According to the Parliamentary Budget Office (PBO), six million Australians who currently earn between $23,000 and $64,000 a year will be pushed into higher tax brackets by 2027. So someone who earns $66,000 a year would be paying an extra $1,000 for taxes by 2026.
The PBO found that the average tax rate over the next decade will rise five percentage points for the second and third quintiles, in contrast to only a one percentage point increase for high-income earners or the fifth quintile.
This discovery by the PBO will put pressure on new Treasurer Josh Frydenberg to offer further tax relief to Australians who are currently experiencing painfully slow wage growth.
Labor spokesman Jim Chalmers believes the government is mismanaging the economy for middle-earning Australians. He says, “At a time when wages are growing at record lows and households are struggling to keep pace with the cost of living, now is not the time to be prioritising tax relief at the top end.”
Income tax plan is making income tax lower, fairer, and simpler for all Australians: treasurer
However, Treasurer Josh Frydenberg begs to differ. He says that under the government’s tax plan, low and middle-income earners receive up to $530 in immediate relief every year.
Mr Frydenberg adds that the move to lift the tax brackets will protect Australian workers from “bracket creep” wherein inflation pushes income into higher tax brackets.
“Our personal income tax plan is making income tax lower, fairer and simpler for all Australians,” he told the Australian Associated Press.
Finance Minister Mathias Cormann adds that strong economic and employment growth will mean people’s salaries will go up in time. “Of course wages over time are expected to go up, and it’s not just our view, that is also the view of the Reserve Bank governor and that is the orthodox view of how wages evolve,” he says.
In general, the Australian economy is looking better for 2017/18 as it grew at its fastest annual pace since the mining boom six years ago.
While tax cuts may save thousands of dollars for middle-income earners, it results in less money available for other services Australians expect such as good schools, hospitals, public safety and infrastructure. However, the government believes that lower taxes will create incentive to grow the economic pie. Thereby adding to overall tax receipts to provide more funds for government services.
If you want to get the most out of your income tax returns, contact a Chan & Naylor accountant near you, and we’ll be more than happy to help.
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