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The LMITO and stage 3 tax cuts by electorate

Taxation Income tax Tax rates Tax reform Australia

The government is planning to scrap the Low- and Middle-Income Tax Offset (LMITO) in 2022-23, which mainly goes to middle income taxpayers. The 50 per cent of taxpayers between the fourth and eighth deciles get 80 per cent of the LMITO. In 2024-25 the government’s stage 3 tax cuts will begin, which mainly go to high income earners. The majority (53 per cent) of the tax cut goes to the top 10 per cent of taxpayers.

The scrapping of the LMITO will see 90 per cent of taxpayers pay more tax. The stage 3 tax cuts are not due to begin until 2024-25 and they will mostly cut the taxes of people on high incomes. The net effect of the two tax changes will be that the two thirds of taxpayers on less than $90,000 a year are worse off, while the third of taxpayers on more than $90,000 a year are better off.

Despite benefiting fewer people, the stage 3 tax cuts are expected to reduce government revenue by about twice as much as the LMITO.

In Australia’s representative democracy, the geographic spread of the benefit of the various tax changes is important. In particular the spread between electorates that make up the 151 seats in the House of Representatives, helps explain why the federal government is so keen on the stage 3 tax cuts and happy to see the LMITO come to an end.

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