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Tax cuts tipped to headline election budget

Emma Rapaport  |  08 May 2018Text size  Decrease  Increase  |  
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Treasurer Scott Morrison will tonight deliver his third and arguably last budget before the next federal election. Here’s a summary of what we know so far. 

Headlining the Coalition’s budget are immediate cuts to income tax for low- to middle-income earners on less than $87,000 a year – a move Morrison has been careful not to oversell.

The treasurer has said repeatedly there will be no "mammoth tax cuts" and emphasised they will be affordable and within the budget's means.

Tax relief will be delivered through an increase to the Low Income Tax Offset (LITO), currently worth $455 annually for people earning below $37,000 a year, before reducing and cutting out completely at $66,667 a year.

The offset is expected to double to $1,000 in the budget, and to be extended to people earning $90,000 a year. The cuts will gradually decrease so that the more a person earns, the less they will receive in rebates. For the lowest income earners this will mean an extra $10.50 a week, which will cost the budget between $4 billion to $5 billion annually.

This evening’s budget will also include tax relief for high-income earners, including those above the $180,000 top tax threshold, although this will begin in 2024.

Finance Minister Mathias Cormann says low- and middle-income earners will be prioritised, but a phased approach will occur, whereby the "very significant tax burden" of high-income earners be eased.

Morningstar head of equities research Peter Warnes says the Coalition continues to lean on high-income earners to help minimise the deficit impact ahead of the next election, which is due to be held sometime between August this year and May next year.

"As I recall, it is less than one year since the 2 per cent temporary budget deficit levy ended and it only applied to those poor taxpayers earning over $180,000," Warnes writes in the latest edition of Morningstar’s Your Money Weekly newsletter.

"Clearly, they were responsible for the deficit and so should pay. These poor buggers are the politician’s safety net, those required to assist others in genuine need and not to be continually sacrificed on the altar of political self-interest. There must be an election around the corner!"

The budget deficit stood at $14 billion at the end of April, around 0.8 per cent of GDP, according to CommSec chief economist, Craig James. This is the smallest rolling annual deficit for nine years, and Morrison is expected to announce a plan to return to surplus by 2019-20.

What we know will be in Budget 2018

Personal income tax relief

Cuts to income tax for low- to middle-income earners on less than $87,000 a year right away. Tax relief for high-income earners will come eventually, in several years.

Aged care support package

A multi-million dollar aged-care and retiree package, including 20,000 new home care places; incentives for retirees to start new businesses; and changes to income tax to allow retirees to earn more money without having their pension payments affected.

Big spending on infrastructure

$5bn for a rail link between Melbourne Airport and the CBD; $1bn of the M1 motorway in Queensland; and a $3.2bn infrastructure package for projects in Western Australia, including the Perth Metronet rail network.

Unchanged Medicare Levy

Plans to increase the Medicare Levy from 2 per cent to 2.5 per cent have been dropped.

Australia’s space agency

$50 million will provided as "seed money" to get the Australian Space Agency off the ground, with the aim of generating thousands of future jobs. Former CSIRO boss Megan Clark will head the new agency for its first year.

Revised beer excise

Changes to the tax excise charges for craft brewers to level the playing field for local brewers and distillers. Morrison has touted these changes as good for consumers, but some producers are sceptical.

Film tax rebate

$140 million to lure Hollywood blockbusters to Australia, effectively doubling the existing rebate offered for films to 30 per cent. Foreign Minister Julie Bishop says this will mean more jobs for talented, skilled Australians.

Saving the Great Barrier Reef

More than $500 million in funding for the Great Barrier Reef to improve water quality, cull crown-of-thorns starfish (a coral-eating animal), and for research on coral resilience and adaptation.

Spinal Muscular Atrophy

$241 million to lower the cost of a drug to treat spinal muscular atrophy in children.

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Emma Rapaport is a reporter for Morningstar Australia.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

is a reporter for Morningstar.com.au

© 2019 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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