Second Reading SpeechMr COSTELLO (Higgins-Treasurer)
That this bill be now read a second time.
The measures contained in this bill will cut personal income tax for all Australian taxpayers from 1 July 2006. The tax cuts are another step in comprehensive tax reform that has seen income tax cut previously in 2000, 2003, 2004 and 2005.
From 1 July this year, the government will reduce the 47 and 42 per cent rates to 45 and 40 per cent respectively. This builds on reductions to lower income rates in earlier years.
In addition, the government will increase the thresholds so that the 15 per cent rate will apply up to $25,000 of income, the 30 per cent rate will apply up to $75,000 of income, the 40 per cent rate up to $150,000 of income and the 45 per cent rate will apply to income above that.
The government will cut the fringe benefits tax rate from 48.5 per cent to 46.5 per cent to ensure that the FBT rate aligns with the top marginal tax rate, including the Medicare levy.
The low-income tax offset will be enhanced by increasing it from $235 to $600. It will begin to phase out at $25,000 from 1 July 2006, compared to $21,600 currently. This means that those eligible for the full low-income tax offset will not pay tax until their annual income exceeds $10,000.
The Medicare levy-low income phase-in rate will be cut from 20 per cent to 10 per cent, ensuring more low-income taxpayers pay a reduced rate of Medicare levy.
Senior Australians who are eligible for the senior Australians tax offset will now pay no tax on their annual income up to $24,867 for singles and up to $41,360 for couples.
Overall, in percentage terms, the greatest tax cuts have 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 of 30 per cent or less over the forward estimates period.
The increase in the 30 per cent threshold and the low-income tax offset will provide more incentive for those outside the workforce to re-enter it and those on part-time work to take additional hours.
Moreover, a taxpayer will need to earn $121,500 to pay an average tax rate of 30 per cent.
From 1 July 2006, the top marginal tax rate will apply to around two per cent of taxpayers. Taxpayers will not reach the highest marginal tax rate until they earn more than three times average weekly earnings.
Reducing the top marginal tax rate and significantly increasing the top threshold will improve the competitiveness of Australia's tax system compared with other OECD countries. Australia's top marginal tax rate will be in line with the OECD average and the increase in the top threshold will place Australia 10th highest in the OECD.
Six years ago, the threshold for the top marginal tax rate was $50,000. If the threshold for the top marginal tax rate had been indexed when this government came to office in 1996, it would have stood below $64,000 by 1 July this year. Under the government's reforms and this bill, by 1 July this year that threshold will be $150,000.
This package provides $36.7 billion of benefit to taxpayers over four years and reinforces Australia's reputation as a low-tax country. These tax cuts significantly restructure the personal income tax system, to increase disposable incomes, to enhance incentives for participation and to improve Australia's international competitiveness.
Mr Speaker, this bill also implements the 2006-07 budget measure that will substantially improve Australia's depreciation arrangements by increasing the diminishing value rate for determining depreciation deductions from 150 per cent to 200 per cent. This will cut business tax by $3.7 billion over the next four years.
The effect of the measure is to provide the equivalent of a 33 per cent increase in the allowable depreciation rate for all eligible assets.
This will increase incentives for Australian business to invest in new plant and equipment and make it easier for businesses to keep pace with new technology and remain competitive. Investment is a key element of productivity growth and, therefore, of economic growth.
The increased depreciation rates under the diminishing value method align depreciation deductions for tax purposes more closely with the actual decline in the economic value of an asset, which will lead to improved resource allocation in the economy. This is consistent with the government's tax policy strategy of ensuring that the tax system has minimal effect on the allocation of resources in the economy.
The measure will apply to assets acquired on or after 10 May 2006 and includes appropriate integrity measures to ensure assets held prior to that date are not able to be brought into the new arrangements.
Full details of these measures in this bill are contained in the explanatory memorandum.
I commend the bill.
Debate (on motion by Mr Gavan O'Connor) adjourned.