One of the guiding principles of the Coalition is that people should keep more of what they earn. After all, governments, as Sir Robert Menzies would say, do not have any money of their own: it’s the people’s money.
This is why the Coalition has cut taxes for households and businesses: more than $300 billion in the last two budgets alone. In this budget we go further with more significant changes to our tax system, designed to create jobs, boost investment and encourage research and development.
First, personal income tax. At a cost of $17.8 billion, the Morrison government is bringing forward by two years stage two of our tax cuts, with effect this financial year. We are continuing the low- and middleincome tax offset for another year. The 19 per cent tax threshold will move from $37,000 to $45,000 and the 32.5 per cent threshold from $90,000 to $120,000, with more than 11 million taxpayers benefiting.
Taxpayers will receive tax relief of up to $2745 for singles or $5490 for dual-income families this year, when compared with 2017-18. Lowand middle-income earners will benefit most. A person on $40,000 will pay 21 per cent less tax, someone on $80,000 11 per cent less.
These changes are part of a broader structural reform that, when fully implemented, will see 95 per cent of taxpayers pay no more than 30 cents in the dollar. This will create a simpler and fairer tax system that will remain progressive, with the top 5 per cent paying about a third of all tax.
Second, immediate expensing to help create jobs. Businesses with a turnover of under $5 billion, equivalent to 99 per cent of all businesses, employing 11.5 million people, will be able to immediately deduct the value of assets they purchase for their businesses.
This will support about $200 billion of investment, or 80 per cent of non-mining investment. While its cumulative cost over the next four years is $26.7 billion, its cost reduces to $3.2 billion over 10 years because deductions are used now, rather than later.
Third, loss carryback. Many sound and profitable businesses have been hit hard by COVID-19 and are now making significant losses. To give them their best chance of survival, the government is allowing them to offset losses against taxes they paid on previous profits. Normally, a business would only get to use these accumulated losses when they are profitable again in the future. This will cost $4.9 billion and be open to companies with a turnover of under $5 billion.
Companies that made a loss last year, this year or next year, can offset it against previous profits made in or after 2018-19. If a retail store makes a loss of $1 million this year, but paid $3 million in tax on a profit of $10 million last year, it will now be entitled to offset the loss against its prior $10 million profit. This will reduce its tax bill by $300,000 which it can now receive as a tax refund from the ATO.
The combination of the income tax cuts, immediate expensing and loss-carry back measures are expected to create 100,000 new jobs and stimulate billions of dollars of economic activity.
Fourth, research and development. The government is providing $2 billion of additional tax incentives to encourage small and large businesses to create the jobs of the future.
Starting from mid next year, businesses with a turnover of under $20 million will receive a refundable tax offset equivalent to 43.5 cents with no cap on the size of the cash refund. This means that a start-up business which is yet to turn a profit will get paid 43.5 cents for every dollar it spends on eligible research and development. A major major medical device manufacturer could spend $1 million on R&D and be able to offset $465,000 from their tax bill.
COVID-19 has hit the Australian economy hard but, as the virus is suppressed, jobs are coming back. Our tax system will play an important role in the economic recovery with these four significant changes helping keep businesses in business and Australians in jobs.
Josh Frydenberg is the federal Treasurer.