|
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 |
|
| Marginal Tax Rate % p.a. |
2002 –03 $ p.a. |
2003 – 04 $ p.a. |
2004 –05 $ p.a. |
2005 –06 $ p.a. |
2006 –07 $ p.a. |
2007 –08 $ p.a. |
2008 –09 $ p.a. |
| 0 |
0 – 6 000 |
0 – 6 000 |
0 – 6 000 |
0 – 6 000 |
0 – 6 000 |
0 - 6 000 |
0 - 6 000 |
| 15 |
6 001 – 21 600 |
6 001 – 25000 |
6001 - 30 000 |
6 001 - 30 000 |
|||
| 17 |
6 000 – 20 000 |
6 001 – 21 600 |
6 001 – 21 600 |
||||
| 30 |
20 001 – 50 000 |
21 601 – 52 000 |
21 601 – 58 000 |
21 601 – 63 000 |
25 001 – 75 000 |
30 001 – 75 000 |
30 000 – 80 000 |
| 40 |
75 001– 150 000 |
75 001 – 150 000 |
80 001 – 180 000 |
||||
| 42 |
50 001 – 60 000 |
52 001 – 62 500 |
58 001- 70 000 |
63 001 – 95 000 |
|||
| 45 |
150 000+ |
150 000+ |
180 000 + |
||||
| 47 |
60 001+ |
62 501+ |
70 001+ |
95 001+ |
Sources: Budget Paper No. 1, 2006–07, p. 5–29 & Budget Paper No. 2 2007– 08 p.18
The major change in the personal income tax scales for 2007–08 was the raising of the threshold at which the 30 per cent tax rate applies from $25 001 to $30 001 p.a. This change will benefit most tax-payers (not those in the $6001 to $25 000 p.a. bracket), but produce a larger proportionate benefit to those on a lower income.
In the 2008–09 financial year the personal income tax thresholds again change, with the emphases on cutting the tax of those on a higher income.
From 1 July 2007 the low income tax offset will increase from a maximum of $600 to $750 per year. Further, the threshold at which this offset begins to reduce increases from $25 000 to $30 000 p.a. The gross yearly income at which this offset no longer applies will be $48 750 p.a. from 1 July 2007, up from $40 000 p.a.
If a person is eligible for the full low income tax offset they will not pay tax until their annual income exceeds $11 000 p.a.[1]
From 1 July 2007 the maximum Dependent Spouse rebate will increase from $1 655 to $2 100 per year.
This rebate is available to a taxpayer where the dependent spouses’ separate net income is less than $282 per year. The rebate is reduced by $1 for every $4 that the dependent spouse’s income increases. Thus, the threshold at which the dependent spouse’s net income leads to this rebate no longer being available to a married taxpayer rises from $6 901 to $8 681 from 1 July 2007.[2]
Each year the Medicare levy low income thresholds increase in response to increases in inflation, as measured by the Consumer Price Index (CPI). If either an individual’s or family’s income is below these thresholds they are not required to pay the Medicare levy for that financial year.
From 1 July 2007 these thresholds will be $16 740 for an individual and $28 247 for a family. They will apply to the 2006–07 financial year.[3]
This budget contained some minor additional concessions for some Australian Defence Force (ADF) personnel deployed overseas during the evacuation of Australian citizens from Lebanon and will make the Defence Force Income Support Allowance tax free in limited circumstances.
The following table shows the amount of tax paid, at various income levels,
including the estimated impact of the altered shade-in rates for the Medicare
Levy and Medicare Surcharge at various income levels, compared to the
net tax paid in earlier years. The Medicare levy shade in rates for low
income earners have been estimated for the years 2006–07 to 2008–09 and
thus the total amount paid at the $20 000 p.a. category may be slightly
different than will actually be the case. These uncertainties, however,
do not cause a significant difference in the following figures.
