Surprise Christmas tax cut in Budget
Workers will secure an Christmas tax cut in Tuesday's budget worth around $30 a week on average in a surprise move designed to help beat the COVID-19 recession.
News.com.au can reveal that the $1080 personal income tax cuts originally scheduled for 2022 will not only be backdated to this financial year but 'turbocharged' for the rest of the year to catch up on the missing weeks since July 1.
As soon as the Labor Party confirms it will vote for the fast-tracked tax cuts in parliament, the ATO will be advised to start working on the rollout which should be in workers' pockets by December.
But despite speculation the Morrison Government might bring forward the more controversial 'Stage 3' tax cuts, it's understood these will remain on the original 2024 time frame and not be fast-tracked.
The tax relief for the rich worth up to $11,000-a-year from 2024 will not be brought forward ensuring the rich have to wait for whopping tax cuts.
STAGE 2 BROUGHT FORWARD FROM 2022
Senior government sources have confirmed that the Australian Taxation Office will be instructed to "pro rata" the 'Stage 2' tax cuts from July 1 to October by bumping up the tax cut for the rest of the financial year.
The fast-tracked timetable for the Stage 2 tax cuts means that the $1080-a-year tax cut that was legislated to commence in 2022 will now be brought forward to July 1, 2020.
For a worker earning $50,000 a year that means that the legislated tax cut of $1080 or $20 a week will be worth around $31 a week for the rest of the financial year when the 'catch up' payments for the weeks since July 1 is added.
But for workers earning $120,000 a year or more, the tax cut will be worth up to $70 a week until July 1, 2021. The maximum tax cut of $2500 in 2022 is worth around $50 a week but will be increased for the remaining weeks of the financial year.
H & R Block director of tax communications Mark Chapman said it could equal thousands per year.
"Someone with taxable income of $120,000 will pay $2,431 less in tax over the year at the new tax rates,'' he said.
"Given that they've already paid $8587 in tax year to date at the old rates ($613 per week), if the new rates kick in on Budget day, weekly tax deducted for the rest of the year will drop to $549 per week. So, our taxpayer will be $64 per week better off the rest of the year."
Last week, news.com.au exclusively revealed that Treasurer Josh Frydenberg was planning to backdate personal income tax cuts in Tuesday night's budget to July 1, ensuring workers have more money in their pockets and don't have to wait for tax relief.
It would simply involve the Australian Taxation Office changing the weekly tax table that companies use to pay wages and salaries in this financial year, ensuring workers can keep more of what they earn.
While speculation has centred on the Morrison Government "bringing forward" tax cuts, the more unorthodox approach of backdating means the relief can be offered in this financial year.
The tax cuts, worth $20 billion, were scheduled to come into force in 2022. The third stage of the tax cuts, with a tax rate of 32.5 per cent to apply to the vast majority of workers, is currently scheduled from 2024.
The personal income tax cuts for middle income earners are worth up to $2565-a-year for workers earning more than $120,000 and $1080 a year for anyone earning more than $50,000.
In an interview with news.com.au on Friday, Treasurer Josh Frydenberg refused to be drawn on the method of bringing forward relief but confirmed the fast-tracking of the tax cuts will be revealed on Tuesday night.
"You will have to wait. I am not giving away the budget," he said.
"But as you know, we took tax cuts to the last election. We successfully legislated them. The reality is they got passed. There are three stages and we've given active consideration to the timing of those stages and more will be known on budget night."
Asked if the July 2022 tax cuts could be brought forward, for example from July 1, 2020, Mr Frydenberg did not reject the option observing: "again, you will have to wait for the budget".
But the tax cuts will require new legislation, setting the scene for a potential battle with the Labor Party in the Senate if the legislation includes bringing forward tax cuts for high income earners originally scheduled in 2024.
"To change the timing of the tax cuts will require legislation," Mr Frydenberg confirmed.
"There are a lot of measures in the budget designed to boost economic activity now. All will be revealed on budget night."
H & R Block's Mr Chapman said the ATO will simply need to send out new tax tables for businesses for the rest of the year.
"That's unusual. But if he wants these tax cuts to have an impact you would need to introduce them for immediate effect," Mr Chapman said.
"If you're employed you will see the benefit right away. You would get that immediate boost."
Originally published as Surprise Christmas tax cut in Budget