Low to middle income tax offset to hit 10million Australians with $1,500 pay cut

More than 10 million Australians will be up to thousands of dollars worse off when the low and middle income tax deductions expire this financial year.

Employees earning less than $126,000 per year will be impacted by the end of compensation with up to $1,500 less in their pockets.

The news comes as ordinary Australians continue to grapple with the rising cost of living as inflation and interest rates rise.

People who earn $100,000 will be $1,200 worse off, while those who earn $90,000 will earn 2.1 percent less when the tax deduction ends this year.

Residents with a $50,000 salary will be 3.4 percent worse off, which equates to about $29 a week less in their after-tax income.

The low and middle income tax offset was introduced for fiscal year 2018-2019, with the offset originally set at $530.

The value was then increased to $1,080 prior to the 2019 election before being increased to $1,500 in March 2022.

Treasurer Jim Chalmers has decided not to renew the offset, spelling pain for millions of families.

Independent economist Chris Richardson said it was an additional blow to struggling Australians.

‘On top of higher interest rates and inflation, it will really hit households. Retailers will certainly feel this too,” he said The Sydney Morning Herald.

“The Reserve Bank has done a great job raising interest rates, but don’t underestimate what the government is doing by doing nothing.”

Cherelle Murphy, EY Australia’s chief economist, said rising interest rates will make it harder for homeowners to stay on top of their mortgages.

The Reserve Bank of Australia has raised interest rates 10 consecutive times since April 2022.

The RBA on Tuesday decided to hold cash rates at an 11-year high of 3.6 percent.

People earning $100,000 will be $1,200 worse off, while those earning $90,000 will earn 2.1 percent less

Governor Philip Lowe acknowledged that the full effects of the earlier rate hikes had not yet been felt, noting that the RBA needed to look at the effects of an economic slowdown.

“The board recognizes that monetary policy is lagging and that the full effect of this substantial rate hike has not yet been felt,” he said.

“The board has made the decision to keep interest rates stable this month in order to have more time to assess the impact of the interest rate hike to date and the economic outlook.”

Inflation has moderated from a 32-year high of 7.8 percent last year, with the monthly benchmark for February showing a consumer price index of 6.8 percent.

But this measure, from the Australian Bureau of Statistics, is still well above the RBA’s target of 2 to 3 percent.

Dr. Lowe hinted at another rate hike, with inflation not expected to return to target range until mid-2025.

“The board expects that some further monetary policy tightening may be necessary to ensure inflation returns to target,” he said.

“The central forecast is that inflation will fall to about three percent by mid-2025 this year and next.”