Posted on 05/09/2006 3:14:37 AM PDT by Aussie Dasher
ORDINARY taxpayers will enjoy $37 billion in tax cuts over the next four years but businesses will also benefit as Treasurer Peter Costello seeks to regain control of the tax debate.
Tax thresholds will be lifted while the top two marginal tax rates will be sliced in a move Mr Costello said will reward hard work and make the Australian tax system more internationally competitive.
Australians have had several years of smaller tax cuts, but at $37 billion – including an initial tax break of more than $6 billion starting from July 1 – tonight's Budget announcements are the biggest since the GST compensation package of 2002.
Under Mr Costello's package, the top marginal rate will be cut to 45 cents in the dollar from 47, while the 42 cent rate will come down to 40 cents.
At the same time, the thresholds at which almost all tax rates kick in will be increased.
The 15-cent tax rate will now cover people earning between $6001 and $25,000 a year. The 30-cent rate affects people earning between $25,001 and $75,000, while the 40 cent rate hits people earning between $75,001 and $150,000.
Only people earning more than $150,000 a year will pay the top rate of 45 cents.
At the same time, the low income tax offset will be increased to $600 from $235, phasing out between $25,000 and $40,000. It effectively means people will not pay tax until they earn at least $10,000 a year.
People earning $25,000 a year will save about $1000, or $19 a week, from the tax cuts. Average wage earners on $50,000 will get back $510 a year, or about $10 a week.
Those on $150,000 a year will save $6,200 a year, or almost $120 a week.
Mr Costello said from July 1, only 2 per cent of Australians would pay the top marginal tax rate – 80 per cent would pay 30 per cent or less.
He said the changes would provide a huge boost of productivity and incentive through the tax system.
"These changes and the change to the 30-per-cent threshold will provide more incentive for those outside the workforce to re-enter it and those on part-time work to take additional hours," he said.
Business, which has led the charge for big tax reform, was not left out.
A key change to depreciation allowances on business investment will allow business to more quickly recoup the value of plant and equipment.
This single move will cost the Government about $3.7 billion inthe next four years.
"It will encourage Australian business to undertake investment in new plant and equipment, to keep pace with new technology and to remain ultra-competitive," Mr Costello said.
In another move, the Government will backdate a cut in the fringe benefits tax to 46.5 per cent from 48.5 per cent to April 1.
This move will cost $260 million next financial year and more than $800 million over the next four years.
The personal income tax cuts follow the decision of the Reserve Bank to lift interest rates last week in response to what it perceives as inflationary pressures building up through the economy.
Asked if he was worried interest rates might move in response to his tax cuts, Mr Costello replied:"No, I'm not, not in the slightest.
"This is an opportunity to reform tax, and we've taken it in a responsible way."
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