Australians earning under $126,000 a year are bracing for one of the largest tax hikes in history as the federal government’s low- and middle-income tax offset (LMITO) comes to an end in July this year.
This means people taking home less than $126,000 (US$84,000) a year will be $1,500 (US$1,000) worse off, while those earning under $100,000 (US$67,000) a year will suffer a $1,200 (US$800) hit to their hip pocket. People earning $50,000 (US$33,360) a year will face a 3.4 percent or $29 per week (US$19) cut in their after-tax income, while those making $90,000 (US60,048) a year will be subject to a 2.1 percent cut.
The LMITO was introduced four years in 2018 under the centre-right Turnbull government.
The historic tax increase comes as the latest hit for Australian households who are already feeling the pinch due to the cost-of-living crisis, surging inflation, and months of interest rate hikes.
Leading economist Chris Richardson warned both household budgets would feel significant strain with the ceasing of the offset.
He told Sydney Morning Herald on Friday that the offset is the equivalent of two interest rate rises.
“We’re talking a substantial amount of money,” he said. “On top of higher interest rates and inflation, it’s really going to affect households. Retailers are also going to feel this, for sure.”
He noted that Reserve Bank has “done a lot of work ”by raising interest rates but warned people not to “underestimate what the government is doing by doing nothing.”
However, Treasurer Jim Chalmers said cost of living measures in the upcoming May budget would come in other forms.
Labor’s five-point cost-of-living measures include a $7.5 billion relief package that aims to increase minimum wages, expand paid parental leave, and deliver cheaper childcare and more affordable housing.
“In such uncertain times, it’s critical that the May Budget strikes the right balance between targeted cost of living relief, responsible fiscal management, and laying the foundations for future growth,” he said.
RBA Holds Cash Rate Steady
Following raising interest rate hikes in the last 10 meetings, the Reserve Bank decided to hold Australia’s cash rate steady at 3.6 percent in April.RBA Governor Philip Lowe said in a statement that the Board “recognises that monetary policy operates with a lag and that the full effect of this substantial increase in interest rates is yet to be felt.”
“The Board took the decision to hold interest rates steady this month to provide additional time to assess the impact of the increase in interest rates to date and the economic outlook.”
During a recent Senate Estimates hearing, Lowe was at pains to emphasise the need to relax business regulation and open up the economy to deal with soaring inflation.
In the energy sector, Lowe suggested that an increase in “cheap, reliable energy” supply is crucial to reducing skyrocketing prices.
“The existing capital stock to produce energy is depreciating, and we are not reinvesting in existing capital,” he said about the nation’s aging coal run power stations.
“Overtime, expansion of the capital stock that produces cheap, reliable energy will help. We need the capital stock to be put in place in the country to deliver that.”
Amid an energy crisis, Australian state governments continued to direct billions of investments into renewable energy while at the same time implementing policies that encourage the turning off of coal-fired power plants.
