new tax system
1.1 In August 1998, the Howard Government released its tax
reform plan entitled Tax Reform: not a new tax, a new tax system. Subsequently,
a package of 16 bills to introduce a new tax system were introduced into the House
of Representatives in December 1998 and passed by that chamber on 10 December
1988. The package of Bills was introduced into the Senate on 10 December and currently
remains at the second reading stage.
1.2 The remainder of this chapter
is a brief summary of the document Tax Reform: not a new tax, a new tax system
(ANTS). This summary is compiled directly from the ANTS document.
The new tax system proposed by the Howard Government encompasses five key principles:
- That there should be no increase in the overall tax burden;
any new taxation system should involve major reductions in personal income tax
with special regard to the taxation treatment of families;
- That consideration
should be given to a broad-based indirect tax to replace some or all of the existing
- That there should be appropriate compensation for those
deserving of special consideration; and
- That reform of Commonwealth-State
financial relations must be addressed.
No increase in the overall
1.4 Proposed reforms within the income tax system provide significant
reductions in personal income tax through an increase in the tax free threshold
and decreases in all marginal tax rates except the top rate. This measure is estimated
to be worth around $13 billion a year and means 80 per cent of taxpayers will
have a top marginal tax rate of 30 per cent or less. The current income tax scale,
and that to take effect from 1 July 2000, is shown in Table 1 at Appendix VIII.
1.5 In view of reductions in tax rates, together with reductions in marginal
tax rates on saving, the Government proposes to terminate the savings rebate from
Major reductions in personal income tax, with special regard
to the tax treatment of families
1.6 A fundamental aim of the Government's
tax package is to overcome perceived disincentives created by the current interaction
of the tax and social security systems. High marginal tax rates are seen as discouraging
Australians from undertaking extra work or training, or increasing personal savings,
while concurrently encouraging tax minimisation.
1.7 The result of a reduction
in the lowest marginal tax rate from 20% to 17% for low income families, in particular,
is shown in Table 2 at Appendix VIII.
Broad-based indirect tax to replace
some or all of the existing indirect taxes
Reforms to indirect tax
and State finances
1.8 A multi stage value added tax on goods and
services (GST) will be introduced on 1 July 2000 at the rate of 10%, excluding
goods which are exported or services which are consumed outside Australia. GST
will not apply to most health, education and childcare services and will replace
the wholesale sales tax and a number of State taxes.
1.9 GST will be charged
on the supply of land, goods and services for payment. All goods and services
imported and entered into Australia for home consumption are to
be subject to GST. An illustration of how the GST rate applies is shown
as Example 1 at Appendix VIII.
1.10 There will be two types of non-taxable
- GST-free supplies which will not be taxed and where a
credit is allowed for tax paid on purchases (in other jurisdictions this is known
as zero rating); and
- Input-taxed supplies that are not taxed but for
which no credit is allowed for tax paid on purchases. The input tax is subtracted
from the GST on sales to ascertain the amount of GST payable to (or refundable
from) the Tax Office, for that period. This is illustrated as Example 2 at Appendix
1.11 GST paid by business on the purchases of goods and services
for use in the business is credited to the business and in some cases can be refunded.
The aim is that no part of the GST represents a cost to business. The effect of
this crediting system is that GST rolls forward at each transaction to the point
of sale to the end consumer.
1.12 Businesses that are registered as taxpayers
will be required to charge GST on supplies of goods and services made by them.
The GST so charged will be collected by the registered person from the purchaser
and remitted to the ATO by means of lodging periodic returns.
Australian Competition and Consumer Commission will be granted special transitional
powers to formally monitor retail prices as part of the Government's proposal
to instigate additional consumer protection.
Reform of excise duties
The Government proposes to reduce excises on petrol and diesel to ensure
that pump prices do not rise. In addition, registered businesses will be able
to claim an input tax credit for the GST payable on fuel used for business purposes.
1.15 A diesel fuel credit will be available to registered businesses to
reduce the effective excise payable on diesel fuel used in heavy transport and
rail, from around 43 cents per litre to 18 cents per litre. All other off-road
business use of diesel and like fuels (including diesel, bunker fuel and light
fuel oil for marine business use) will qualify for a full credit of excise.
Proposed changes to the taxation of alcoholic beverages to take effect
from 1 July 2000 include :
- A Wine Equalisation Tax on wine and beverages
consisting primarily of wine;
- An increase in the excise on beer, and
other beverages with less than 10 per cent alcohol content;
- An increase
in the excise-free threshold for beer from the present level of 1.15 per cent
to 1.4 per cent to support the production of low alcohol beer; and
increase in the excise on beverages other than wine, with more than 10 per cent
alcohol content, such as spirits and liqueurs.
1.17 A per stick tobacco
excise based on the number of cigarettes produced is proposed to take effect
from 1 July 1999. Cigars and other tobacco products will continue to be subject
to excise according to their tobacco weight. A summary of these changes is shown
on Table 3 at Appendix VIII.
1.18 The Government proposes to introduce
a retail tax on luxury cars, at a rate of 25 per cent of the value above
a luxury threshold (a GST-inclusive value of $60,000). The effect of a luxury
car tax is shown on Table 4 at Appendix VIII. This tax will ensure that luxury
cars only fall in price by about the same amount as a car just below the luxury
Reforms to business taxes
1.19 Trusts will be
taxed as companies to ensure that all distributions of profits by companies and
trusts bear tax at the entity level, which is currently 36%.
the taxation of business entities
1.20 The current dividend streaming rules
will be repealed.
