Bills Digest no. 157 2006–07
Tax Laws Amendment (Personal Income Tax Reduction) Bill
2007
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Tax Laws
Amendment (Personal Income Tax Reduction) Bill
2007
Date introduced:
10 May 2007
House: House of Representatives
Portfolio: Treasury
Commencement:
Royal Assent
The purpose of the Tax
Laws Amendment (Personal Income Tax Reduction) Bill 2007 (the bill)
is to amend:
- the Income Tax Rates Act 1986 to increase the
threshold where the 30 percent tax rate begins (from 1 July 2007)
and to increase the thresholds for the 40 per cent and 45 per cent
tax brackets (from 1 July 2008);
- the Income Tax Assessment Act 1936 to increase the low
income tax offset and the threshold at which this offset begins to
phase out; and
- the Medicare Levy Act 1986 to increase the income
threshold for taxpayers eligible for the senior Australians tax
offset.
The amendments in the bill give effect to the
personal income tax cuts announced by the Government on 8 May 2007
in the latest Budget.
In his second reading speech(1) the
Treasurer, Peter Costello said that the measures:
Overall, in percentage terms, the greatest tax
cuts have once again been provided to low-income earners. These tax
changes will ensure that more than 80 per cent of taxpayers face a
top marginal tax rate on only 30 per cent or less over the next
four years. Taxpayers earning $30,000 paid $6,222 in income tax in
1999. From 1 July 2007 they will only pay $2, 850-more than halving
their tax.
The Bill makes the following
changes:
- From 1 July this year, an increase to the 30 per cent marginal
tax rate threshold so that the 15 per cent marginal rate will apply
up to $30,000 of income, an increase in the threshold of
$5,000.
- From 1 July 2007 the low income tax offset will be increased
from $600 to $750. It will begin to phase-out at the start of the
new 30 per cent threshold, $30,000, compared to $25,000
currently.
- From 1 July 2008 the threshold for the 40 per cent rate will
rise from $75,001 to $80,001 and the threshold for the 45 per cent
rate will rise from $150,001 to $180,001.
- Senior Australians who are eligible for the senior Australians
tax offset will not pay tax on their annual income up to $25,867
for singles and up to $43,360 for couples for 2007-08.
Response to the tax cuts has been overall
positive. On the Budget generally, the Australian Chamber of
Commerce and Industry was reported to state(2):
However, it is also a sound economic document
because it is able to pay for these [tax changes and expenditure
proposals] and deliver a Budget surplus, thus keeping pressure off
interest rates .
The Australian Industry Group
said(3):
The budget aligns the politically resonant with
key economic objectives powered by the enormous fiscal surplus that
has enabled broad-based spending, together with tax relief.
Specifically on the
tax cuts the Australian Council of Trade Unions (ACTU) was reported
to state(4):
The tax cuts translate to $14 a week for average
income earners on $50,000 a year while part time workers on less
than $25,000 a year get nothing until 2008. By contrast, high
income earners on more than $180,000 a year get $53 a week in tax
cuts from July 1, 2008.
A selection of some of the editorial comments
on the day after the delivery of the budget made comments on the
tax cuts aspects of the package. Some examples follow:
The $31.5 billion in tax cuts over the next four
years and the raising of the thresholds for higher tax brackets
will benefit lower and middle Australia beset by pressure from
rising interest rates and other costs.
There is a touch of Robin Hood about the Treasurer
in this, his 12th Budget; he is funding his election
year personal tax cuts out of the increased corporate tax take.
Businesses won't like it, but they don t vote. (5)
The Age editorial described the
budget as being a balanced, well-measured investment in the country
with an ample splash of electoral gifts(6), whilst the
Australian s editorial headline described the budget as
clever .(7) The Sydney Morning Herald said in
part:
The budget s pre-election bribes are quite
barefaced, yet they are cleverly done. Low-income earners will be
the chief beneficiaries of the tax cuts to start this July 1.
