More than 10 million Australians struggling with the cost of living crisis will face one of the largest tax increases in history.
According to a report from Nine papers, Treasurer Jim Chalmers will not extend the Low-Middle-Income Tax Offset (LMITO) when the federal budget is delivered in May.
This means those earning under $126,000 a year will suffer a $1,500 hit to their hip pocket and a person earning $100,000 will be $1,200 worse off.
People taking home $50,000 a year will suffer a 3.4 per cent or $29 per week cut in their after-tax income while those earning $90,000 will cop a 2.1 per cent hit.
The LMITO, which costs the budget $11 billion a year, was introduced for the 2018-2019 financial year as part of the first stage of the Turnbull government’s three-stage tax cuts.
Under the scheme, people earning between $37,000 and $126,000 received up to $530 when they filed their tax returns, with the offset later extended and increased to $1,080 ahead of the 2019 federal election.
In March last year, then-treasurer Josh Frydenberg again extended the offset for the 2021-2022 financial year lifting it to $1,500 as part of a stimulus package to curb surging inflation.
But as the end of the 2022-2023 financial year approaches the scrapping of the tax offset will serve as a substantial pay cut for Australian workers earning under $126,000.
Leading economist Chris Richardson warned the end of the offset would hurt the economy and households amid high inflation and interest rate rises.
“We’re talking a substantial amount of money. It’s the equivalent of two interest rate rises,” he told the Sydney Morning Herald.
“On top of higher interest rates and inflation, it’s really going to affect households. Retailers are also going to feel this, for sure.
“The Reserve Bank has done a lot of work by lifting interest rates but don’t under-estimate what the government is doing by doing nothing.”
Although the Treasurer has signalled the LMITO won’t be included in the May budget, he has indicated the government will provide cost of living relief in some other form.
“In such uncertain times, it’s critical that the May Budget strikes the right balance between targeted cost of living relief, responsible fiscal management and laying the foundations for future growth,” he said.