Federal Budget 2020: Income tax cuts tipped to be backdated to July this year
Australians are likely to reap the benefits of legislated tax cuts almost immediately once the Federal Budget is delivered tomorrow evening.
Treasurer Josh Frydenberg is widely tipped to backdate income tax cuts that were originally planned to come in from July 1, 2022 and July 1, 2024.
READ MORE: Australian Federal Budget announced live
The result of this is that Australians earning between $50,000 and $120,000 could be near-on instantly $20 a week richer and those earning over $120,000 could be $50 a week better off.
READ MORE: Apprenticeships to be subsidised under new federal budget plan
Under the tax cuts the majority of Aussies will see $20 more of their pay due to less tax. AAP
The idea of backdating income tax cuts is to provide Australians with more instant cash (by lowering the amount of tax their employer takes from their pay) to help revive the economy from its COVID-19 recession.
Originally these income tax cuts – known as "Stage 2" and "Stage 3" – were legislated to drip-feed into the Australian economy over four years.
Here is how Stage 2 works: from July 1, 2022, the government had planned to widen the income tax brackets to encourage Australians to earn more and spend more locally.
READ MORE: Pandemic delivers record-breaking hit to Australia's GDP
Widening tax brackets encourages workers to earn more without fear of paying more tax.
Compare these two tables:
CURRENT INCOME TAX BRACKETS (BEFORE STAGE 2)
How much you earn: | How much you are taxed: |
$0 - $18,200 | 0% |
$18,201 - $37,000 | 19% |
$37,001 - $90,000 | 32.5% |
$90,001 - $180,000 | 37% |
$180,001 and over | 45% |
Under Stage 2, the top tax bracket of $180,000 will be pushed up to $200,000 and the lower threshold of the 37 per cent bracket will be pushed up from $90,000 to $120,000.
Additionally, lower income earners will have to take home more than $45,000 before they are slugged 37 per cent in tax.
For context, the median yearly wage in Australia (which includes both full-time, part-time and casual) is just under $68,000.
READ MORE: Explained: What a recession means for ordinary Aussies
Backdating income tax cuts will give Aussies more of their pay packet each time they are paid. Edwina Pickles / SMH
STAGE 2 INCOME TAX BRACKETS (SCHEDULED FOR JULY 1, 2022 – BUT MAY BE BACKDATED TO JULY THIS YEAR)
How much you earn: | How much you are taxed: |
$0 - $18,200 | 0% |
$18,201 - $45,000 | 19% |
$45,001 - $120,000 | 32.5% |
$120,001 - $200,000 | 37% |
$200,001 and over | 45% |
The tax cuts, if delivered tomorrow, will be one source of relief in a budget that is widely tipped to deliver the biggest budget deficit the nation has seen since World War II.
Due to the challenges of COVID-19, and the sheer expense of creating temporary welfare for almost four million people, the budget is tipped to present an approximate $200 billion deficit.
That's around 10 percent of Australia's Gross Domestic Product (GDP), and will be joined by as much as a trillion dollars of gross public debt.
READ MORE: Australia is officially in a recession as GDP falls 7 per cent in June
Stage 2 income tax cuts have been legislated and may be brought forward to stimulate the economy. AAP
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