The Times Australia
The Times World News

.
The Times Real Estate

.

This pointless $1,080 tax break should have ended years ago – but has become hard to stop

  • Written by Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University
This pointless $1,080 tax break should have ended years ago – but has become hard to stop

We are about to find out whether we’ll lose a tax break worth up to $1,080 a year.

Treasurer Josh Frydenberg says he hadn’t “made any final decision[1]” on the A$7.8 billion per year low and middle income tax offset[2] ahead of next month’s budget.

He also says it was never intended to be “a permanent feature of the tax system[3]”, which is true enough.

He could have added that it is incredibly poorly designed, introduced for a purpose that no longer exists, extended for a purpose that didn’t make sense, and now can’t be abolished without giving people a “pay cut[4]”.

The low and middle income tax offset (LMITO[5]) was introduced by Scott Morrison in his final budget as treasurer before becoming prime minister in 2018.

Its peculiar design owes much to the government’s experience with Robodebt[6], and its ill-fated attempt to collect what it believed were overpaid Centrelink benefits.

A flawed tax break, designed in Robodebt’s shadow

Morrison was by then acutely aware of the anguish caused by Robodebt, officially called the online compliance intervention program – which many people forget he introduced in 2016 to ensure “welfare recipients accurately disclose assets and investments[7]”.

Robodebt sent what looked like demands for repayment to Australians who often owed nothing, and ended up costing the government A$1.8 billion[8] in settlements.

LMITO was born of a desire to flatten Australia’s income tax scale and avoid the mistakes of Robodebt.

Read more: The Low and Middle Income Tax Offset has been extended yet again. It delivers help neither when nor where it's needed[9]

Australia has five[10] tax rates counting the initial tax rate of zero, which applies to dollars earned up to $18,200. Anything earned above $18,200 up to a threshold gets taxed at 19%, anything beyond the next threshold gets taxed at 32.5%, anything beyond the next at 37%, and anything beyond $180,000 at 45%.

Morrison wanted to remove one of the thresholds[11], the one that introduced the 37% tax rate, leaving the scale with just three rates above zero: 19%, 32.5% and 45%.

The cost would be enormous, climbing to $24.6 billion[12] per year. By then 44%[13] of the benefit would go to the highest earning Australians on more than $180,000.

Part one of a three-part plan

So Morrison did it in stages[14]. The first would provide “tax relief for middle and low income earners now[15]”. It would be limited to taxpayers earning up to $125,333.

The second, in 2022-23, would push out two of the thresholds: 32.5% would come in at $41,000 instead of $37,000, and 37% would come in at $120,000 instead of $90,000. And the LMITO tax break would go. It wouldn’t be needed, because everyone getting it would get at least as much from stage two.

The third and final stage, in 2024-25, would flatten the tax scale.

But the problem with directing a benefit to what Morrison called “low and middle earners” was ensuring it went only to them.

The offset was designed to avoid debt letters.

What if one of them thought they would earn $100,000, and actually earned $150,000?

They’d have to be sent letters asking them to pay the money back, as with Robodebt.

So Morrison and the treasury decided recipients wouldn’t get the money until they had put in their tax returns, documenting what they made.

The offset would begin in July 2018, but the money wouldn’t hit the recipients’ bank accounts for more than a year, until the second half of 2019 – after their tax had been sorted.

Despite being called the low and middle income tax offset[16], very low earners would get nothing.

Those on less than $18,200 had no tax to refund. The rest would get up to $530 (later lifted to $1,080) – but only after they had done their tax. And the messy arrangement was only to last for a few years, until the second stage came in.

‘Not permanent’, but hard to stop

In 2020, as part of the government’s COVID response, Treasurer Josh Frydenberg brought forward stage two[17]. At that point, the offset was no longer needed.

But, perhaps in order to claim “the greatest benefits will flow to those on lower incomes”, Frydenberg extended[18] the offset for another year.

In 2021 he extended it for yet another year, this time as a “stimulus measure[19]”, albeit an ineffective one. A stimulus measure that doesn’t hit bank accounts for more than a year is anything but immediate.

Read more: What just happened to our tax? Here's an explanation you'll understand[20]

Frydenberg’s problem is that now he has given us both the offset and the stage two together, and done it for two years, actually ending the offset will quite rightly be seen as a tax increase or a “pay cut[21]”, directed at low and middle earners. The timing is particularly tricky, with a federal election due weeks after this year’s budget.

Costing the best part of $8 billion per year, delivered when it is not needed, and destined to continue until someone can find a way to stop it, the offset is an awfully constructed annual bonus for all but the highest-earning Australians.

Like the instant asset write off for business[22], which keeps getting extended because otherwise businesses would complain, there’s a chance the LMITO will stay with us forever.

As ill-fitting as it is, there is an unexpected benefit. The Tax Office says we’ve been getting our returns in early[23].

