Bills Digest No. 40, 2013–14              12 February 2014

Tax Bonus for Working Australians Repeal Bill 2013

Bernard Pulle and Hannah Gobbett
Economics Section

This Digest replaces the 5 February 2014 version, which contained an incorrect reference to a financial year, at page 3.  

Date introduced: 12 December 2013

House:  House of Representatives

Portfolio: Treasury

Commencement: Sections 1 to 3 commence on Royal Assent.

Parts 1, 2 and 4 of Schedule 1 commence the day after Royal Assent.

Part 3 of Schedule 1 commences on 1 July 2016.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page, or through http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose of the Bill

This Bill repeals the Tax Bonus for Working Australians Act (No. 2) 2009 (Tax Bonus Act).[1]

This Bill also amends the Taxation Administration Act 1953 (TAA 1953), the Income Tax Assessment Act 1997 (ITAA 1997), the Social Security Act 1991, and the Veterans’ Entitlements Act 1986 to remove cross references to the Tax Bonus Act.[2]

Background

The 2007 global financial crisis was the largest economic downturn since the Great Depression of the 1930s. According to the Organisation for Economic Co-operation and Development (OECD), the financial crisis was caused by global macro policies affecting liquidity and an inadequate regulatory framework:[3]

The policies affecting liquidity created a situation like a dam overfilled with flooding water. Interest rates at one per cent in the United States and zero per cent in Japan, China's fixed exchange rate, the accumulation of reserves in Sovereign Wealth Funds, all helped to fill the liquidity reservoir to overflowing. The overflow got the asset bubbles and excess leverage under way. But the faults in the dam – namely the regulatory system – started from about 2004 to direct the water more forcefully into some very specific areas: mortgage securitisation and off-balance sheet activity. The pressure became so great that that the dam finally broke, and the damage has already been enormous.[4]

All major advanced economies entered economic recessions as the International Monetary Fund (IMF) predicted weakened global growth: global economic activity was expected to decline from 3.5 per cent in 2008 to 0.5 per cent in 2009.[5]

According to the Reserve Bank of Australia (RBA), in the March quarter of 2009 Australia experienced its lowest rate of economic growth since 1990. Economic growth fell to 0.7 per cent, causing a noticeable rise in unemployment.[6]

The collapse of large financial institutions in the US – such as investment bank Lehman Brothers and government-sponsored agencies Fannie Mae and Freddie Mac – transformed a difficult situation into a major international financial crisis.[7]

Proposal to pay the tax bonus to working Australians

The former Labor Government responded to the downturn with several measures that were announced in February 2009 as part of the Updated Economic and Fiscal Outlook (UEFO). The $42 billion Nation Building and Jobs Plan was intended to provide immediate support for jobs and growth in view of the worsening global recession. These measures included an $8.2 billion tax bonus for working Australians which was to be paid from March 2009.[8]

Stimulus package legislation

On 12 February 2009, the Government introduced the following six Bills to implement the stimulus package:

·    Appropriation (Nation Building and Jobs) Bill (No. 1) 2008–2009

·    Appropriation (Nation Building and Jobs) Bill (No. 2) 2008–2009

·    Household Stimulus Package Bill (No. 2) 2009

·    Tax Bonus for Working Australians Bill (No. 2) 2009

·    Tax Bonus for Working Australians (Consequential Amendments) Bill (No. 2) 2009 and

·    Commonwealth Inscribed Stock Amendment Bill (No. 2) 2009.

Purpose of the Tax Bonus for Working Australians Act (No. 2) 2009

The Tax Bonus for Working Australians Act (No. 2) 2009 (the Tax Bonus Act) which received the Royal Assent and commenced on 18 February 2009, provided that eligible taxpayers would receive a tax bonus for the 2007—08 financial year, equal to $900 where their taxable income was $80,000 or less; $600 where their taxable income was over $80,000 but less than or equal to $90,000; or $250 where their taxable income was over $90,000 but less than or equal to $100,000.[9]

Section 5 of the Tax Bonus Act provided the conditions for entitlement to the tax bonus. Tax bonuses were paid to an individual who was an Australian resident in the 2007–08 income year and had an adjusted tax liability for the 2007–08 income year greater than nil and who met the income tests mentioned above.[10]

