Budget 2018: Lowering Personal Taxes

The Budget Sweetener

Budget Update │ May 2018

Low and middle-income earners have emerged as the winners from the Budget. The Government unveiled their 7-year 3-phase plan, focusing on reducing the tax burden on individual taxpayers from 1 July 2018.



The sweetener is clearly a plan to introduce what the Government hopes will entice voters – adjustments to personal income tax rates. 80% of the taxpaying population (all those earning up to $87,000) will get some benefit from this change from 1 July 2018.


Change to personal income brackets

In later years, the number of brackets will be reduced from five to four with the elimination of the 37% rate. The top rate of 45% will only cut in at $200,000.



Income bracket


% of taxpayers in this bracket

Income bracket


% of taxpayers in this bracket

$0 – $18,200




$0 – $18,200




$18,201 – $37,000


$18,201 – $41,000


$37,001 – $87,000



$41,001 – $200,000



$87,001 – $180,000



$200,000 +



$180,000 +







Note! What remains unclear is the position for foreign residents and how they will be taxed.


New Low and Middle-Income Tax Offset

The Government has introduced a new Low and Middle-Income Tax Offset to deliver lower personal income taxes for low to middle-income earners through a 3-phase plan.

The benefit of the Low and Middle-Income Tax Offset is in addition to the existing Low-Income Tax Offset. This may result in a combined offset of up to $975 per year for some taxpayers from 1 July 2018.

 Phase 1:

Tax relief from 1 July 2018 to low and middle-income earners via a new non-refundable Low and Middle-Income Tax Offset, designed to provide tax relief of up to $530 for each of those years.

From 2018-19 to 2021-22, taxpayers will receive the following non-refundable tax offsets.

·         Alice earns $35,000 and pays 19 cents in the dollar. She will have her tax reduced by up to $200 on what she has paid in tax once the Low and Middle-Income Tax Offset applies. The average tax paid by Australians in this tax bracket is $1,900 per year.

·         Ben earns $48,000 and pays 32.5 cents in the dollar. He will have his tax reduced by up to a maximum of $530 per year once the Low and Middle-Income Tax Offset applies. The average tax paid by Australians in this tax bracket was $10,400 per year in 2015-16. 4.4 million taxpayers with an income between $48,000 and $90,000 will receive the maximum tax relief of $530.

·         Claire earns $95,000. The Low and Middle-Income Tax Offset will phase out at a rate of 1.5 cents per dollar, which means her tax relief reduces to zero at just over $125,000.

Phase 2:

Protecting bracket creep by ensuring a pay rise, extra overtime or working more hours does not get eaten up by higher tax rates.

In the 2016-17 Budget, the Government increased the top threshold for the 32.5% tax bracket from $80,000 to $87,000.

This threshold will now be set at $90,000 from 1 July 2018.

In 2022-23, the $37,000 threshold will be lifted to $41,000, stopping half a million Australians from creeping into the next tax bracket and facing a marginal rate of 32.5%. The $90,000 threshold will be raised again to $120,000, preventing 1.8 million Australians paying 37 cents in the dollar.

Phase 3:

Simplifying and flattening the personal tax system in 2024-25 by scrapping the 37% tax bracket entirely.

The top threshold of the 32.5% bracket will increase from $120,000 to $200,000, removing the 37% tax bracket completely. Taxpayers will pay the top marginal tax rate of 45% from taxable incomes exceeding $200,000 and the 32.5% tax bracket will apply to taxable incomes of $41,001 to $200,000.

What are your savings per year?

If you earn…
Your savings per year 

$37,000 or less

Up to $200


$37,001 – $47,999


Between $200 – $530


$48,000 – $90,000


Up to $530


$90,001 – $125,333


Up to $530, gradually reducing to $0



Work-related expenses: hidden target in Budget

A strong theme in the narrative accompanying the revenue measures in this year’s Budget is the additional boost to funding being allocated to the ATO and related organisations. This is evident from a number of measures, including:

– Personal income tax measures to ensure individuals meet their tax obligations ($130.8 million)

– Delivering on debt collections and improvement in timeliness of debt collections ($133.7 million)

– Enhancing ATO enforcement against the Black Economy ($318.5 million)

– R&D measure providing additional funding to the ATO and the Department of Industry, Innovation and Science (amount not specified)

– Assorted other measures relating to aspects of superannuation and payroll and superannuation fund reporting.

The measure seeking to ensure individuals meet their tax obligations alone is estimated to raise some $1.1 billion over the forward estimates. This could be read principally as a reference to ensuring that taxpayers do not over-claim work-related expenses.


Medicare levy untouched

The Medicare levy will remain at 2%. In last year’s Budget, the Government had proposed to increase the Medicare levy from 2% to 2.5% from 1 July 2019 but has decided not to go ahead with this.

Medicare levy low-income thresholds

The Medicare levy low-income thresholds for singles, families and seniors and pensioners will increase for the 2018-19 year.

– Singles: $21,980 (up from $21,655)

– Couples with no children: $37,089 (up from $36,541)

– Families with children: $37,089 (up from $36,541) + $3,406 for each dependent child or student (up from $3,356)

– Single seniors / pensioners: $34,758 (up from $34,244)

– Seniors / pensioners with family: $48,385 (up from $47,670) + $3,406 for each dependent child or student.


What about older Australians?

The Government will introduce a range of measures to enhance the standard of living of older Australians. These measures will commence on 1 July 2019.

– Expanding the Pension Work Bonus from $250 to $300 per fortnight (ie up to $7,800 a year)

– Pension Loans Scheme opened to all older Australians to include self-employed retirees who will be able to earn up to $300 per fortnight without impacting their eligibility for the pension

– Expanding the Pension Loans Scheme so that older Australians can use the equity in their homes to increase their incomes

– Changes to pension means test rules to help older Australians manage their life savings.


Speak with our Tax Accountants about any questions you may have regarding what impact the Budget measures will have on your personal circumstances. 

Please contact us below or call us on 1300 627 829

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Source: Tax Wise 2018