 February 2019 Treasurer John Frydenberg put his signature to this contentious document.

Thus a political and fiscal time bomb with a relatively long fuse was activated…...

The Age, 14 November 2022, p.3:

A deal put in place to placate Western Australia when its share of GST revenue was tumbling is on track to cost the nation's taxpayers 10 times more than forecast, helping drive up federal government debt and interest payments to record levels.

Originally pulled together by then-treasurer Scott Morrison in 2018 before being put through parliament by his successor, Josh Frydenberg, the deal that expected to cost $2.3 billion is now on track to cost more than $24 billion. [my yellow highlighting]

WA, which delivered four seats to Labor at the May election on the back of a 10.6 per cent swing, is vowing to fight to keep the arrangement, due to expire in 2026-27.

Morrison struck the deal at a time when WA's share of the tax pool had fallen to an all-time low of 30 cents for every dollar of GST raised within the state. Its iron ore royalties were effectively being redistributed among the other states and territories based on a Commonwealth Grants Commission formula that takes into account each state's revenue sources and expenses.

Under Morrison's deal, from 2022-23 WA must receive a minimum of 70 cents in the dollar before increasing to 75 cents in 2024-25. When the policy was put in place, it was expected iron ore prices would fall and WA's share of the GST pool would therefore rise. Instead, prices have soared.

The Morrison government ensured other states and territories wouldn't be worse off, which requires the top-up funding for the deal to come from outside the $82.5 billion GST pool.

It was originally forecast to cost federal taxpayers $2.3 billion over three years, including just $293 million in 2021-22, but the surge in iron ore prices has meant more top-ups and for longer.

The October budget revealed that last year, the deal cost $2.1 billion and is forecast to jump to $4.2 billion this financial year. By 2025-26, the cost of the entire deal is on track to reach $22.5 billion, with another $2-3 billion likely the year after that.

Throughout the entire period, the budget is expected to be in deficit, forcing the extra cash to be borrowed. In percentage terms, the blowout in cost is larger than the NDIS, aged care, health or defence.

Independent economist Chris Richardson said the deal had been ill-conceived from the beginning with the cost to be borne by future taxpayers.

He said all significant spending programs needed to be properly assessed, including the GST deal.

"Yes, the politics of it are difficult. But we have a whole host of other issues, like the NDIS, and the economics of them have to be dealt with," he said…….

The extra borrowing for the GST deal has contributed to the lift in gross debt, which on Friday reached a record $909.4 billion.

Treasurer Jim Chalmers said the cost of servicing the debt was getting more expensive and was the budget's fastest-growing expense. [my yellow highlighting]

State of the Australian economy as it enters 2020

On 16 December 2019 Australian Treasurer and Liberal MP for Kooyong, Josh Frydenberg, put out a glowing media release concerning the health of the national economy which bears little resemblance to data his own department released on that same day.

Treasury on behalf of the Morrison Coalition Government informed Australia that it now has less income than was anticipated just prior to the 2019 federal election and, that economic growth is now slower.

Total receipts have been revised down by about $3.0 billion in 2019-20 and $32.6 billion over the four years to 2022-23.

These falls are due to less money coming into Treasury from individuals taxes, company tax and superannuation tax, as well as less dollars being collected through the tax on goods & services (GST) and lower non-tax income.

Federal government net debt is expected to be $392.3 billion in 2019-20 (19.5 per cent of GDP). Gross debt now stands at over $560.8 billion.

Slower economic growth is explained as due in part to decreased production and lower export levels in the farming sector, a decline in iron ore prices, softer wages growth, diminished business confidence & investment uncertainty.

Gross Domestic Product (GDP) nominal growth is 3.25 per cent but is expected to fall to 2.25 per cent in the coming financial year.

Wages growth is still under performing at 2.5 per cent and, there is no guarantee that the revised projection of 3 per cent wage growth by 2022-23 is achievable.

Unemployment is beginning to rise.

The number of people who had jobs fell by 19,700 individuals between the May federal election and October 2019. Employment numbers are projected to fall over the next 5 years in Agriculture, Forestry & Fishing, Manufacturing and Information, Media & Technology.

Cost of living (CPI) is not coming down. CPI rose 1.7 per cent through the year to the September 2019 quarter. This followed a through the year rise of 1.6 per cent to the June 2019 quarter. Retail prices, particularly for clothing, footwear, meat, dairy, bread and cereal products, have risen.

As for the much lauded budget surplus for 2019-20, it has shrunk from $7.1 billion to $5 billion. While the rubbery figures in forward estimates see the expected surplus for 2020-2021 reduced from $11 billion to $6.1 billion, then from $17.8 billion down to $8.2 billion in 2021-22, with the fiscal year after that supposed to bring in a surplus of only $4 billion instead of the projected $9.2 billion.

One can almost hear Morrison ordering a funding red pen through even more health, disability and welfare services/programs in a vain attempt to avoid intensifying the economic squeeze his flawed political ideology is imposing on the nation.

Notes:

* Australian Treasurer Josh Frydenberg 16 December 2019 media release at 

http://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/2019-20-mid-year-economic-and-fiscal-outlook

* Mid-Year Economic and Fiscal Outlook (MYEFO) December 2019 at https://budget.gov.au/2019-20/content/myefo/download/MYEFO_2019-20.pdf

* Pre-Election Economic and Fiscal Outlook (PEFO) April 2019 at https://treasury.gov.au/publication/2019-pefo

* Australian Office of Financial Management (AOFM) federal government debt updates at https://www.aofm.gov.au/

* Cost of Living data at https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6401.0Media%20Release1Sep%202019?opendocument&tabname=Summary&prodno=6401.0&issue=Sep%202019&num=&view=

* Labour Market Information Portal, “Industry Projections – 5 years to 2024” (Excel) at http://lmip.gov.au/PortalFile.axd?FieldID=2787734&.xlsx