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Cost-of-living support could be funded by a levy on the top marginal rate, says executive.
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Slug on high-income earners a budget option: H&R Block
20 October 2022
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A levy on high-income earners might be a budget option for a government aiming to support battlers, says an H&R Block executive.
Director of tax communications Mark Chapman said a small increase in the top rate could help fund a cost-of-living package and it had happened before.
“Anybody remember the ‘temporary debt reduction levy’ on people earning over $180,000 that was introduced in 2014 and died in 2017?” he said.
“So an extra 1–2 per cent on the top rate of income tax could be just the thing to pay for some measure of ‘cost of living’ relief for low and middle income earners.
“This is just my guess as to what the government will do but it does provide a good way for the government to ‘balance the books’ if they want to introduce a measure of relief for low and middle income taxpayers to replace the low and middle income tax offset.”
The abolition of the low and middle-income tax offset (LMITO) next year would look like an impost to those who had qualified for it, he said.
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“My guess [is] that with power prices, petrol prices and mortgage rates all surging, the government will want to do something to ameliorate the effects of the loss of the low and middle income tax offset to avoid a ‘financial cliff’ next July — and accusations that they have put up taxes on low and middle income earners,” he said.
LMITO gave those earning less than $126,000 up to $1,500 in tax back, but 2021–22 was its final year.
“So expect something to take its place — maybe not the tax offset, but some measure to take the sting out of the hit that low and middle income earners are otherwise going to face,” he said.
Mr Chapman expected the temporary full expensing scheme to finish next June, but the government should announce a similar program to continue supporting small businesses.
“This scheme has been successful but at great cost and at the ‘top end of town’, it has provided a tax break to companies that really didn’t need it,” he said.
“It might be that a revised version of the ‘instant asset write off’ is introduced to replace it, giving the same benefit as temporary full expensing but limited to certain assets, and certain businesses.
“It could be capped at businesses with a turnover of less than $50 million, which would capture the vital small business market.”
Mr Chapman said the government might delay the decision until the May budget but it would affect business decisions.
“If they do nothing, the instant asset write off is legislated to take its place — and this will have a limit of only $1,000 and apply only to small businesses,” he said.
“This is probably too limited for the current economic climate, hence my suggestion of a $30,000 instant asset write off and an application to all small or medium sized businesses.”
Mr Chapman also said the government should take heed of the UK and slash the proposed stage three tax cuts.
“Put simply the tax cuts aren’t affordable and should be canned or at the least heavily revised — regardless of the price paid in lost media support, the price to be paid in continuing with them is much greater,” said Mr Chapman.
“The markets will come down heavily on the Australian economy if there is even a hint that these are to be paid for by an increase in borrowing.
“However the tax cuts aren’t due to come into effect until 1 July 2024 so the treasurer has time on his side and could well decide that this is one can that is best kicked down the road in the hope that ‘something turns up’.”
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