Graduates on low incomes are set to be slugged with an extra $1000 a year in tax as the Turnbull government's changes to the repayment of university fees and an increase in the Medicare levy combine to hit those earning well below the average wage.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
In an unexpected consequence of changes announced in Tuesday's federal budget, those earning as little as $37,000 a year and receiving rent assistance will be discouraged from looking for more work because of an increase in the effective marginal tax rate to 100 per cent.
This means that every extra dollar they earn from paid work would be taken away from their rent assistance, cancelling out any financial incentive.
The extra hit to graduates' personal budgets comes through the Turnbull government's increase in the Medicare levy by 0.5 percentage points to 2.5 per cent in order to fund the $22 billion National Disability Insurance Scheme and reducing the income level at which graduates have to repay their HECS-HELP loan to $42,000 a year.
Under the changes, graduates earning a wage of $48,000 a year will pay an extra $960 a year from 2019, while those earning $54,000 a year will be see their tax bill increase by $1620.
Both of the changes announced in Tuesday's budget still face negotiation with Labor and the Senate crossbench.
On Thursday, Finance Minister Mathias Cormann said: "We believe the measures outlined in the budget are fair."
Labor's finance spokesman Jim Chalmers accused the government of looking after business interests over those on low incomes.
"If this budget was genuinely fair, it would go so some way towards rebuilding trust with people in this building," he said.
A post-budget analysis from the National Centre For Social And Economic Modelling also shows changes to the family tax benefit scheme will disadvantage middle-income families with a $400 tax bill on top of their current payments.
"For a couple earning $110,000 with two kids aged over 12, they are expected to lose $183 a year due to an indexation freeze and $783 a year due to the taper rule changes," NATSEM found.
In broader economic forecasts, the Turnbull government's optimism about returning the budget to surplus by 2020-21 also suffered a blow on Thursday, with Deutsche Bank slashing US growth forecasts for 2018 by 1 per cent as the government looks to sell its budget on the back of a "better times ahead" mantra.
"The Treasurer's statements are, at best, wildly optimistic and leave the Australian economy highly vulnerable to vacillations in the global economy," NATSEM's report said.
NATSEM also took aim at the government's focus on small and medium-sized businesses as the driver of the economy.
The government is looking to spread company tax cuts to those turning over more than $50 million after its first set of of cuts to those earning less than that amount passed Parliament on Tuesday.
"This government will not rest until we have successfully fought to implement a company tax framework that sets Australia up to have more and better-paid jobs in the future and for future generations," Treasurer Scott Morrison told question time.
NATSEM found the evidence remained thin on whether a continued focus on small and medium size businesses, however innovative, was the key to high economic performance in the global economy.
"We also have no idea as to whether significant investment in infrastructure will deliver large dividends to the Australian economy," the think tank said.
Further damaging surplus prospects, the futures of Australia's largest mining export, iron ore, also took a tumble to a four-month low in China on Thursday, after falling to $US60 a tonne from $US95 in February.
The government had been banking on ploughing any improvement in commodity prices into reducing the federal deficit.
