In a historic set of legislation, the federal government has passed the largest ever set of income tax cuts through the Senate unamended, bringing tax relief for all Australians earning over $19,000, including the majority of small business owners.
The government faced a fight from Labor and the Greens to ditch parts of its income tax plan, which is set to also benefit higher income earners by taxing all who earn between $41,000 and $200,000 at a rate of 32.5% by July 1, 2024.
Despite initially stating it would not support the bill, Pauline Hanson’s One Nation party (now consisting of just two senators) announced on Wednesday it would back the plan in its entirety, giving the government the numbers it needed to pass the bill. It passed on Thursday morning, 37 votes to 33, with support from Coalition, The Centre Alliance, One Nation, Cory Bernardi, David Leyonhjelm, Fraser Anning and Brian Burston.
Only Labor, the Greens, and independent Tim Storer opposed the tax plan. Labor has promised even wider and more significant tax cuts for low to middle income earners if it wins office, but says it would repeal the parts of the government’s tax plan it believes gives “bigger tax cuts to the wealthiest Australians”.
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However, both major parties support the first stage of the government’s tax plan, which kicks off on July 1. It will see the 32.5% tax bracket given a new upper limit of $90,000, rather than the current $87,000.
Following this, the tax cuts will be rolled out incrementally. In 2019-20, there will be a non-refundable tax offset of up to $530 introduced for those earning up to $125,333, and by 2022, the 32.5% marginal tax rate upper threshold will be increased to $120,000, and the 19% tax rate upper threshold to $41,000.
Finally, by 2024 — six years from now — the lower threshold for the 45% tax rate will be increased from $180,000 to $200,000, and the 37% tax rate will be abolished entirely, meaning 90% of taxpayers will find themselves on a personal income tax rate of 32.5%.
Overall, the government’s tax plan is the largest ever passed through parliament, dishing out $144 billion to Australian taxpayers over the six-year period, and costing the government an estimated $24 billion dollars a year by 2028, reports Fairfax.
Current Deputy Prime Minister and former Small Business Minister Michael McCormack said in a statement the tax cuts would have direct benefits for small businesses thanks to increased spending by Australians.
“This tax relief means regional Australians will have more money to spend at their local store. Small businesses will keep more of their hard-earned profits to allow them to invest, grow and create more jobs,” McCormack said.
The next set of tax changes on the table for the government is the passing of the next stage of its company tax cuts. The government is hoping to wrangle a drop of the corporate tax rate to 25% for corporations turning over $50 million, but it may have to do so without the support of One Nation, as Pauline Hanson has reaffirmed her party would not be backing the plan.
The Australian Taxation Office will soon issue notices to Australia’s businesses, reports Fairfax, alerting them to the new thresholds for the 32.5% marginal income tax rate.