Tonight the government has introduced a seven-year personal tax plan to make personal income tax ‘lower, fairer and simpler’, which aims to stimulate consumer spending.
Federal Treasurer Scott Morrison announced that the plan will occur in three steps, beginning with targeted tax cuts for low and middle-income earners.
Personal tax cuts in brief:
“For middle-income households with both parents working on average wages, this will boost their ‘kitchen table’ budget by more than $1,000 every year,” Morrison said.
For those with an annual income over $90,000, tax relief tapers off and then cuts out at just over $125,000.
The government’s personal tax plan also includes ways to fight ‘bracket creep’ while it simplifies personal income tax for higher income earners in the years to come.
Last year’s Federal Budget saw the threshold increase for the 32.5 percent tax bracket from $80,000 to $87,000. Now the government’s raising the threshold even further, to $90,000.
For higher income earners, the Turnbull Government plans to wipe out the 37 percent tax bracket in financial year 2024–25. This means the 32.5 percent bracket will then affect anyone earning between $41,000 and $200,000.
The Treasurer said the government’s personal tax plan acknowledges that “to create a stronger economy there must be reward for effort”.
“Under our personal tax plan, 94 percent of Australian taxpayers will pay no more than 32.5 cents in the dollar. That compares to 63 per cent if we leave the system unchanged,” said Morrison.
The changes to the personal tax plan will be welcomed by small-to-medium business owners, who hope to see an increase in consumer spending as a result of the news.
Policy director for the Restaurant and Catering Association Australia, James Coward, previously told The Pulse that hospitality businesses would be excited to have any Budget policy that stimulates spending.
“What we’re seeing across the industry is that people are going to cafes and restaurants more, but what’s happening is that they’re spending less per meal,” said Coward.
“With tax cuts that would help the customers themselves on what they can spend, we’d be delighted if they chose to spend more of their household income on things like cafe and restaurant meals.”
We’re not just talking big brunches and smashed avo toast, as Executive Director of the Australian Retailers Association, Russell Zimmerman said shops and stores are also set to benefit.
“Personal income tax cuts would benefit the retail sector. Consumers would have more income at their disposal to spend at retail stores,” Zimmerman recently told The Pulse.
“If more money is spent in the retail economy then retailers can employ staff for more hours. Also, that means more money flows into people’s pockets due to more work.”
And, according to Zimmerman, the retail industry has been waiting for a sign that consumer spending could rise for a long time.
“For over 10 years where incomes have been eroded due to individuals moving into higher tax brackets and reducing disposable income.
“The sector is screaming for tax cuts to boost disposable income.”
Alongside the hope that personal income tax cuts will boost spending, the Treasurer says the government intends to fully implement its existing Enterprise Tax plan.
This is likely to be seen as a sign of more things to come for Australian businesses, and MYOB CEO Tim Reed echoed this sentiment.
“Australia’s a great place to do business. Creating a competitive tax plan encourages business investment, and ultimately drive benefits for Australian employees through the creation of new and higher paying jobs.
“Our research found that 52 percent of SMEs sought a lowering of the company tax rate and we commend the government for pursuing this plan,” said Reed.
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