More than 10 million middle-income Australians will cop one of the largest tax increases in Australian history after the May federal budget.
The record breaking tax hike comes as households are grappling with high interest rates and skyrocketing costs of living.
Treasurer Jim Chalmers is planning to scrap the low and middle income tax offset that was introduced for the 2018-19 financial year, according to the Sydney Morning Herald.
Independent economist Chris Richardson told NCA NewsWire that “middle Australia” will be feeling the pinch at tax time from the middle of next year.
“It’s July, August, and September when most people get their tax refunds and this year’s tax refund will about $600 less per taxpayer than last years,” Mr Richardson said.
“We’re talking some pretty big dollars.”
That means a person earning $50,000 a year will be subject to a 3.4 per cent or $29 a week cut in their after-tax income when the offset ends in the new financial year.
While someone on earning an average wage of $90,000 will face a 2.1 per cent cut.
A person on $100,000 will be $1200 worse off with the end of the offset.
The tax offset plan was part of the Turnbull government’s original three-stage overhaul of the personal income tax system.
Mr Richardson said those earning a middle income wage would be hit most when the tax offset ends but he noted those taxpayers had also recently received a financial boost during the pandemic.
“This group got a tax cut earlier than most others, then during Covid the tax cut got held up, and then this round of cuts,” he said.
“They’ve had more in Australia than anyone else.
“We’re still getting the tax cuts in three rounds – stage one, stage two and now stage three.
“It’s the doubling up (of the money) that’s disappearing.”
While the May 9 budget will scrap the tax offset, it’s understood the government plans to provide cost-of-living relief in some form.
The bulk of the work on the federal budget is understood to have been completed, with any revisions or finishing touches expected to be added before next month.
It comes as Australia’s inflation rate hit 6.8 per cent in the 12 months leading up to February.
The figure declined from its high in December but the Reserve Bank forecasts inflation won’t return to its target 2-3 per cent range until 2025.
The RBA put a pause on the most aggressive tightening of monetary policy since the 1980s last week to give the central bank’s board more time to assess the effects of its 10 successive interest rate rises.
Mr Richardson said those facing unemployment will be hit hardest in the new financial year.
The RBA and the Treasury forecast an extra 150,000 people will become unemployed as financial pressures mount.
While Mr Richardson forecasts those numbers to be slightly lower, he said the tax cuts will still be “a shock for many”.
“The RBA is trying to slow the Australian economy so it slows inflation,” he said.
“The groups we should feel sorriest for will be the unemployed. So far unemployment is at a 50 year low, (but) this slow down will add an extra 150,000 to the ranks of the unemployed.
“People are starting to dip into their savings, and you’ll see more of that as the economy slows further.”
Mr Richardson said the news that tax refunds will be smaller shouldn’t come as a surprise, but it will be a concern after the super-sized cuts of recent years.
“In terms of cash flow, refunds were massive last July and August in 2022, they’ll now be on average (next financial year),” he said.
