The Federal Government today announces a new tax system for Australia.
This is a new tax system for the new century. Australians deserve a tax system which will make our economy stronger, generate more jobs, improve our living standards and fund essential services.
The new tax system, due to start in July 2000, will replace the existing taxation system largely designed in the 1930s. That system served for a time, but its time has passed. The Wholesale Sales Tax (WST) introduced in the 1930s taxes a narrow range of goods, but does not directly tax services which now make up over two thirds of Australias economic activity.
Personal tax rates are too high and ordinary wage earners are paying too much, while complicated tax laws and loopholes allow those who can afford financial advice to avoid paying their fair share.
We need to fix the system.
Incentive
Family assistance will be increased by over $2 billion per year under a new tax system. The families package increases levels of assistance and improves work incentives for low and middle income families by allowing them to earn more income before family assistance starts to be reduced, and reducing the amount by which family assistance falls when families earn extra income.
Significant income tax cuts from 1 July 2000 will deliver benefits of over $13 billion a year to Australians. Tax rates will be lower and the income thresholds at which the new rates will apply will be higher.
Increases in pensions and benefits
The Government will ensure that all Australians will be able to share in the benefits of tax reform. Pensioners and other recipients of income support payments (such as Newstart Allowance) will benefit from increases in their government payments.
The Government will increase pensions and other income support payments by 4 per cent - more than offsetting the actual general price rise associated with the introduction of the goods and services tax (GST).
Commonwealth-State Taxation Arrangements
Revenue from the GST will go to the States.
The Commonwealth will abolish the outdated WST. The revenue from the GST will also allow the States and Territories to abolish many of their worst taxes, such as taxes on bank transactions (financial institutions duty and debits tax) and most business related stamp duties.
The GST will provide the States and Territories with a secure source of revenue that grows as the economy grows to fund essential services, such as schools, hospitals and roads. The States will no longer have to receive Financial Assistance Grants from the Commonwealth.
Consistency
Tax loopholes closed so that everyone pays their fair share.
Under the new tax system, tax cheats, people trading in the cash economy and those who can afford expensive tax advice will all have to pay their fair share. The Government has also announced an immediate measure to counter misuse of trusts.
Lower industry costs
The introduction of the GST will allow governments to reduce the tax burden on Australian business. This will lower industry costs by more than $10 billion not just once but every year from 2001-02.
Business tax reform
The Government will consult on the implementation of consistent taxation of trusts like companies under a clear, fair and simple regime of redesigned company taxation.
Simplicity
The structure and administration of family assistance will be revamped and consolidated to simplify arrangements and reduce confusion and inconsistency in current arrangements.
The introduction of the Australian Business Number (ABN), coupled with simpler and more flexible payment arrangements will substantially reduce the number of dealings business has with the Australian Taxation Office (ATO). In addition, the direction of business tax reforms will make significant inroads into the current complex and unfair business tax system.
The new tax system - at a glance
The key components of the new tax system reflecting the four fundamental pillars of incentive, security, consistency and simplicity - follow:
- The typical family will be between $40 and $50 a week better off after GST.
- Overall the government will reduce the tax burden.
- Ten indirect taxes abolished. One single rate GST introduced.
- Health, education, and childcare services; hospitals and nursing homes; local Government rates; water and sewerage charges will all be GST-free
- The rate is locked in at 10 per cent. It can only be increased on the unanimous request of State and Territory Governments and then only if enacted by both Houses of Parliament.
- The new tax system begins in July 2000.
- Special powers will be given to the Australian Competition and Consumer Commission to ensure price reductions are passed on.
- A $3 billion crackdown on the black economy.
Lower Income Tax
- Tax cuts for all Australians 81 per cent of taxpayers will have a marginal income tax rate of 30 per cent or less.
- Tax cuts in total over $13 billion a year.
- Tax free threshold increased from $5,400 to $6,000 and all except the highest tax rate will come down.
Families
- An extra $140 a year for each dependent child.
- An extra $350 a year for single income families with a child under five.
- Incentives for families to earn more by allowing them to keep more of their income and benefits.
- Childcare assistance increased by up to $7.50 per week.
- Pensions and allowances increased.
- A new 30 per cent tax rebate/benefit on private health insurance.
Seniors
- Pensions up 4 per cent.
- Pensioner rebate up $250 a year for singles and $350 per couple.
- Aged Persons Savings Bonus of up to $1,000 and an additional bonus for self-funded retirees of up to a further $2,000.
- A new 30 per cent tax rebate/benefit on private health insurance.
Rural Australia
- Diesel fuel in heavy transport a rail down 25 cents a litre.
- Cost of producing exports down $4.5 billion a year.
Small Business
- Pay all your taxes once a quarter on one form.
- GST registration optional for businesses with sales under $50,000.
- Up to $500 million for GST start up costs for small and medium sized businesses.
Next steps consultation and timing
The Government will consult widely following the election. Consultation is needed to ensure the final design and draft legislation get it right on the policy objectives. Interested parties will be fully involved in the consultation and implementation phase.
Much of the reform package will not be put into place until the year 2000, providing ample opportunity for taxpayers to be both consulted and to fully understand their tax responsibilities under the new tax system.
Contact:
Niki Savva
(02) 6277 7340