Federal Budget 2021: Frydenberg promises AU$30bn in tax cuts to boost spending

Summary

• The government commits AU$7.8 billion in personal income tax cuts to support more than 10 million low- and middle-income earners.
• The tax cut will allow single taxpayers to receive AU$1080 tax offset, while dual-income couples will get up to $2160 back, when they will file tax returns.
• Businesses have been extended tax relief worth $20.7 billion, in the form of tax write-offs for new equipment and loss carry-back provisions. 

Prime Minister Scott Morrison-led government has promised AU$30 billion in tax cuts for the fiscal year ending June 2022, which is likely to benefit taxpayers and businesses. In the federal budget 2021, unveiled by Treasurer Josh Frydenberg on Tuesday night, the government extended the low and middle-income tax offset of AU$7.8 billion for another year, while it announced tax relief of AU$20.7 billion to businesses.

Budget Commits AU$7.8 Billion in Personal Income Tax Cuts

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The budget 2021-22 has extended tax cut benefits to more than 10 million Australians under the low and middle-income tax offset (LMITO) plan, which will cost AU$7.8 billion to the exchequer. Under the LMITO plan, taxpayers earning less than $126,000 get tax benefits when they submit their tax returns.

The tax cut will allow single taxpayers to receive AU$1080 tax offset, while dual-income couples will get up to $2160 back, when they will file tax returns.

This is in addition to the AU$25.1 billion tax cuts announced under the Personal Income Tax (PIT) Plan 2021‑22 for households. Introduced in the 2018 Federal Budget, the PIT is a seven year tax cut plan which was designed to reduce tax burden on individual taxpayers, (particularly low and middle-income earners), and make the system simpler.

As per the budget document, the extension of LMITO plan will provide tax cuts of up to AU$7,020 for individuals, and up to AU$14,040 for couples, in total over the period from 2018-19 to 2021‑22.

Treasury has projected that extension of the LMITO plan will boost GDP by around AU$4.5 billion in 2022-23 and will create an additional 20,000 jobs by the end of 2022‑23. By 2024‑25, when Stage 3 of the plan will be implemented, around 95% of taxpayers will face a marginal tax rate of 30% or less.

While delivering his third budget, Treasurer Josh Frydenberg said that the tax cut will support household income and generate more activity, supporting jobs growth.

“Lower taxes means that hard-working Australians will keep more of what they earn, allowing them to spend more, help grow the economy and create more jobs,” Frydenberg said.

Businesses to Get Tax Cut Worth AU$20.7 Billion

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The government has committed to extend tax relief worth $20.7 billion to businesses, in the form of tax write-offs for new equipment and loss carry-back provisions. The government believes that business tax incentives will help create more jobs and boost Australia’s recovery from last year's COVID-induced recession.

Treasurer Frydenberg said that the government will deliver AU$16 billion in tax cuts to small and medium businesses by 2023-24 with around AU$1.5 billion flowing in 2019‑20. This includes reducing the tax rate for small and medium companies, from 30% in 2014‑15 to 25% from 1 July 2021.

The temporary full expensing and temporary loss carry-back measures are estimated to boost GDP by around AU$2.5 billion in 2020‑21, AU$7.5 billion in 2021‑22, and AU$8 billion in 2022‑23. The tax incentive will also help generate around 60,000 jobs by 2022‑23.

According to the budget statement, the government is supporting business investment by extending temporary full expensing and temporary loss carry-back for an additional year. The move will support businesses experiencing COVID‑19 related supply disruptions, or considering investing in projects requiring longer planning times, to take advantage of the incentives.

The business tax incentives will boost activity and employment in the short run and raise the productive capacity of the economy for the future, as per the budget document. It is estimated to deliver an additional AU$20.7 billion in tax relief to businesses over the forward estimates period. The government expects these incentives to support investment worth $320 billion.