From 1 July every Australian taxpayer will receive an income tax cut.
The tax cuts will amount to $1,100 per year for a person on a wage between $30,000 and $40,000, and $850 per year for a person on the average wage of $46,239.
The personal tax cuts announced in this year’s Budget follow tax cuts delivered in 2000, as part of The New Tax System, and further tax cuts in the 2003, 2004, 2005 and 2006 Budgets. In addition to increasing disposable incomes, the tax cuts enhance incentives for participation and improve Australia’s international competitiveness.
- Low-income earners will not pay income tax until their income exceeds $11,000, an increase of $1,000;
- taxpayers will not move on to the 30 cent rate until their income exceeds $30,000, an increase of $5,000; and
- from 1 July 2008, taxpayers on the 30 per cent rate tax rate will not move into the next tax rate until their income exceeds $80,000, an increase of $5,000, and taxpayers on the 40 per cent rate will not move into the highest tax rate until their income exceeds $180,000, an increase of $30,000.
The personal income tax cuts ensure that over 80 per cent of taxpayers will continue to pay a top marginal tax rate of 30 per cent or less and that from 2008-09 the top tax rate will apply to only around 2 per cent of taxpayers.
The Government recognises the importance of child care to help families participate in the workforce. The Child Care Benefit will be increased by 10 per cent, on top of indexation, and the payment of the Child Care Tax Rebate brought forward. A family on maximum rate Child Care Benefit with one child in long day care for 40 hours a week will receive $134.80 a week, an extra $16.40. The increased Child Care Benefit will provide additional help to over 700,000 families.
The Better Super changes, the largest reform to superannuation ever undertaken, will increase retirement incomes, simplify the taxation of superannuation, provide more flexibility and choice in how super can be accessed, and improve incentives to work and save.
In particular, the Government has abolished tax on superannuation benefits from a taxed fund to people aged 60 and above from 1 July 2007. As well as improving retirement incomes, the removal of benefits tax will sweep away current complexities and result in a simpler system for retirees and for those about to retire.
Note: details of Budget initiatives attached
DETAILS OF BUDGET INITIATIVES
Tax
From 1 July 2007:
- The 30 per cent threshold will be raised from $25,001 to $30,001.
- The Low Income Tax Offset will be increased from $600 to $750 per year and will begin to phase out from $30,000, up from $25,000.
- This means low-income earners will not pay tax until their annual income exceeds $11,000.
- Senior Australians who are eligible for the Senior Australians Tax Offset will now pay no tax on their annual income up to $25,867 for singles and up to $43,360 for couples.
From 1 July 2008:
- The 40 per cent tax rate threshold will be raised from $75,001 to $80,001.
- The 45 per cent tax rate threshold will be raised from $150,001 to $180,001.
Under the new tax scales, a person on average weekly earnings will pay $1,867 less tax than they would have if the 1995-96 tax scales had been indexed to inflation. Compared with their tax liability before the introduction of The New Tax System, a person on $30,000 will have a tax reduction of around 54 per cent, a person on $60,000 will have a tax reduction of around 33 per cent and a person on $100,000 will have a tax reduction of around 29 per cent.
Child care
- The rates of Child Care Benefit will increase by 10 per cent, on top of indexation
- This will provide additional assistance with the cost of child care to over 700,000 families.
- A family on maximum rate child care benefit with one child in long day care for 40 hours per week will receive $134.80 per week — an extra $16.40.
- Families will receive the Child Care Tax Rebate — up to $4,200 per child — as a direct payment shortly after the year in which they incur child care costs.
- Families with out-of-pocket costs in both 2005-06 and 2006-07 will receive two rebates in 2007-08 — one through the tax system under current arrangements and the other as a direct payment.
Superannuation
- The Government will pay a one-off additional co-contribution into the superannuation accounts of individuals who made eligible contributions in the 2005-06 income year. This payment will double the co-contribution paid in respect of that year, and contribute an additional $1.1 billion to the retirement savings of low to middle income earning Australians.
- As part of Better Super, from 1 July 2007, superannuation benefits paid from a taxed source (that is, where tax has been paid on contributions and earnings) either as an income stream or as a lump sum will be tax free for people aged 60 and over.
- The taxation of superannuation benefits for those below the age of 60 will also be simplified, including by the abolition of reasonable benefit limits.
- The self-employed will now be able to claim a full deduction for their personal contributions as well as be eligible for the Government co-contribution scheme for after‑tax contributions made on or after 1 July 2007. This will provide a significant boost to the incentives for the self-employed to contribute to superannuation.
- The ability to make deductible superannuation contributions will be extended up to age 75.
- It will be much easier for individuals to find and transfer superannuation between funds. This will reduce the amount of lost superannuation and make it easier for people to consolidate their superannuation in one fund.
- Further to benefit retirees and improve incentives to save, the Government is halving the pension assets test taper rate from $3.00 to $1.50 per fortnight from 20 September 2007. This change will boost the retirement incomes of asset-tested pensioners and increase the number of people who are eligible for a part pension and the associated concessions.
Support for veterans
- From July 2007, the Government will increase support for veterans. The per-fortnight payment of Special Rate Disability Pension will increase by $50 and the Intermediate Rate Pension by $25 at an estimated cost of $162.8 million over four years. This will benefit around 29,600 veterans who receive either the Special Rate or Intermediate Rate of Disability Pension because their injuries related to war or defence service on behalf of Australia limit their earning capacity.
Age Pensioners and Self-Funded Retirees
- In recognition of the role older Australians have played in contributing to our current economic growth, the Government has provided a bonus of $500 to individuals eligible for either the Utilities Allowance or the Seniors Concession Allowance. For a couple this payment amounts to $1000 where each member is eligible. These will be paid by 30 June 2007, at an estimated cost of $1.3 billion.
Support for Carers
- The Government has again recognised the sacrifices made by carers and has provided a one-off $1,000 payment to recipients of the Carer Payment and a $600 bonus payment to recipients of the Carer Allowance. These will be paid by 30 June 2007, at an estimated cost of $394 million. This is the fourth year in a row that these bonuses have been paid.