Australians will be showered with $8.6bn in one-off cash payments and temporary cuts to petrol and income taxes designed to lower the cost of living.
In Tuesday’s budget the treasurer, Josh Frydenberg, revealed the low and middle income tax offset would be boosted this year by $420 to a maximum tax refund of $1,500 for individuals.
Frydenberg confirmed that petrol excise would be halved for six months and welfare recipients and seniors would receive one-off payments of $250, which would be delivered in April.
The measures are designed to offset rising costs of living, with inflation running at 3.5% in the December quarter and petrol prices rising to as much as $2.20 a litre due to the Russian invasion of Ukraine.
Ahead of the budget, Labor signalled it intended to support cost-of-living measures but criticised the timing of the giveaways before the May election, which economists have warned will add to inflationary pressure and increase the likelihood of interest rate rises.
At a cost of $4.1bn, the budget boosts the low and middle income tax offset, adding up to $420 to current recipients’ tax deduction for 2021-22.
The measure benefits 10 million people earning up to $126,000, all of who get the $420 boost except those earning less than $25,000 who don’t require the full offset to reduce their tax liability to zero.
Some 4.8 million people earning between $48,000 and $90,000 will receive the maximum tax refund of $1,500. The tax refund tapers down to $420 for those earning up to $126,000.
From midnight on Tuesday the petrol excise will halve from 44.2 cents a litre of petrol or diesel to 22.1 cents, at a net cost of $3bn to the budget.
In his speech, Frydenberg said the measure would “flow through to the bowser over the next two weeks” and the Australian Competition and Consumer Commission “will monitor retailers to make sure these savings are passed on in full”.
The petrol excise cut would save a family with two cars who fill up once a week “around $30 a week” or $700 across six months, he said.
The fuel tax relief expires automatically after six months, on 28 September.
At a cost of $1.5bn the government will provide one-off $250 economic support payments to six million people including pensioners, disability support recipients, parenting payment recipients, carers, jobseekers, veterans, eligible self-funded retirees and concession card holders including seniors card holders.
In his speech, Frydenberg said the Coalition would repair the budget by “ending economy-wide emergency support” while Labor’s policies would “result in higher taxes and higher interest rates”.
But Frydenberg said the Morrison government was prepared to tackle “higher fuel, food and shipping costs” with a “temporary, targeted and responsible cost of living package”.
In a budget with many front-loaded and temporary payments, paid parental leave will receive a permanent boost.
Parents will be able to claim a total of 20 weeks leave, to be shared between them as they see fit, instead of 18 weeks for the primary carer and two for the other parent. Single parents will be eligible for the full 20 weeks for the first time. The measure will cost $346m over five years, including to raise the household income threshold to $350,000 per year.
“Families, not government, are best placed to decide what works for them,” Frydenberg said. “We will expand eligibility and provide working families with full flexibility and greater choice.”
Earlier on Tuesday the Labor leader, Anthony Albanese, said “there’s a need for cost-of-living relief” – but on a “permanent basis”.
Albanese told ABC Radio National that Labor had been “constructive” in opposition and “never let the perfect be the enemy of the good” – signalling it was likely to support all cost-of-living measures in the budget.
“So if there are measures which give people money, for example, one-off payments, now, we’re unlikely to say, ‘No, don’t give people a one-off payment’.
“But I’ll tell you what. We’ll point out that it’s probably timed for the election. What we need is a plan for the economy, not a plan to get the Coalition a fourth term in office.”
The low and middle income tax offset has been criticised as a form of middle class welfare which benefits people earning in excess of the median employee income in Australia of $62,400.
The $420 LMITO boost means a worker earning the median income will receive a 0.7% tax cut this year, but if the offset is not extended beyond 2021-22, will receive a 2.5% tax increase next year.
In March the Deloitte Access budget monitor noted the LMITO flowed “disproportionally to higher-income households” because it flowed to “low- to middle-income taxpayers”, when in fact almost half of adult Australians don’t pay income tax.
“Australia’s economy is well past the point at which additional stimulus is needed,” it said, warning that further income tax cuts could prompt the Reserve Bank of Australia to lift rates sooner.
Deloitte also argued against petrol excise cuts, which it said was “not good policy” because excise “only accounts for one-fifth of the price at the pump”.
“That’s just not a big enough lever: you can’t fix the impact of a war in Europe by using a band-aid on a tax in Australia.”
The budget estimates that inflation will ease from 4.25% in 2021-22 to 3% in 2022-23, which Frydenberg told reporters factored in a 0.25% cut in inflation from the petrol excise measure.
