When a tax cut is really a tax increase

by Matt Grudnoff

The government faced a major decision in this budget. Would it extend the Low- and Middle-Income Tax Offset (LMITO), also known as the lamington or would it be scrapped, meaning 10 million taxpayers would be paying more tax next year?

For a government that flatters itself on being the “government of lower taxes” it would seem an obvious choice. Extend the lamington. But instead, they threw a crazy curve ball and increased the lamington for this year before scrapping it next year.

10 million taxpayers get a bigger refund this year but then pay more tax next year. People earning between $48,000 and $90,000 will get an extra $420 from the lamington before paying an extra $1,500 in tax next year.

Of course, next year is long after the election, which seems to be this budget’s only focus.

In a bizarre detail, the government increased the lamington by $420 for everyone who has previously got it. But they have not adjusted the taper rates. This means someone earning $125,999 gets $420. But someone earning just one dollar more ($126,000) gets nothing. In this case they would be $419 worse off for earning the extra dollar.

Kudos for finding a new and novel way to discourage increasing wages.

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