The Low and Middle Income Tax Offset (known as the LMITO or “lamington”) has been given yet another new lease of life.
What started in 2018 as a stop-gap until broader tax cuts were introduced, was extended because of COVID after the tax cuts were introduced in the 2020 budget and has now been extended again in 2021 to assist with the COVID recovery.
Which is odd, because, being a delayed payment (it is only paid out as tax refunds after the end of each financial year), it offers anything but real-time support.
And despite its name, it isn’t offered to Australians on very low incomes.
If you earn less than the A$18,200 tax-free threshold, LMITO gives you nothing.
If you earn more than that and up to $37,000 it will cut your tax by up to $255.
The LMITO gradually increases with income until it reaches $1,080 for taxable incomes between $48,000 and $90,000.
Beyond $90,000 it starts falling and cuts out entirely for taxable income over $126,000.
The quick fix that came to stay
It was introduced by the Government in the 2018 budget as a temporary measure until the ‘stage 2’ tax cuts came in from 2022. In the 2020 budget the Government brought forward the ‘stage 2’ tax cuts. This meant the LMITO was no longer needed for its original purpose, but the Government extended it for a year.
Others might see it as continuing to escape a tax increase.
This cost makes it one of the more expensive decisions announced in the budget, and — especially if it gets extended again, it will as good as destroy the promise in earlier budgets of a simpler, flatter tax schedule.
Here’s what it does to tax
The LMITO (and its sibling, the longstanding Low Income Tax Offset) make the tax schedule more complicated.
- ^ stop-gap (cdn.theconversation.com)
- ^ extended (cdn.theconversation.com)
- ^ extended again (cdn.theconversation.com)
- ^ budget (ministers.treasury.gov.au)
- ^ The budget's dirty secret is the hikes in tax rates you're not meant to know about (theconversation.com)
- ^ $7.8 billion (budget.gov.au)
- ^ stage three tax cuts (archive.budget.gov.au)
- ^ Steven Hamilton (theconversation.com)
- ^ Derived from Commonwealth Budget Paper 2, 2019 (www.budget.gov.au)
- ^ STINMOD+ (stinmod.canberra.edu.au)
- ^ Josh Frydenberg (ministers.treasury.gov.au)
- ^ saved (www.newyorker.com)
- ^ Fewer hard hats, more soft hearts: budget pivots to women and care (theconversation.com)
- ^ coronavirus supplement (theconversation.com)
Authors: John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society and NATSEM, University of Canberra