This year’s federal Budget saw the major parties go head-to-head to ease the cost of living for low and middle-income earners. However, long-term tax policy is a major point of difference, with the Coalition’s plan to flatten tax rates and provide “incentives for working Australians” branded a “ticking debt bomb” by the opposition. Here, we compare their policies in detail.

Under the Coalition’s plan, Australians earning under $126,000 will benefit from a boost to the “low and middle income tax offset” (LMITO) with effect from the 2018­–2019 year. This is a lump sum reduction in the individual’s annual tax bill, meaning they will receive the benefit of this offset after completing their tax return for the current year. The offset runs for four years until 2021­–2022.

The Coalition has increased the maximum available offset to $1,080, up from the $530 promised in last year’s Budget. The amount available is as follows:

Individual’s taxable income              Amount of LMITO
up to $37,000                                       $255
$37,001 to $48,000                              $255 plus 7.5 cents per dollar of income exceeding $37,000
$48,001 to $90,000                              $1,080
$90,001 to $126,000                            $1,080 less 3 cents per dollar of income exceeding $90,000

So how does the opposition’s offering measure up? Labor will match the Coalition’s immediate tax relief for those earning between $48,000 and $126,000, but the $3.6 million Australians who earn under $48,000 would receive a bigger offset. For example, a worker on $40,000 would receive $549 (compared with the Coalition’s $480).

How do the parties stack up on long-term policy? The Coalition’s consolidated reform plan is as follows: from 1 July 2022, the upper limit for the 19% tax bracket will increase to $45,000 and from 1 July 2024, the 32.5% rate will drop to 30% and the 37% bracket will be abolished – creating a vast “middle” bracket of taxpayers earning between $45,000 and $200,000 on a marginal rate of 30%.

However, if elected Labor will not proceed with these reforms, declaring it will not back “a scheme that would see a nurse on $50,000 paying the same tax rate as a surgeon on $200,000”. Clearly, higher-income earners are major winners under the Coalition’s long-term policy; an individual earning $200,000 would save over $11,000 compared with today’s tax rates.

As the upcoming election plays out, it will be vital to keep abreast of reforms that may affect your tax planning. Talk to us for expert advice and support to guide you through the changes.