1.21 The general anti-avoidance rules contained in Part
IVA of the Income Tax Assessment Act 1936 will be reviewed so as to apply to existing
and emerging tax avoidance activities utilising rebates, credits and losses.
The Government has announced a consultative process to allow groups of companies,
trusts or co-operatives to prepare one tax return and have a single franking account,
one capital loss account and one revenue loss account. The current treatment of
dividends will be used as the benchmark for consistent treatment across dividends,
share buy-backs and liquidations.
Reforming the taxation of business investments
Consultations on possible reform of the investment base will focus on the perceived
poor treatment of changing asset and liability values. The three areas to be considered
are physical assets; financial assets and liabilities; and the potential use of
1.24 CGT rollover relief and retirement exemption
for small business will also be reviewed. These will be extended to include land
and buildings integral to a business when these assets are owned separately.
of one tax instalment system for all taxpayers
1.25 The five existing payment
and reporting systems (PAYE, PPS, RPS, provisional tax and company instalments)
will be replaced with a comprehensive pay-as-you-go (PAYG) system. This system
will feature business taxpayers paying their income tax at the same time, replacing
the provisional tax and company instalments systems with PAYG, and business certainty
regarding which payments are subject to withholding.
1.26 Measures designed to simplify the existing tax regime include
a 2-year amendment period to adjust a taxpayer's tax position, oral advice which
is binding on the ATO, a charging system for private binding rulings, use of electronic
commerce in answering taxpayer queries, and simplifying or removing tax return
Reforming customs administration
1.27 Existing Customs
concessions, rebates, remissions and regulations will be rationalised as a result
of replacing the Diesel Fuel Rebate Scheme with a diesel fuel credit delivered
through the GST.
Reform of the Fringe Benefits Tax provisions
The fringe benefits tax (FBT) provisions amendments are in the main:
- From the 1999/2000 FBT year of income, the grossed up taxable value
of an employee's fringe benefits will be disclosed in group certificates where
the value of the benefits exceeds $1000.
- From the 2000/2001 FBT year
of income, benefits provided by public benevolent institutions and certain other
non-profit entities will be limited to $17,000 of grossed up taxable value per
employee. Any amount above this limit will not be subject to the concessional
tax treatment and will be subject to FBT as for any other taxpayer.
will be imposed on benefits in excess of $1,000 per annum provided by companies
to their shareholders or by trustees to trust beneficiaries, where the benefits
are not taxed currently.
FBT exemption for remote area housing provided
by mining industry employers will be extended to equate to those provided by primary
Compensation for those deserving of special consideration
The Family Tax Initiative (FTI) introduced in January 1997 will be extended,
doubling tax-free thresholds from 1 July 2000. Table 5 at Appendix VIII shows
the increases in assistance for different family types, including the total increase
in assistance provided since introduction of the FTI.
1.30 The various
benefits and how they will be re-structured into three key assistance packages:
family tax benefit Part A; Family Tax Part B; Child Care Benefit are illustrated
in Figure 1 on Appendix VIII and on Table 6 at Appendix VIII.
proposed ChildCare Benefit provides an increase in the maximum level of
assistance of $7.50 per week. Higher income families with incomes above $78,000
will be entitled to assistance equivalent to that available under the Childcare
Cash Rebate at the 20 per cent rate.
1.32 From July 2000, social security,
veteran' pensions and other income support payments will be increased as follows
- A 4.0 per cent increase in the maximum rate of all income support
- A 2.5 per cent increase in the income test free areas.
The pension income test will be eased to reduce the taper rate from
50 per cent to 40 per cent as of July 2000. In addition, an Aged Persons Savings
Bonus of up to $1,000 per person, and a Self-Funded Retirees Supplementary Bonus
of up to an additional $2,000 per person will be available to age pensioners and
1.33 An increase in the maximum Pensioner Tax Rebate
and the Tax Rebate for low income aged persons is proposed to take effect from
1 July 2000.
1.34 A new 30 per cent tax rebate/benefit for private health
insurance was introduced on 1 January 1999. The rebate is not means tested
and applies to expenditure on private health insurance, including ancillary cover.
It is available in addition to the existing medical expenses rebate and can be
received as a tax rebate, lower premium rate, or as a direct payment from the
Reform of Commonwealth-State financial relations
From 1 July 2000 all GST revenue and revenue generated from the luxury car tax
and wine equalisation tax, will be provided to the States. Financial Assistance
Grants and temporary arrangements for fees on petrol, liquor and tobacco will
cease. The States will continue to have the capacity to meet rebate arrangements
introduced following the 1997 High Court decision on business franchise fees.
1.36 The States will be required to compensate the Commonwealth for the
cost of administering the GST. In return, the Commonwealth will ensure that in
each of the three years following introduction of the GST, the States are no worse
of financially than they would be under current arrangements. The proposed Reform
program of the current indirect tax system is summarised in Table 3 at Appendix
1.37 Transfer of GST revenue to the States is also intended to equip
States with sufficient funds to assume responsibility for general-purpose assistance
to local governments. Payment of GST revenue to the States would be conditional
on the States maintaining the growth in general purpose assistance to local government
on a real per capita basis.
Modelling and cameo approach underpinning
1.38 Various cameos of different household types have been developed
to depict the effect of the various measures in the reform package on households.
These cameos will be discussed at length in the following chapter of this report.