The Explanatory Memorandum to the Bill states that most payments of the tax bonus were made in 2009 but a small number of payments continued to be paid thereafter. This was due to the late banking of cheques (stale cheques that were reissued by the Australian Taxation Office) or the issue of amended assessments for the 2007–08 income year, which resulted in an entitlement to the tax bonus. The ATO has ceased issuing cheques in most circumstances except when requested by the taxpayer.[11]

Committee consideration

Senate Selection of Bills–Standing Committee

The Selection of Bills Standing Committee determined at its meeting on 11 December 2013 not to refer the Bill to committee for inquiry.[12]

Financial implications

The Explanatory Memorandum states that ‘this measure will save $0.25 million on an underlying cash balance basis over the forward estimates. The full impact is expected to occur in 2014–15’.[13]

Statement of Compatibility with Human Rights

The Statement of Compatibility with Human Rights can be found at page 9 of the Explanatory Memorandum to the Bill. As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible. The Bill has not yet been considered by the Parliamentary Joint Committee on Human Rights.

Key issues and provisions

The Explanatory Memorandum to the Bill states that as the ‘stimulus to the economy is no longer required, the Government considers that further payments are not warranted.’[14] The Government will therefore repeal the Tax Bonus Act to ensure that the Australian Tax Office cannot make further tax bonus payments.

Part 1 of the Bill repeals the whole of the Tax Bonus Act. Part 2 makes consequential amendments to the Taxation Administration Act 1953. Part 3 makes consequential amendments to the Income Tax Assessment Act 1997, the Social Security Act 1991 and the Veterans’ Entitlements Act 1986.

Detailed explanation of the new law

The Explanatory Memorandum in paragraphs 1.7 to 1.12 gives a detailed explanation of the new law.

In addition, detailed explanation of the consequential amendments is given in paragraphs 1.13 to 1.18 of the Explanatory Memorandum.

Application

Item 2 of the table in clause 2 of the Bill provides for the repeal of the Tax Bonus Act on the day after the Act receives the Royal Assent.

There are transitional measures provided by item 10 of the Bill to enable the Commissioner to take compliance action with respect to past payments of the tax bonus and recovery action regarding overpayments, despite the repeal of the Tax Bonus Act.

Concluding Comments

This Bill is uncontroversial. It merely brings to an end payments which were probably not envisaged by the Parliament to be continuing at this time and which are no longer necessary to stimulate the economy as originally intended.

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.

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[1].              Tax Bonus for Working Australians Act (No. 2) 2009, accessed 31 January 2014.

[2].              Taxation Administration Act 1953; Income Tax Assessment Act 1997; Social Security Act 1991; Veterans' Entitlements Act 1986, accessed 31 January 2014.

[3].              A Blundell-Wignall, P Atkinson and S Hoon Lee, ‘The current financial crisis: causes and policy issues’, Financial Market Trends, OECD, 2008, p. 2, accessed 5 February 2014.

[4].              Ibid., p. 2.

[5].              International Monetary Fund (IMF), The implications of the global financial crisis for low-income countries, IMF, March 2009, p. 2, accessed 5 February 2014.

[6].              R Battellino (Deputy Governor), ‘Twenty years of economic growth’, Address to Moreton Bay Regional Council, Reserve Bank of Australia, 20 August 2010, accessed 3 February 2014.

[7].              F Mae and F Mac, ‘Reopening the taps’, The Economist, 18 January 2014, accessed 3 February 2014.

[8].              W Swan (Treasurer) and L Tanner (Minister for Finance and Deregulation), Updated economic and fiscal outlook, February 2009, Overview, accessed 20 December 2013.

[9].              Tax Bonus for Working Australians Act (No. 2) 2009, section 6, accessed 21 January 2014.

[10].              Ibid., section 5, accessed 21 January 2014.

[11].              Explanatory Memorandum, Tax Bonus for Working Australians Repeal Bill 2013, paragraph 1.2, p. 5, accessed 5 February 2014.

[12].              Selection of Bills Committee, Report No. 11 of 2013, The Senate, 12 December 2013, accessed 21 January 2014.

[13].              Explanatory Memorandum, op. cit., p. 3.

[14].              Ibid., paragraph 1.3, p. 5.