As the Australian federal election approaches on May 3, 2025, it’s important to understand the tax policies proposed by the two major parties: the Australian Labor Party (Labor) and the Liberal-National Coalition (LNP). Below are some insights to help you understand their plans and consider how they might impact you.
Labor’s Tax Policies
Labor is focusing on easing the cost of living making some changes to the lower end of the tax bracket.
Key proposals include:
- Income Tax Cuts:
- Labor plans to reduce the tax rate for incomes between $18,201 and $45,000 to 14% by July 2027 (from 16%). This change could save workers in this bracket up to $536 annually.
- Superannuation Tax Adjustments:
- A 15% tax on unrealised capital gains within superannuation accounts exceeding $3 million balance has been introduced. This measure aims to generate additional revenue and promote fairness in the super system.
- Energy Bill Relief:
- Households and small businesses are set to receive an extra $150 in energy bill rebates, adding to an existing $300 rebate. This initiative seeks to reduce some of the pressures from rising energy costs to combat the cost of living crisis faced by Australians.
- Support for Small Businesses:
- The LNP had criticised Labor for proposing to eliminate the Instant Asset Write-Off and moving it back to the $1,000 limit, a move they claim increases taxes on small businesses. However, Labor has recently announced they will extend the current instant asset write off ($20,000 cap) if re-elected for 12 months. Note, there is no promise for extension after the 12 months.
- The 1k Deduction:
- 1,000 Instant Tax Deduction: Labor has introduced a proposal for a $1,000 automatic tax deduction for work-related expenses starting from the 2026–27 financial year. This measure aims to simplify tax returns by eliminating the need for receipts for Australian’s who have total deductions under $1,000, potentially benefiting approximately 5.7 million taxpayers. This would essentially mean that you will be able to be able to claim a $1,000 tax deduction that will cover all your work related expenses for the year. Which would benefit the average Australian claiming less than $1,000 in tax deductions around $205 a year. If your deductions each year would be more than $1,000 you can still claim all work related expenses the standard way.
- Healthcare and Education Investments:
- Significant funding boosts are planned for public healthcare and education sectors, including efforts to make nine out of ten GP visits free by 2030. These investments aim to improve access to essential services for all Australians.
Liberal-National Coalition’s (LNP) Tax Policies
The LNP is positioning itself as the party of lower taxes and economic management. Their key proposals include:
- Opposition to Labor’s Tax Changes:
- The Coalition has expressed strong opposition to Labor’s tax policies, particularly the changes to superannuation tax and the restructuring of tax cuts. They argue that these adjustments represent broken promises and could negatively impact Australians’ financial planning.
- Support for Small Businesses:
- They advocate for policies that provide tax relief and supporting small businesses, which they see as vital to the economy. Firstly, they are looking to permanently change the instant asset write off to be a $30,000 cap. Secondly, they are looking to introduce a $20,000 cap on entertainment expenses that will be exempt from Fringe Benefits Tax for an initial two years (alcohol excluded). These proposes are to help small business and stimulate the hospitality sector.
- Cost-of-Living Focus:
- Opposition Leader Peter Dutton emphasizes addressing the cost-of-living crisis, pledging financial support and policies aimed at reducing everyday expenses for Australians.
- 1.2k Offset:
- $1,200 One-Off Tax Offset: The Coalition proposes a one-time $1,200 tax offset for low- to middle-income earners in the next financial year, targeting individuals earning up to $144,000. This measure is designed to provide immediate cost-of-living relief. This will act the same as the Low- and Middle-Income Tax Offset operated in prior years. The importance of a tax offset is that it is essentially cash and has a direct impact on your refund/reducing your tax bill.
What This Means for You
Understanding these policies can help you plan potential changes to your finances:
- If you’re a low to middle-income earner:
- Labor’s proposed tax cuts could offer slight relief, potentially increasing your take-home pay over the coming years if in that tax bracket.
- If you have a high superannuation balance:
- Be aware of Labor’s 15% tax on unrealised gains for super balances over $3 million, which may affect your retirement planning.
- If you’re a small business owner:
- Consider how the additional entertainment cap under LNP might help your business.
- Also consider how the potential removal of the instant asset write off after 12 months could impact your small business.
- General cost of living:
- Both parties acknowledge the rising living costs and propose different strategies to address them, from tax cuts to direct financial support.
Tax policies are a significant aspect of each party’s platform and can have direct implications for your financial situation. As election day nears, take the time to consider how these proposals align with your personal and financial circumstances. Staying informed will empower you to make a choice that best supports your interests and those of your community.
Note: Tax policies can be complex, and their impacts vary based on individual situations. For personalised advice, consider consulting a financial adviser or tax professional.
At Walshs, we’re here to help. If you have any questions, please get in touch today on 07 3221 5677, or book a meeting HERE.
Article by: Bailey Coghill, Walshs Accountant
