Date posted: 29/03/2022

Federal Budget 2022-23 delivers temporary relief to households as cost-of-living rises

With negative wages growth and rising costs hurting households, budget measures provide temporary assistance to ease pressures.

In brief

  • The 2021-22 low- and middle-income tax offset will be increased by $420 but hasn’t been extended
  • $250 will be paid to concession card holders in April 2022
  • Fuel excise will be halved for six months

With the Consumer Price Index (CPI) predicted to be 4.25% and the wage price index to be 2.75% in 2021-22, many households are finding it hard to meet cost-of-living increases.

The Federal Budget indicates that this is expected to be temporary with the wage price index increasing over the forward estimates to 3.5% and the CPI reducing to 2.5%. 

To address this concern, the government is introducing a series of temporary measures:

  • Increasing the 2021-22 low- and middle-income tax offset (LMITO)
  • Paying $250 to concession card holders
  • Halving fuel excise

Cost of living tax offset increases 2021-22 LMITO

The low- and middle-income tax offset is due to expire after 30 June 2022.  The government has not extended the measure, and over 10 million individuals will face a higher tax bill for income earned in the next financial year.

The increase in tax payable will be even more noticeable next year because the amount of the 2021-22 LMITO will be increased by the $420 cost of living tax offset. The Treasury estimates that:

  • 1.8 million people who earn up to $37,000 will receive up to $675
  • 1.6 million who earn between $27,001 and $48,000 will receive $675 to $1,500
  • 4.8 million who earn between $48,001 to $90,000 will receive $1,500
  • 1.9 million who earn between $90,001 and $125,999 will receive $420 to $1,500

The LMITO is received by an individual after they have lodged their income tax return, so tax agents can again expect a rush from individual clients from 1 July 2022.

One-off $250 cost of living payment

The benefit of the LMITO declines once an individual’s income is below $48,000 and disappears entirely for those with no assessable income. To assist those who rely on social security with cost-of-living increases, and no doubt with an eye to the looming election, the government announced that Australian residents who are concession card holders will receive $250 in April 2022.

This payment is exempt from tax and will not count as income support

Halving fuel excise

At a cost of $5.6 billion, the largest item that addresses concern about cost-of-living increases is a temporary halving of fuel excise.  

From 30 March 2022 to 28 September 2022, excise equivalent customs duty rates for petrol, diesel and all other fuel and petroleum-based products other than aviation fuel will be halved – reducing petrol excise from 44.2 cents to 22.1 cents per litre.  

Prices are expected to be even lower because GST will be levied on a lower rate.  The Australian Competition and Consumer Commission will monitor retailers to ensure the lower excise rate is fully passed on to consumers.  Whether this initiative will result in a sustained reduction in prices at the bowser will depend on world oil prices and an end to the war in Ukraine. 

Whilst excise is halved, indexation will continue on the reduced rates.  However, when full excise rates resume the indexation that would have applied to full rates will be applied.  

Increase in the Medicare levy low-income threshold

As usual, the Budget announced an increase in the Medicare levy low-income threshold from 1 July 2021 to take account of recent movements in the CPI.  For singles, it will increase from $23,226 to $23,365.  The family threshold will increase from $39,167 to 39,402.

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