The budget's bombshell 30% tax rate reform explained | Alan Kohler | ABC NEWS

The big surprise in the Budget, unleaked and unpredicted, was the introduction of a minimum tax rate of 30 per cent on everything except employment income of less than $45 ,000 a year.Now this is a big tax reform and has been quite the bombshell.It's being applied in two ways.A minimum tax on trust distributions of 30 per cent and, importantly, a minimum tax on all capital gains of 30 per cent.It takes full effect on July 1, 2028, after the next election, with the CGT change starting a year earlier, but the legislation should pass this year.At the moment, you pay tax on net capital income, that is, after the 50 per cent discount, but soon to be the old inflation adjustment, at the marginal tax rate you pay on your total income, whatever it is.

So if you earn less than the tax -free threshold of $18 ,200, your tax is zero.And between that and $45 ,000, it's 16 per cent.After 2007, it will be a minimum of 30 per cent, even if your employment income is less than $45 ,000.Why the Government decided that income from capital should have a minimum tax rate of that, while income from employment is taxed less for those on lower incomes, is not clear.But it does mean that for low income earners, making money from investing will always be taxed more than making it from employment.As for trusts, a minimum rate of 30 % was proposed by the Labor Party in the 2019 election campaign.

They lost, so it didn't happen.But then they won in 2022 and 25.And now they're just doing it.The Tax Office has been battling tax avoidance through income splitting in trusts for years.But obviously they've just given up.It's too hard.

But will this set of tax reforms prove too hard politically?We'll see.But the pressure's likely to build from here.