Howard s battlers have had their taxes cut by the largest
proportion of any group since 2004-05. (8)
The Shadow Treasurer, Mr Wayne Swan welcomed
the tax cuts on behalf of the Opposition and said that Federal
Labor would support the tax cuts enthusiastically because we think
it s about time low and middle income earners got a fair go from
the Howard Government because they ve been left behind for a long
period of time .(9) In his press
release relating to the tax cuts and family benefits Mr Swan
says:
These tax cuts will help working families cope
with the pressures on the family budget from the four interest rate
rises since the last election, which have added $240 to average
monthly mortgage repayments in capital cities.
However these tax cuts don t even hand back all
the additional tax that the Government is collecting as a
consequence of the mining boom.
The Democrats spokesperson, Senator Murray
said that the Democrats would support the cuts but agreed with
comments that the cuts were more like compensation than tax reform
for the extra tax sucked from taxpayers by bracket
creep.(10)
In contrast Senator Bob Brown says the
Australian Greens oppose the second round of the tax cuts that
solely benefit high income earners in Australia . In his media
release on the tax cuts Senator Brown states:
Modelling by the Greens shows that the cost of tax
cuts for those earning over $75,000 is around 44% of the total cost
of the tax cuts, yet they account for only 10.5% of wage and salary
earners.
Senator Fielding from Family First is
reported(11) as expressing disappointment that there was
no announcement of petrol tax cuts in the budget.
According to the
Explanatory Memorandum, this measure will have the following
impact on revenue over the next four years.
|
2007-08
|
2008-09
|
2009-10
|
2010-11
|
|
-$5.305b
|
-$8.350b
|
-$8.785b
|
-$9.050b
|
Source: Explanatory
Memorandum, p. 1
Items 1-3 in Schedule
1 amend section 159N of the Income
Tax Assessment Act 1936 to increase the amount of low income
tax offset and to raise the threshold at which the offset begins to
phase out. The level of taxable income is increased from $40 000 to
$48 750 to be eligible for the tax offset or rebate. The maximum
amount of the rebate is increased from $600 to $750. Item
3 increases the level at which the rebate is payable from
$25,000 to $30 000.
Items 4-7
amend Schedules 7, 8, and
10 the Income Tax Rates Act 1986 to
increase the threshold from which the 30 per cent marginal tax rate
begins to apply. The increase is from $25 000 to $30 000.
Items 8-11 amend the
Medicare Levy Act 1086 to increase the income threshold
that applies to senior Australians who are eligible for the low
income tax offset under section 160AAAA of the Income Tax
Assessment Act 1936. These amendments will ensure that:
- the Medicare levy threshold for single seniors will be
increased to $25,867 to ensure that they do not pay the Medicare
levy until they are liable to income tax; and
- the new senior family threshold will be $37,950 so that senior
couples do not incur a Medicare levy until they incur Eligible
senior Australians.
Item 11 of Schedule
1 provides that the above amendments apply for the 2007-08
income year and later income years.
Items 12-15 amend the
Income Tax Rates Act 1986 to increase the thresholds for
the top two marginal tax rates from $75 000 to $80 000 and $150 000
to $180 000 respectively.
Full explanation and details of the changes
are set out in the
Explanatory Memorandum to the bill.(12)
Item 16 of Schedule
1 states that the amendments in Part 2 apply to
assessments for the 2008-09 year of income and later years of
income.
The Bill will establish new tax thresholds for
the years 2007-08 and 2008-09. For comparative purposes the
thresholds for the current year and the years 2007-08 and 2009-09
are set out in the following table.
Source: Budget
Measures 2007-08, Budget
Paper No. 2, Part 1, Revenue Measures, p. 18.
Budget
Paper No. 2, after setting out the above table, makes the
following comments on the impact on taxpayers affected by these
changes.
The tax cuts will increase disposable incomes for
all Australian taxpayers and provide further incentives, especially
for lower income earners, to participate in the workforce and will
further enhance Australia s international competitiveness.
Over 80 per cent of taxpayers will face a top
marginal tax rate of no more than 30 per cent over the
forward estimates period with taxpayers needing to earn $134,000 to
pay an average tax rate of 30 per cent in 2008-09.
In 2008-09, the top marginal tax rate will apply
to around 2 per cent of taxpayers.
