As the federal election approaches, both the Labor Party and the Coalition have announced significant tax policies to attract voters. Understanding how these policies work, their benefits, and their fiscal implications is crucial.
The incumbent Labor government proposes an instant tax deduction scheme, allowing taxpayers to claim a standard deduction of $1,000 against their taxable income without needing to keep receipts for individual work-related expenses. Those with deductions exceeding $1,000 can continue to claim their full amount, maintaining a previous system suggested in the 2010 Henry Review, which had largely been overlooked until now.
Labor estimates that this new scheme will benefit approximately 5.7 million Australians—around 40% of taxpayers—resulting in a simpler tax filing process and a reduced taxable income for low-to-middle-income earners. According to their projections, the average tax saving from this initiative will be about $205, with potential savings of up to $320 annually for those earning between $45,001 and $135,000. Furthermore, the government anticipates the reduction in administrative burdens could save taxpayers around $200 million a year. This policy would commence in the 2026-27 financial year if Labor is re-elected.
In contrast, the Coalition under Peter Dutton has proposed a one-off tax offset instead, aimed at individuals earning up to $144,000 in the 2025-26 financial year. This plan is intended to provide tax relief to over 10 million Australians, which constitutes approximately 85% of taxpayers. The benefits of the offset will vary, with those earning up to $37,000 receiving up to $265 and those in the wage range of $48,001 to $104,000 receiving up to $1,200 before tapering off for higher earners. Unlike Labor’s proposal, this offset will not require an application; it will automatically adjust taxpayers’ final bills.
The fiscal impact of the Coalition’s proposal is estimated at $10 billion for just one year, significantly more than Labor’s plan, which is projected at $2.4 billion over four years. However, unlike Labor’s ongoing scheme, the Coalition’s offset will not extend beyond its initial year.
With both parties focused on tax reform as a key election issue, voters must weigh the long-term benefits of a permanent deduction scheme against a substantial but temporary offset. Each approach aims to alleviate tax burdens but differs significantly in duration, administration, and budgetary implications.