Treasurer Jim Chalmers is planning a major cash splash in the budget to deliver Australians cost of living relief worth up to $300 for PAYG workers.
As the government prepares to crack down on trusts arguing the arrangements allow the wealthy to legally minimise their tax, there is fresh speculation that some of the revenue will be used to deliver modest tax cuts for workers.
One option the government is believed to be considering is a one-off earned income tax offset.
Tax offsets directly reduce the amount of tax payable on eligible taxable income in any given financial year.
Between 2018–19 and 2021–22, thousands of workers received the low and middle income tax offset, if they earned up to $126,000.
The Australian reported on Tuesday that the government is considering introducing a new earned income offset of between $200 and $300 for every person in Australia who gets a wage or salary and pays tax.
The one-off cost of living relief would only be provided for the current financial year and would not deliver an ongoing tax cut to workers.
It would also only apply to “earned” income paid to workers rather than income from investments.
Tax cuts are coming
Speaking in Canberra, the Treasurer played coy on Monday about whether there were fresh tax cuts in the budget as he outlined a “very substantial savings package” to reduce government spending.
“We’ve already got tax cuts coming. We’ve got a tax cut coming on 1 July, another one coming on 1 July next year,’’ he said.
“A big part of the Budget will be the more than $2.5 billion we’re spending on the fuel tax cut, and we’ve got the standard deduction coming as well.
“So, I’ve seen some speculation about tax cuts. I would just remind everyone that this is a government cutting taxes, cutting income taxes. We’ve done it once, we’ll do it two more times, and the standard deduction will provide a bit of additional tax relief as well. That’s already in the system.”
‘Trust’ backflip on negative gearing
The Treasurer also suggested that he could build “trust” with the community despite expected backflips on negative gearing and capital gains tax.
“First of all, I think the best way to build trust is to make the right decisions for the right reasons,’’ he said.
“There are genuine intergenerational concerns and pressures in our Budget, in our tax system, in our housing market and in our economy more broadly.
“I think the intergenerational pressures are really serious.
“We recognise and respect the really big contribution that older Australians have made and continue to make to our country and to our economy. But a lot of Australians, and particularly younger Australians, are finding it really difficult to get into the housing market.
“It’s about recognising some of these legitimate intergenerational concerns which, in my experience, are often shared by older Australians as well.”
Crackdown on trusts
Some of the data the government will rely on to sell the trust fund changes include the fact that the number of discretionary trusts doubled in the last 20 years from 400,000 to 800,000.
These trusts generated a net income of over $153 billion and held net assets of $1 trillion.
According 2023 figures, 23 per cent of individuals with trusts were top income earners and they received 63 per cent of trust income.
The proposed reforms would target that entirely legal practice, which allows the wealthy to pay far less tax than wage earners on identical incomes.
A secret Treasury report prepared by tax academic Professor Miranda Stewart recommended a minimum tax rate on trust distributions of between 25 and 30 per cent first emerged earlier this year.
“I would solve that with a withholding tax on trust rights and trust distributions; a non-refundable withholding tax, let’s say 30 per cent,” Prof Stewart, of Melbourne University Law School told a tax roundtable hosted at Parliament House last year.
“Your average punter is having tax taken out of their pay every fortnight.”
How trusts work
Consider a wage earner with $100,000 in income who pays $22,788 in tax.
If the same amount is directed through a family trust and split with a non-working spouse it attracts a bill of just $13,076, according to modelling by independent MP Allegra Spender in her April 2026 Personal Tax White Paper.
“These advantages are manifestly unfair to wage-earners who have no opportunity to split their income, and pay much more tax on similar total family income,” she said.
“We are becoming a society in which getting ahead increasingly depends on the luck of having rich parents.”
By directing income toward family members with lower assessable income, such as a non-working spouse, an adult child studying, or a retired parent, the household’s overall tax bill is substantially reduced.
Each beneficiary pays tax on their share at their own marginal rate, which is often far below the rate the primary earner would otherwise face.
