Huge boost for workers' pay packets, government confirms
Treasurer Josh Frydenberg is planning to backdate personal income tax cuts in Tuesday night's budget ensuring workers have more money in their pockets and don't have to wait for tax relief.
The "instant" tax relief can be delivered swiftly despite the new financial year commencing on July 1, according to tax experts.
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.
Senior government sources have confirmed the option to "retrospectively" deliver the tax cuts to ensure workers' don't have to wait until July, 2021 or 2022 for tax relief.
The tax cuts, worth $20 billion, were scheduled to come into force in 2022. A 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, 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."
Experts say there's a couple of different ways those tax cuts could be delivered into workers' pockets quickly.
H & R Block director of tax communications Mark Chapman said the two main options included retrospectively applying the tax cuts for the 2019-20 year which was "messy" or backdating the tax cuts to July, 2020.
"I think bringing them in retrospectively for last year would be really difficult because millions of people have already lodged their tax return," he said.
"The ATO would effectively have to go back and reassess people. But the cost and the resources involved would be considerable.
"The more likely scenario is to bring them forward for the tax year we are in now."
Despite the fact the new financial year has already started, the Treasurer could legislate to backdate the tax cuts to cover 2020-21.
The ATO would then send out new tax tables for businesses for the rest of the year ensuring workers get to keep more of what they earn.
"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.
"He could introduce them retrospectively from July 1. That simply means the ATO would have to adjust their tax tables for the rest of the year.
"Or he could introduce a tax cut from January 1. It would involve the ATO changing the tax tables.
"If you're employed you will see the benefit right away. You would get that immediate boost. If you're a sole trader you won't see that right away. They won't see the impact right away. But they do pay their tax in quarterly instalments."
Last week, the Prime Minister all but confirmed tax cuts will be the centrepiece of the budget when he attacked critics of the tax plan.
"At a time of recession the Australia Institute wants to take money out of people's pockets," a spokesman said.
"We're always focused on how we can give it back to them and lower taxes."
Deloitte Access Economics' Chris Richardson said to get the money flowing in the economy now to help lift Australia out of recession the Treasurer can't wait to introduce tax cuts.
Mr Richardson said that by delivering tax cuts this financial year it will also help tackle the looming fiscal cliff in March, 2021 when JobKeeper is axed and JobSeeker is reduced again.
"The band-aids come off in March 2021. If the tax cuts don't start until July 2021 that's a long time to wait.
"My gut says something has got to help fill that gap. You want to get it into their hot little hands now so that they spend, spend, spend."
Originally published as Aussies to get 'instant' tax cuts