Second Reading Speech
Mr Costello (Treasurer)I move:
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 2007. The tax cuts are another step in this government's comprehensive tax reform that has seen income tax cut in the last four budgets.
It is the government's policy to keep the tax burden as low as possible, once necessary government services have been funded. Lowering the tax burden will enhance work incentives, improve participation and increase the capacity of the Australian economy.
The tax cuts in this bill will take effect in two stages: from 1 July 2007 and 1 July 2008.
From 1 July this year, the government will increase 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.
The low-income tax offset will be increased from $600 to $750 from 1 July 2007. It will begin to phase-out at the start of the new 30 per cent threshold, $30,000, compared to $25,000 currently. This means that those eligible for the full low-income tax offset will not pay tax until their annual income exceeds $11,000.
From 1 July next year 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.
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 of 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 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 in part-time work to take on additional hours.
For 2007-08 taxpayers will not reach the highest marginal tax rate until they earn more than 3½ times average weekly earnings.
Increasing the top threshold will improve the competitiveness of Australia's tax system compared with other OECD countries. By next year, relative to an average wage, Australia's top threshold will be the eighth highest in the OECD. Three years ago we were 20th.
Seven years ago, the threshold for the top marginal tax rate was $50,000. If this threshold had been indexed when this government came to office in 1996, it would have stood at below $68,000 by 1 July next year. Under the government's reforms and this bill, by 1 July 2008 that threshold will be $180,001.
This package provides $31.5 billion of benefit to taxpayers over four years and reinforces Australia's reputation as a low-tax country. These tax cuts continue the reforms to the personal income tax system, to increase disposable income, to enhance incentives for participation and to improve Australia's international competitiveness.
Full details of the measures in this bill are contained in the explanatory memorandum.
Debate (on motion by Mr Ripoll) adjourned.