One of the guiding principles of the Coalition is that people should keep more of what they earn. After all, governments, as Sir Robert Menzies would say, do not have any money of their own: it›s the people›s money.
This is why the Coalition has significantly cut taxes for households and businesses: more than $300 billion in the last two budgets alone.
In this budget, we go further with more significant changes to our tax system, designed to create jobs, boost investment and encourage research and development. First, personal income tax. At a cost of $17.8 billion, the Morrison government is bringing forward by two years stage 2 of our tax cuts, with effect this financial year. We are continuing the low and middle-income tax offset for another year. The 19 per cent tax threshold will move from $37,000 to $45,000 and the 32.5 per cent threshold from $90,000 to $120,000, with more than 11 million taxpayers benefiting from these reforms.
Taxpayers will receive tax relief of up to $2745 for singles or $5490 for dual income families this year, when compared to 2017-18. Low and middle-income earners will be the greatest beneficiaries of these changes, with a person on $40,000 paying 21 per cent less tax than someone on $80,000 paying 11 per cent less tax.
These changes are part of a broader structural reform that, when fully implemented, will see 95 per cent of taxpayers pay no more than 30 cents in the dollar. This will create a simpler and fairer tax system that will remain progressive, with the top 5 per cent of taxpayers paying around one third of all tax.
Second, immediate expensing to help create jobs. Businesses with a turnover of under $5 billion, equivalent to 99 per cent of all businesses employing 11.5 million people, will be able to immediately deduct the value of assets they purchase for their businesses. This initiative which started on budget night and goes to June 30, 2022, builds on the successful Instant Asset Write Off program that was extended during COVID-19.
Covering everything from the harvester to a concrete mixer, a new coffee machine to delivery van, or software to manufacturing machinery: this initiative will support around $200 billion of investment, or 80 per cent of non-mining investment. We want to give these businesses their best chance of survival to keep people in a job. It is designed to bring forward the purchase of assets, many that would otherwise be depreciated over ten or more years. While its cumulative cost over the next four years is $26.7 billion, its cost reduces to $3.2 billion over ten years because deductions are used now, rather than later. Third, loss carry‑back. We recognise many sound and profitable businesses have been hit hard by COVID-19, and are now making significant losses.
We want to give these businesses their best chance of survival to keep people in a job, so the government is allowing them to offset losses against taxes they paid on previous profits. Normally, a business would only get to use these accumulated losses when they are profitable again in the future. This measure will cost $4.9 billion and be open to companies with a turnover of under $5 billion. Companies that made a loss last year, this year or next year, can offset it against previous profits made in or after 2018-19.
The combination of the income tax cuts immediate expensing and loss-carry back measures are expected to create an additional 100,000 new jobs and stimulate billions of dollars of economic activity. Fourth, research and development, where the government is providing $2 billion of additional tax incentives to encourage small and large businesses to undertake this important work and to create the jobs of the future. This follows a comprehensive review of the regime by the Chief Scientist Alan Finkel, the former Treasury Secretary John Fraser and the head of Innovation Science Australia Bill Ferris. Starting from mid next year, businesses with a turnover of under $20 million will receive a refundable tax offset equivalent to 43.5 cents with no cap on the size of the cash refund. This means that a start-up business which is yet to turn a profit will get paid 43.5 cents for every dollar they spend on eligible research and development. Larger businesses with a turnover over $20 million will receive a non-refundable tax offset of a minimum of 8.5 per cent above the company tax rate for every eligible dollar of research and development. This will increase to 16.5 per cent where research and development makes up more than 2 per cent of that business› total expenditure. The cap on expenditure eligible for the incentive will increase from $100 million to $150 million.
This could see, for example, a major medical device manufacturer with a company tax rate of 30 per cent spend $1 million on R&D and be able to offset $465,000 from their tax bill. This new budget measure will encourage more research and development by the more than 11,000 businesses that currently use the incentive as well as many other businesses. In doing so, it will enhance our competitive advantage and create the industries and jobs of tomorrow. COVID-19 has hit the Australian economy hard but, as the virus is suppressed, jobs are coming back.
Our tax system will play an important role in the economic recovery with these four significant changes helping keep businesses in business and Australians in jobs.