On 3 December, the new Labor government was sworn in by the Governor General. I thought I might take this opportunity to go over some of the new tax initiatives introduced by Labor during their election campaign.
According to releases from the party, Labor is committed to delivering tax cuts for all Australian taxpayers. Their plan includes the goal over 6 years, by 2013-14, of flattening Australia’s income tax system by reducing the number of personal income tax rates from four to three – with a personal income tax scale of 15 per cent, 30 per cent and 40 per cent.
Put simply, under the plan tax cuts will be provided for individuals earning up to $180,000 per year. The weekly savings from these tax cuts are summarised in the table below:
(a) Cumulative tax cuts against the 2007-08 tax scales
(b) The total tax saving is the sum of the saving from the tax cuts commenced from 1 July 2007 and the cumulative total in 2010-11 fro the tax cuts commencing 1 July 1008.
The effective tax free threshold will increase from $11,000 to $16,000 through an increase in the Low Income Tax Offset by 2010-11 and then increase to $20,000 through an increase in the Low Income Tax Offset by 2012-13.
It should also be noted that under the Tax Plan for Australia’s Future, reductions in the fringe benefits tax (FBT) will reflect reductions in the top marginal tax rate. Middle-income earners will benefit most from the six year tax goal – with only a 30 per cent marginal tax rate applying over the full income range from $37,000 to $180,000.
Achieving this six year goal will depend on national and international economic conditions and maintaining, as a general economic principle, budget surpluses of around 1 per cent of GDP.
We will be watching this development with interest and keenly await the new government’s budget announcement in May.