References

  1. ^ made any final decision (ministers.treasury.gov.au)
  2. ^ low and middle income tax offset (www.ato.gov.au)
  3. ^ a permanent feature of the tax system (ministers.treasury.gov.au)
  4. ^ pay cut (www.smh.com.au)
  5. ^ LMITO (www.ato.gov.au)
  6. ^ Robodebt (theconversation.com)
  7. ^ welfare recipients accurately disclose assets and investments (webarchive.nla.gov.au)
  8. ^ A$1.8 billion (www.theguardian.com)
  9. ^ The Low and Middle Income Tax Offset has been extended yet again. It delivers help neither when nor where it's needed (theconversation.com)
  10. ^ five (www.ato.gov.au)
  11. ^ remove one of the thresholds (archive.budget.gov.au)
  12. ^ $24.6 billion (cdn.theconversation.com)
  13. ^ 44% (cdn.theconversation.com)
  14. ^ stages (cdn.theconversation.com)
  15. ^ tax relief for middle and low income earners now (archive.budget.gov.au)
  16. ^ low and middle income tax offset (www.ato.gov.au)
  17. ^ brought forward stage two (cdn.theconversation.com)
  18. ^ extended (www.liberal.org.au)
  19. ^ stimulus measure (ministers.treasury.gov.au)
  20. ^ What just happened to our tax? Here's an explanation you'll understand (theconversation.com)
  21. ^ pay cut (www.smh.com.au)
  22. ^ instant asset write off for business (www.ato.gov.au)
  23. ^ our returns in early (www.smh.com.au)

Read more https://theconversation.com/this-pointless-1-080-tax-break-should-have-ended-years-ago-but-has-become-hard-to-stop-177546

The Times Features

Itinerary to Maximize Your Two-Week Adventure in Vietnam and Cambodia

Two weeks may not seem like much, but it’s just the right time for travelers to explore the best of Vietnam and Cambodia. From the bustling streets of Hanoi to the magnificent te...

How to Protect Your Garden Trees from Wind Damage in Australia

In Australia's expansive landscape, garden trees hold noteworthy significance. They not only enhance the aesthetic appeal of our homes but also play an integral role in the local...

Brisbane Homeowners Warned: Non-Compliant Flexible Hoses Pose High Flood Risk

As a homeowner in Brisbane, when you think of the potential for flood damage to your home, you probably think of weather events. But you should know that there may be a tickin...

Argan Oil-Infused Moroccanoil Shampoo: Nourish and Revitalize Your Hair

Are you ready to transform your hair from dull and lifeless to vibrant and full of life? Look no further than the luxurious embrace of Argan Oil-Infused Moroccanoil Shampoo! In a...

Building A Strong Foundation For Any Structure

Building a home or commercial building can be very exciting. The possibilities are endless and the future is interesting. You can always change aspects of the building to meet the ...

The Role of a Family Dentist: Why Every Household Needs One

source A family dentist isn’t like your regular dentist who may specialise in a particular age group and whom you visit only when something goes wrong. A family dentist takes proa...

Times Magazine

"Eternal Nurture" by Cara Barilla: A Timeless Collection of Wisdom and Healing

Renowned Sydney-born author and educator Cara Barilla has released her latest book, Eternal Nurture, a profound collection of inspirational quotes designed to support mindfulness, emotional healing, and personal growth. With a deep commitment to ...

How AI-Driven SEO Enhancements Can Improve Headless CMS Content Visibility

Whereas SEO (search engine optimization) is critical in the digital landscape for making connections to content, much of it is still done manually keyword research, metatags, final tweaks at publication requiring a human element that takes extensiv...

Crypto Expert John Fenga Reveals How Blockchain is Revolutionising Charity

One of the most persistent challenges in the charity sector is trust. Donors often wonder whether their contributions are being used effectively or if overhead costs consume a significant portion. Traditional fundraising methods can be opaque, with...

Navigating Parenting Arrangements in Australia: A Legal Guide for Parents

Understanding Parenting Arrangements in Australia. Child custody disputes are often one of the most emotionally charged aspects of separation or divorce. Parents naturally want what is best for their children, but the legal process of determining ...

Blocky Adventures: A Minecraft Movie Celebration for Your Wrist

The Minecraft movie is almost here—and it’s time to get excited! With the film set to hit theaters on April 4, 2025, fans have a brand-new reason to celebrate. To honor the upcoming blockbuster, watchfaces.co has released a special Minecraft-inspir...

The Ultimate Guide to Apple Watch Faces & Trending Wallpapers

In today’s digital world, personalization is everything. Your smartwatch isn’t just a timepiece—it’s an extension of your style. Thanks to innovative third-party developers, customizing your Apple Watch has reached new heights with stunning designs...

LayBy Shopping