Table 2: Individual Tax Paid 2003-04 to 2008-09, by Annual Income
| Taxable Income p.a. |
2002–03 |
2003–04 |
2004–05 |
2005–06 |
2006–07 |
2007–08 |
2008–09 |
% decrease 06–07 to 07–08 |
% decrease 06–07 to 08–09 |
| $10 000 |
$530 |
$445 |
$445 |
$365 |
$0 |
$0 |
$0 |
0% |
0% |
| $20 000 |
$2530 |
$2445 |
$2445 |
$2165 |
$1800 |
$1634 |
$1591 |
9% |
12% |
| $30 000 |
$5830 |
$5622 |
$5622 |
$5310 |
$4400 |
$3300 |
$3300 |
25% |
25% |
| $40 000 |
$8980 |
$8772 |
$8772 |
$8460 |
$7950 |
$6850 |
$6850 |
14% |
14% |
| $50 000 |
$12 130 |
$11 922 |
$11 922 |
$11 610 |
$11 100 |
$10 350 |
$10 350 |
7% |
7% |
| $60 000 |
$17 080 |
$16 632 |
$15 912 |
$15 360 |
$14 850 |
$14 100 |
$14 100 |
5% |
5% |
| $70 000 |
$22 030 |
$21 457 |
$20 362 |
$19 450 |
$18 100 |
$17 350 |
$17 350 |
4% |
4% |
| $80 000 |
$26 980 |
$26 407 |
$25 312 |
$23 900 |
$21 850 |
$21 100 |
$20 600 |
3% |
6% |
| $90 000 |
$31 930 |
$31 357 |
$30 262 |
$28 350 |
$26 100 |
$25 350 |
$24 850 |
3% |
5% |
| $100 000 |
$36 880 |
$36 307 |
$35 212 |
$33 050 |
$30 350 |
$29 600 |
$29 100 |
2% |
4% |
| $110 000 |
$41 830 |
$41 257 |
$40 162 |
$38 000 |
$34 600 |
$33 850 |
$33 350 |
2% |
4% |
| $120 000 |
$46 780 |
$46 207 |
$45 112 |
$42 950 |
$38 850 |
$38 100 |
$37 600 |
2% |
3% |
| $130 000 |
$51 730 |
$51 157 |
$50 062 |
$47 900 |
$43 100 |
$42 350 |
$41 850 |
2% |
3% |
| $140 000 |
$56 680 |
$56 107 |
$55 012 |
$52 850 |
$47 350 |
$46 600 |
$46 100 |
2% |
3% |
| $150 000 |
$61 630 |
$61 057 |
$59 962 |
$57 800 |
$51 600 |
$50 850 |
$50 350 |
1% |
2% |
| $160 000 |
$66 580 |
$66 007 |
$64 912 |
$62 750 |
$56 350 |
$55 600 |
$54 600 |
1% |
3% |
| $170 000 |
$71 530 |
$70 957 |
$69 862 |
$67 700 |
$61 100 |
$60 350 |
$58 850 |
1% |
4% |
| $180 000 |
$76 480 |
$75 907 |
$74 812 |
$72 650 |
$65 850 |
$65 100 |
$63 100 |
1% |
4% |
| $190 000 |
$81 430 |
$80 857 |
$79 762 |
$77 600 |
$70 600 |
$69 850 |
$67 850 |
1% |
4% |
Source: Parliamentary Library
As can be seen, the lower income earners gain the greatest advantage in the coming financial year, however, higher income earners gain the greatest proportional advantage in the 2008–09 financial year.
The major impact of these changes, particularly the increase in the low income tax offset from $600 to $750 p.a. for the coming tax year is that those with ordinary income below $11 000 p.a. will receive this amount tax free.[4] Further, these changes mean that those taxpayers eligible for the Senior Australians’ Tax Offset (SATO) pay no tax if their income is below $25 867 (single) or $43 360 (couple) in the 2007–08 financial year. Under current tax rates these income levels are $24 867 (single) and $41 360 (couple).[5]
Media reaction to these changes has been mixed. On one hand some commentators suggest that the $6 000 tax free threshold that each taxpayer receives is now meaningless. Further, any additional reductions in the personal income tax rates simply provide additional cuts to high income earners. However, other commentators suggest that the comparatively small scale of the changes continues the government policy of incremental change in the tax system and is a responsible approach to the reform of the personal income tax system given the current economic circumstances of full employment (for practical intents and purposes) and continued strong economic growth.[6] Finally, some commentators suggest that the raising of the 30 per cent marginal tax rate threshold and the increase in the low income tax offset will increase the supply of labour into the economy and therefore, in the current economic circumstances, is a very commendable measure.[7]
Compared to the changes announced in the 2006–07 Budget speech the following changes are comparatively minor. Nevertheless, they are still significant changes. The following commentary notes the most prominent of the announced changes.
