House of Representatives

A New Tax System (Personal Income Tax Cuts) Bill 1998

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

General Outline and Financial Impact

Reducing Personal Income Tax Rates

Amends the Income Tax Rates Act 1986 to provide for significant personal income tax cuts.

Date of effect: The new rates come into effect on 1 July 2000 and will apply to assessments for the 2000-2001 year of income and later years of income.

Proposal announced: The Government announced the proposed tax cuts in Tax Reform: not a new tax, a new tax system: The Howard Governments Plan for a New Tax System on 13 August 1998.

Financial impact: The measure will cost $13.1 billion in 2000-2001, $13.5 billion in 2001-2002 and $14.5 billion in 2002-2003.

Compliance cost impact: See Regulation Impact Statement.

Summary of Regulation Impact Statement

Impact: Low

Main Points:

·
The measure will impact on employers, professional advisers, computer programmers, the Australian Taxation Office (ATO), contractors who process payroll, electronic payroll stockists and electronic payroll producers.
·
Compliance costs for employers will increase, because the new tax rates will require PAYE remitters to recalculate the amount of tax they need to remit to the ATO.
·
To ensure that remitters are able to determine the correct amounts of tax, the ATO will need to devote additional resources to providing information support to the affected groups in the form of an educational campaign. This may consist of advertising, educational pamphlets, mailouts and information in remitter books. These costs are expected to be absorbed within the ATOs annual budget.

Policy objective: To provide stronger incentives for people to work and save.

Increasing Family Tax Assistance

Amends the Income Tax Rates Act 1986 by increasing the Family Tax Assistance tax-free thresholds.

Date of effect: The increased thresholds will apply to assessments for the 2000-2001 year of income and later years of income.

Proposal announced: The Government announced the proposal in Tax Reform: not a new tax, a new tax system: The Howard Governments Plan for a New Tax System on 13 August 1998.

Financial impact: This measure is an integral part of the larger family package. The precise revenue cost will depend on the way in which primary carers choose to obtain the benefit. The total budgetary cost of the family package is $2.3 billion in 2000-2001, $2.4 billion in 2001-2002 and $2.6 billion in 2002-2003.

Compliance cost impact: See Regulation Impact Statement.

Summary of Regulation Impact Statement

Impact: Low

Main Points:

·
The measure will impact mainly on eligible employee taxpayers who wish to claim the increased Family Tax Assistance through reduced tax instalment deductions (TIDs), because they will have to lodge a revised employment declaration (ED) with their employers. Employers will also be affected by the new measure because employees will be lodging new EDs.
·
For the 2000-2001 year of income there will be a one-off compliance cost associated with implementing the proposal. Compliance costs will be incurred relative to the extent that employees complete new EDs following the introduction of the new scheme.
·
The measure modifies an existing regime and will have only a minimal effect on the ATOs recurrent costs. There will be some minor transitional costs to the ATO. Computer systems will need to be amended to encompass the change, as will educational booklets such as TaxPack.

Policy objective: To increase the amount of assistance provided to families by increasing the level of Family Tax Assistance provided through the tax system.


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