Budget 2022: Benefits for low- and middle-income earners explained

10 April 2022 By Lauren Croft

The 2022 budget is yet to properly account for the rising cost of living across the country, these partners have explained.

Last week (29 March), Treasurer Josh Frydenberg handed down the 2022-23 budget ahead of the upcoming federal election – with a number of tax cuts targeted at younger professionals.

Muhunthan Kanagaratnam and Julian Cheng, both partners at Gilbert + Tobin, told Lawyers Weekly that the 2022 budget had a number of measures for lower-income earners.

“Although there were no personal tax cuts in this year’s federal budget, it did contain a range of measures targeted at low- and middle-income earners, primarily designed to help them tackle the rising cost of living experienced by many Australians,” they explained.


“With employees venturing back into workplaces and the domestic tourism market coming back to life, many Australians have been burdened with the rising cost of fuel with prices recently reaching over $2 a litre in some parts of the country. The government’s announcement in the budget that the fuel excise would be halved from $0.442 to $0.221 per litre is expected to provide some relief but only for six months at which time the excise will revert to its current rate.”

However, the budget 2022 does little for renters and first home buyers, the pair explained.

“The initiatives do little to combat rising rents and property prices. In relation to the latter, the government is proposing to extend its First Home Guarantee program by offering 35,000 guarantees per year from 1 July 2022 (up from the current 10,000 guarantees per annum). This program enables first homebuyers to purchase a home with a deposit as low as 5 per cent of the purchase price. The program is available to single applicants with a taxable income of up to $125,000 per annum and couples with a taxable income of up to $200,000 per annum for the previous financial year. It only applies to purchases of residential property which falls below specified property price thresholds depending on its location,” Mr Kanagaratnam and Mr Cheng added.

“While the First Home Guarantee may help low to middle income earners buy their first home with a lower deposit, bank funding will still be required in many cases. The budget doesn’t really address the issue of high property prices nor does it take into account the prospect of a possible rise in interest rates with the budget forecasts simply recognising that interest rates are assumed to move broadly in line with market expectations.”

Similarly, Sue Williamson, partner at Holding Redlich, said that whilst most young lawyers would benefit from the low- and middle-income tax offset, there were a number of drawbacks – specifically around the First Home Guarantee.

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“Most young and lower income earners will benefit from the increase of $420 in the low- and middle-income tax offset (LMITO) announced in the budget. This means that young lawyers who are earning up to $126,000 may receive up to $1,500 of tax offsets when they lodge their tax returns from 1 July 2022 onwards. It is important for young lawyers to note that the LMITO is a tax offset and not a grant. Furthermore, young lawyers typically have a lower tax payable amounts due to substantial expenses arising from career development courses. This may preclude them from enjoying the full benefit of the LMITO.

“The major drawback to the Home Guarantee Scheme, FHOG [First Home Owner Guarantee] and stamp duty exemption or concession is that the maximum purchase price of the first home falls below the median house price in Australia,” she explained.

“Legal professionals who are starting or expanding their family will benefit from the proposed 20 weeks paid parental leave announced in the budget. Under existing arrangements, the primary carer is entitled to 18 weeks of paid parental leave and the secondary carer to two weeks. If the secondary carer does not utilise the two weeks, it is lost. The new measures under the budget provides for a combined 20 weeks of paid leave to be shared between the primary and secondary carer. So, both carers are given the flexibility to decide how the parental leave should be utilised.”

There are also legislative tax cuts taking place from 1 July 2024, Mr Kanagaratnam and Mr Cheng noted.

“At the moment, taxpayers pay tax at a rate of 32.5 per cent where their taxable income is in the range of $45,001 to $120,000 per annum. A rate of 37 per cent then applies where taxable income is from $120,001 to $180,000 with the top marginal rate of tax of 45 per cent applying where taxable income exceeds $180,000. When the tax cuts take effect on 1 July 2024, the 32.5 per cent and 37 per cent rates will be removed and replaced with a 30 per cent rate that applies where taxable income is in the range of $45,000 to $200,000. The top marginal rate of 45 per cent will apply to any excess of taxable income above $200,000,” they explained.

“While these measures provide relief for low- and middle-income earners, they are only temporary. Australians have no way of knowing how long cost of living pressures will persist. And the government’s First Home Guarantee may help low to middle income earners buy their first home but won’t guarantee that they will be able to afford the mortgage repayments if interest rates rise. The key takeaway is that the budget does little in the way of providing a long-term structural solution to ensure that low- and middle-income earners can effectively meet the rising cost of living in Australia and enter the property market in a financially sustainable manner.”

Despite ongoing cost-of-living pressures across the country, Ms Williamson remained hopeful the budget announcements would help those impacted by the pandemic “bounce back”.

“These budget announcements, when coupled with broader cost of living relief measures such as the fuel excise reduction, are certainly a welcomed announcement that will help many young and lower income earners bounce back from the pandemic,” she said.

“However, it is important to remember that although the budget includes the announcement of several initiatives that might be beneficial to young and lower income earners, not all young lawyers will benefit. Each must consider their own circumstances to determine how beneficial each of the announcements are to them.”

Budget 2022: Benefits for low- and middle-income earners explained
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