The table set out below gives the impact on
individual taxpayers on various taxable incomes in terms of the
percentage reduction of the tax payable for the 2007-08 and 2008-09
years from the position in the 2006-07 year.(13)
Individual Tax Paid 2006-07 to 2008-09
|
Taxable Income p.a.
|
2006-07
|
2007-08
|
2008-09
|
Change 2006-07
to 2007-08
|
Change 2007-08
to 2008-09
|
Total change
2006-07
to 2008-09
|
|
$
|
$
|
$
|
$
|
%
|
%
|
%
|
|
10
000
|
0
|
0
|
0
|
0.0
|
0.0
|
0.0
|
|
20 000
|
1 500
|
1 350
|
1
350
|
-10.0
|
0.0
|
-10.0
|
|
30
000
|
3
950
|
2
850
|
2
850
|
-27.8
|
0.0
|
-27.8
|
|
40
000
|
7
350
|
6
250
|
6
250
|
-15.0
|
0.0
|
-15.0
|
|
50
000
|
10
350
|
9
600
|
9
600
|
-7.2
|
0.0
|
-7.2
|
|
60
000
|
13
350
|
12
600
|
12
600
|
-5.6
|
0.0
|
-5.6
|
|
70
000
|
16
350
|
15
600
|
15
600
|
-4.6
|
0.0
|
-4.6
|
|
80
000
|
19
850
|
19
100
|
18
600
|
-3.8
|
-2.6
|
-6.3
|
|
90
000
|
23
850
|
23
100
|
22
600
|
-3.1
|
-2.2
|
-5.2
|
|
100
000
|
27
850
|
27
100
|
26
600
|
-2.7
|
-1.8
|
-4.5
|
|
110
000
|
31
850
|
31
100
|
30
600
|
-2.4
|
-1.6
|
-3.9
|
|
120
000
|
35
850
|
35
100
|
34
600
|
-2.1
|
-1.4
|
-3.5
|
|
130
000
|
39
850
|
39
100
|
38
600
|
-1.9
|
-1.3
|
-3.1
|
|
140
000
|
43
850
|
43
100
|
42
600
|
-1.7
|
-1.2
|
-2.9
|
|
150
000
|
47
850
|
47
100
|
46
600
|
-1.6
|
-1.1
|
-2.6
|
|
160
000
|
52
350
|
51
600
|
50
600
|
-1.4
|
-1.9
|
-3.3
|
|
170
000
|
56
850
|
56
100
|
54
600
|
-1.3
|
-2.7
|
-4.0
|
|
180
000
|
61
350
|
60
600
|
58
600
|
-1.2
|
-3.3
|
-4.5
|
|
190
000
|
65
850
|
65
100
|
63
100
|
-1.1
|
-3.1
|
-4.2
|
Note: Includes low income tax offset; excludes Medicare levy and
(if applicable) Medicare levy surcharge.
- P. Costello
Second Reading Speech 10 May 1007 Hansard p.
1.
- Age, 9 May 2007 p.11.
- op.cit
- Canberra Times, 9 May 2007, p. 20.
- Herald Sun, 9 May 2007, p. 20.
- The Age, 9 May 2007, p. 10.
- The Australian, 9 May 2007, p. 25.
- The Sydney Morning Herald, 9 May 2007, p.
12.
- Transcript of Doorstop Interview, Parliament
House, Budget Reply, 10 May 2007.
- Press Release, Senator Andrew Murray, 9 May
2007.
- Sydney Morning Herald, 9 May 2007, p. 4.
- However, please note that the Explanatory
Memorandum in Table 1.1 on page 5, dealing with the current tax
thresholds and tax rates (i.e. for the year 2006-07) in columns 1
and 2 respectively, states incorrectly in column 2 that the
tax rate for the income range $6,001 to $25,000 is 17%, whereas the
actual rate is 15%.
- This table was prepared by the Statistics and
Mapping Section of the Parliamentary Library.
Diane Spooner
Law and Bills Digest
Bernard Pulle
Economics Section
22 May 2007
Parliamentary Library
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ISSN 1328-8091
© Commonwealth of Australia 2007
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