The centrepiece of this years superannuation changes is the one-off doubling of the government superannuation co-contribution amount for 2005–06.[8] If a person was eligible for a $1000 superannuation co-contribution in respect of a personal contribution(s) to their superannuation fund (or funds) they would be eligible for an additional $1000 under this announced measure. The bulk of these payments are to be made by 30 June 2007.[9] The relevant legislation has already passed through Parliament.[10]
The superannuation industry had called for the income thresholds applying to the Government co-contributions scheme to be lifted.[11]
Currently, if a person’s total income for co-contribution purposes is $28 000 p.a. or below, for every dollar they contribute in after tax money the government will contribute $1.50. This rate of contribution decreases if the person’s income is above the level. No co-contribution payments are made if the person’s total income is above $58 000 p.a., no matter what amount of personal superannuation contributions the person makes.
The lower threshold will rise by increases in the Adult Weekly Ordinary Time Earnings (AWOTE) from 1 July 2007.[12] In the 12 months to the end of December 2006 AWOTE increased by 3.2 per cent. The upper threshold is the lower threshold plus $30 000.[13] If these increases are applied to the above thresholds from 1 July 2007 the Government Co-contribution thresholds will be about:
These are indicative figures only as the basis for the calculation is the March Quarter’s AWOTE.
The Budget papers included a measure that will prevent a public offer fund requiring that new employers sign a ‘participating employer’ agreement before accepting their contributions made on behalf of the fund member.[14]
A public offer fund is one that can accept contributions from the public. All retail superannuation funds and most, if not all, industry superannuation funds are public offer funds.
A ‘participating employer’ is one who enters into an agreement with the superannuation fund. Often, this agreement entails making superannuation contributions more regularly than is required by superannuation law. For example, a participating employer may be required to make their superannuation guarantee contributions on a monthly basis, rather that every quarter as required by law.[15] Apparently, an estimated 10 per cent of large superannuation funds use trust deeds that require employers to pay their superannuation guarantee contributions monthly instead of quarterly.[16]
Under the choice of superannuation funds regime an employer must choose a ‘default’ superannuation fund that will accept the employer’s contributions. This is the fund where an employer’s superannuation guarantee contributions are sent on behalf of an employee, if that employee does not choose a fund. A fund that requires an employer to be a ‘participating employer’ before the employer’s contributions are accepted cannot be a default fund for choice of superannuation fund purposes, because it will not accept the employer’s contributions without an agreement first being signed.[17]
This measure potentially widens the number of funds an employer may select as their ‘default fund’ under the choice of superannuation fund regime. Potentially, all public offer superannuation funds will be open to the employer when deciding on their default fund. Further, the Budget Papers note that this measures will allow employees to remain in their chosen fund following a change of employer, rather than having their contributions paid to another fund.[18] This would occur where the new employer was prevented from contributing to the chosen fund due to that fund requiring the new employer to become a participating employer.
Industry funds have generally required employers to be ‘participating’ employers. This particular measure may also be interpreted as a measure to restrict the capacity of an industry superannuation fund to required employers to become participating employers. This may lead to less frequent superannuation contributions from employers which in turn may see some employers in the more volatile sections of the economy going out of business leaving the required superannuation contributions un-paid.
Normally, lump sum superannuation payment made on the death of a fund member to their dependents (including those in an interdependent relationship) are made tax free. Payments made to non-dependents are taxed, the actual rate depending on the source of the funds and the age of the person receiving the payment.
Under the proposed measure payment made to non-dependents of ADF personnel and police killed in the line of duty will also be paid tax free. This treatment will apply from 1 January 1999.[19]
The proposed measure is unusual for two reasons. Firstly it is retrospective. Non-dependents who have already received a superannuation death benefit resulting from the death of either an ADF or police force member killed while on active duty since 1 January 1999 will receive an ex-gratia payment.
Secondly, this proposed measure further distinguishes military and police service superannuation from the arrangements covering the bulk of the population. This may be necessary to encourage recruitment and retention of service personal.
