House of Representatives

Income Tax (Assessment and Rates) Amendment Bill 1981

Income Tax (Assessment and Rates) Amendment Act 1981

Second Reading Speech

by the Treasurer, the Hon. John Howard, M.P.

this bill will give effect to some taxation measures recently announced by the government.

Included in the measures are the changes to a number of taxation concessions referred to by the Prime Minister on 30 April 1981 when he spoke in the House about decisions made following our review of Commonwealth functions.

Another matter covered is the income tax rebate for contributions for basic health insurance.

Also dealt with is the announcement on 29 April 1981 that there is to be half-indexation of personal income tax for 1981-82, and that that year is to be the last in which the system of tax indexation will apply.

I turn now to the details of each measure.

Reductions in taxation concessions

Mr Speaker, the point has been made before, but it is appropriate that I mention it again now.

It is that taxation concessions are, in a practical sense, as much a call on the Budget as are direct outlays.

That is true even if the effect of a concession is only to delay the collection of tax.

It follows that, when Government expenditures come under review, taxation concessions are among the things that have to be looked at.

An outcome of the examination made in the course of our review of Commonwealth functions was a decision to reduce the value of some income tax concessions.

Among the concessions to be reduced are the 20 per cent loading on depreciation rates on plant, the investment allowance and the rebate of tax that is allowable to shareholders for capital subscribed to petroleum exploration and mining companies.

Also to be affected are the immediate deduction allowable for the cost of converting oil-fired or LPG-fired plant to operate from alternative energy fuels and the deductions that are allowable for capital expenditure incurred on the development or operation of a mine or oil field.

As indicated in a statement accompanying the Prime Ministers speech on 30 April, the reduced level of each concession will generally apply in respect of expenditure incurred by a taxpayer after that day.

However, expenditure incurred after 30 April 1981 under a contract entered into earlier, or in respect of work carried out by the taxpayer which was commenced earlier, will continue to qualify for the present levels of concession.

The deduction for capital costs incurred by a taxpayer in converting oil-fired or LPG-fired plant to use alternative energy sources is to be allowable in equal instalments over 2 income years instead of being wholly deductible in the year in which the expenditure is made.

The special loading on depreciation rates for plant is to be reduced from 20 per cent to 18 per cent.

The investment allowance deduction of 20 per cent is to be reduced to 18 per cent, with corresponding adjustments to the shading-in rates for plant costing less than $976.

Deductions for capital expenditure incurred in the development or operation of a mining property or an oil or natural gas field are to be calculated, where appropriate, by reference to a maximum statutory life of the mine or field of 6 years, instead of 5 years.

Finally, the rebate of tax available in respect of moneys paid on shares in petroleum exploration and mining companies, or to certain interposed companies, is to be reduced from 30 per cent to 27 per cent of the moneys so paid.

The reduced rebate will in general apply to moneys paid by a taxpayer after 30 April 1981, but moneys paid subsequently in respect of calls made on or before 30 April 1981 on shares owned by the taxpayer at that date will retain eligibility for the present level of rebate.

Income tax rebate for cost of basic health insurance

As foreshadowed in the House on 29 April 1981 by the Minister for Health and myself, an income tax rebate is to be allowed for contributions paid by a taxpayer for basic hospital insurance or basic medical insurance cover.

The rebate is, of course, part of the Government's new healho arrangements.

The new rebate will be available at the rate of 32 cents in the dollar - equivalent to the standard rate of tax - for contributions paid for basic medical or basic hospital insurance cover for the taxpayer, the spouse of the taxpayer and any children of the taxpayer or of his or her spouse.

It will apply to eligible contributions made on or after 1 July 1981 in respect of cover from then on.

This new rebate is to be quite separate from the general concessional rebate that covers various classes of private expenditure, including payments for medical and hospital expenses.

Because of this a person may receive the new rebate even if he or she is not entitled to the general rebate.

This means that tax savings from this concession will not depend on a taxpayer's total rebatable expenditure being more than $1,590.

Tax indexation

I announced in the House on 29 April that half tax indexation would apply for 1981-82, as indicated by the Prime Minister in the policy speech of 5 September 1980.

This Bill will give effect to that announcement.

The benefits to individual taxpayers from the tax reductions proposed by these amendments are significant.

In total, they will amount to some $500M in respect of the 1981-82 year.

In line with the practice of previous years, the indexation adjustment is based on the increase of the average consumer price index for the four quarters ended March 1981 over the average for the four quarters ended March 1980.

This was 9.9 per cent.

The law provides for a discounting of this percentage for the effects of the Government's oil pricing policy and the health care financing arrangements announced on 24 May 1979.

The discounting produces a net increase of 7.6 per cent.

On this basis, half indexation means adjustment of the personal rate scale, and dependant and related rebates, by 3.8 per cent - that is, a half-indexation factor of 1.03.t

Indexation of this order will have the effect that the tax threshold will change from $4,041 for 1980-81 to $4,195 for 1981-82.

Subject to the first $4,195 of taxable income being tax-free, the standard rate of 32 per cent will apply to incomes up to $17,894 instead of $17,239.

The 46 per cent rate will thus not apply until taxable income exceeds $17,894.

The maximum rate - 60 per cent - will first apply at $35,789, instead of at $34,479 as at present.

The increases in dependant and associated rebates due to indexation will mean, for example, that the maximum allowance for a spouse will rise from $800 to $830, and for a sole parent from $559 to $580.

When allowance is made for these changes in both the rate scale and rebates, the tax free income for a person with a dependent spouse will rise from $6,541 in 1980-81 to $6,788 in 1981-82, and for a sole parent from $5,787 to $6,007.

The tax reductions will be reflected in reduced pay-as-you-earn tax deductions from 1 July 1981.

I have had prepared, and seek leave to have incorporated in Hansard, a number of tables showing the effect of the tax scale and rebate changes on tax payable for 1981-82.

The tables also show the approximate reductions in weekly P A Y E deductions at various levels of weekly earnings.

The tables show, for example, that a taxpayer on the standard rate of 32 per cent, and having a dependent spouse, will be $1.50 a week better off as a result of the changes.

As I indicated in my statement to the House on 29 April 1981, the Government has decided that discretionary adjustments to the taxation rate scale and rebates are preferable to the existing tax indexation arrangements.

This Bill will therefore delete from the law - as no longer necessary - the provisions under which the present system of indexation operates.

In future the Government will pursue on a discretionary basis - and usually in a Budget context - its policy of reducing taxatina where circumstances make it appropriate and responsible to do so.

The Bill is explained in detail in an explanatory memorandum that is being circulated to Honourable Members, and I do not think that I need say more at this stage.

I commend the Bill to the House.