The Budget announced a number of measures relating to the Commonwealth Superannuation Scheme (CSS) and the Public Sector Superannuation Scheme (PSS):
Generally, the above changes allow CSS, and particularly PSS, members enhanced flexibility and choice in their superannuation arrangements. Consequently, these measures will give these members many of the same rights and advantages enjoyed by those public servants in the other government superannuation funds and the private sector.[21]
The benefits provided by the CSS and PSS are very generous by community standards. It is doubtful whether many PSS members will take advantage of the right to participate in the Choice of Superannuation fund regime.
Though the details are not yet released the reform of the Maximum Benefit Multiples for the PSS is likely to entail an increase in these multiples. Briefly, under the PSS a member’s benefits do not increase once their benefit multiple reaches ‘8’. The benefit is then 8 times the person’s final average salary over the three years prior to retirement. Under the proposed changes it is likely that this number will be increased and a longer period of time required to reach the maximum benefit multiple. Generally, a PSS member has to work for 40 years (if their personal contributions are at the standard 5 per cent of after tax salary) to reach the current maximum benefit multiple, so the proposed changes will, most likely, cater for those PSS members whose working lives exceed 40 years. While rare, such PSS members do exist. Further, in line with increased workforce participation of older workers, such members are becoming more common.
What the above measures do not do is introduce a general ‘transition to retirement’ pension for CSS and PSS members. Once a general superannuation fund member passes their preservation age (generally 55 but rising to 60 for those born after 1 January 1960) they may convert some or all of their superannuation benefits to a pension, without having to retire. Though this has been considered by the government, to date CSS and PSS members are not able to access these pensions once they pass their preservation age, without first retiring.[22] Should a PSS or CSS member return to work for the government their pension continues to be paid.
Finally, the restoration of spouse pensions cancelled upon remarriage is an over due equity measure.
[1]. The Hon Peter Costello MP, Treasurer, Budget Paper No. 2, 2007–08, p. 18.
[2]. ibid, p. 19.
[3]. ibid, p. 19.
[4]. ibid, p. 18.
[5]. ibid, p. 19.
[6]. Elizabeth Kazi, ‘Tinkering cuts chance of reform’, Australian Financial Review, 10 May 2007, p. 13.
[7]. John Edwards, ‘Shape of tax cuts a credit to Costello’, Australian Financial Review, 10 May 2007, p. 71.
[8]. The Hon Peter Costello MP, Treasurer, Budget Paper No. 2, 2007–08, p. 308.
[9]. ibid., p. 309.
[10]. That is, Superannuation Laws Amendment (2007 Budget Co-contribution Measures) Bill 2007.
[11]. Association of Superannuation Funds of Australia, Pre Budget Submission for the 2007–08 Budget, January 2007, p. 3.
[12]. Subparagraph 10A(2)(c) Superannuation (Government Co-contribution for Low Income Earners) Act 2003.
[13]. Subparagraph 10A(3)(c) Superannuation (Government Co-contribution for Low Income Earners) Act 2003.
[14]. The Hon Peter Costello MP, Treasurer, Budget Paper No. 2, 2007–08, p. 22.
[15]. The relevant Act is the Superannuation Guarantee (Administration) Act 1993.
[16]. Jonathan Barrett, ‘One-off gift seen as vote grabbing’, Australian Financial Review, 10 May 2007, p. 13.
[17]. The Hon. Mal Brough MP, then Minister for Revenue and Assistant Treasurer, ‘Superannuation Choice – A smooth transition for business and employees’, Media Release, 19 January 2005.
[18]. The Hon Peter Costello MP, Treasurer, Budget Paper No. 2, 2007–08, p. 23.
[19]. ibid, p. 23.
[20]. ibid, p. 200 and Senator the Hon. Nick Minchin, ‘Increased choice for public service superannuation contributors’, Media Release, 28/2007, 8 May 2007.
[21]. Other government superannuation funds include the Public Sector Scheme Accumulation Plan and the Australian Government Employees Superannuation Trust. Both are accumulation style plans and operate in largely the same manner as private sector accumulation style plans.
[22]. Department of Finance and Administration, ‘Transition to Retirement web page at http://www.finance.gov.au/super/transition.html (accessed 10 May 2006).
