Bills Digest No. 163 2002-03
Taxation Laws Amendment (Personal Income Tax Reduction)
Bill 2003
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Taxation
Laws Amendment (Personal Income Tax Reduction) Bill 2003
Date Introduced:
29 May 2003
House:
House of Representatives
Portfolio:
Treasury
Commencement:
Commences on Royal Assent, applies to tax assessments
from 2003-2004 onwards
To amend:
- the Income Tax Assessment Act 1936 to increase the low income
tax offset and the threshold at which this offset begins to phase out
- the
Income Tax Rates Act 1986 to increase personal income tax thresholds,
and
- the
Medicare Levy Act 1986 to increase the income threshold for taxpayers
eligible for the senior Australians tax offset.
The amendments in the Bill give effect to the
personal income tax cuts announced by the Government on 13 May 2003 in the 2003-2004
Federal Budget.
In his Second Reading Speech, the Treasurer, Mr Peter
Costello MP, said that the Bill will cut personal income tax for 9 million
Australians, with tax reductions amounting to $2.4 billion in 2003-04
and a total of $10.7 billion over the next four years. According to the
Treasurer, by increasing thresholds for the various levels of income tax
and providing a more generous low income tax offset, low income earners
will receive the largest proportional reductions in income tax.
Recipients of the senior
Australians tax offset will be able to earn up to an additional $500 annual
income before they have an income tax liability. The Medicare levy thresholds
for senior Australians will also be increased to ensure that they do not
pay the Medicare levy until they begin to incur an income tax liability.(1)
The Australian Financial Review noted that:
the cuts are small – about $4 a week for the average income
earner…. Although small in weekly terms, the move will remove some of
the pressure arising from the Labor Party’s recent calls for the government
to do something about bracket creep.(2)
Similarly, an editorial in The Age commented that:
In themselves, the cuts are modest: PAYG taxpayers earning
$35,000 a year can expect to find an extra $4 a week in their pay packets
and those on $55,000 can expect $8.60. But the cuts, like the Medicare
changes, are tightly targeted and intended to give the most benefit to
low and middle-income earners. This is commendable, and may well garner
the Government increased support as it embarks on the formidable task
of selling its reforms of Medicare and tertiary education to a hostile
Senate and to the nation.(3)
According to The Australian,
'the lowering of income tax, alongside the projected reform of international
tax on companies, are strong features of this budget.' The Australian
noted, however, that:
Now what we need is for the Government to have the courage
to make inflation-indexed adjustments to the tax scales every year, which
will automatically eliminate any bracket creep. And, of course, we need
some relief in tax rates as well as thresholds - not just for the “battlers”
who have dutifully switched their allegiance to John Howard,
but for those paying an extortionate 47 cents in the dollar.(4)
One commentator stated that:
While critics are making fun of the federal government’s
mini-tax cut, there are some people to whom it could make quite a difference.
For self-funded retirees in a position to utilise a superannuation income
stream like an allocated pension, Budget 2003 has boosted their capacity
to earn tax-free income by between 3 and 4 per cent.(5)
In his Budget Reply speech, the Leader of the Opposition,
Mr Simon Crean MP, stated that:
The highest taxing government in our history has given you
the smallest tax cut in our history. The Prime Minister and the Treasurer
think that Australians earning between $30,000 and $50,000 a year are
affluent and that they only need another $4 a week. But while they give
with one hand they slug you with the other: up to $50 to go to the doctor,
$32 per week extra in HECS debt and $125 per week to pay off your new
student loan.
Mr Speaker, Australians
have earned the tax cut in the budget. Labor will pass it on. But Australians
deserve more from their government. Four dollars on its own, set against
the massive cost increases for health and education outlined in this budget,
is miserly and it is a sleight of hand. A Crean Labor government will
return bracket creep through both tax cuts and better services.(6)
The leader of the Australian Democrats, Senator Bartlett, said that:
the Democrats would prefer the tax cuts – which produce a
miserly $4 a week for many Australian workers – to be more fair. Under
the Democrats’ proposal – a plan that involves increasing the tax-free
threshold from $6000 to $7500 – all Australians would receive a $255 tax
saving. There’s a big difference to someone on $20,000 a year receiving
$85 a year in tax cuts under the Government’s tax-cut plan, and $255 under
ours.(7)
According to the Greens member for Cunningham, Michael Organ MP:
The best one can say is that the government is giving back
some of the money it has taken from taxpayers over the last seven Budgets.
This is not tax reform in any meaningful way for ordinary Australians,
it is simply throwing away two and a quarter billion dollars which would
be better invested in welfare, aged care, Medicare, job creation, or higher
education. (8)
A media release from Peter Andren, the independent member
for Calare, said that 'low and middle-income families should save the
extra money they get from tax breaks in this years budget to pay the increasing
gap fees opened up by changes to Medicare'. Mr Andren
remarked that:
Families earning between thirty and fifty thousand dollars
stand to gain $208 a year with the increases in the tax thresholds, but
I wonder how much of this could be eaten away by upward pressure in doctors
‘gap’ fees under the proposed Medicare changes.(9)
Items 1-3 in Schedule 1 amend section 159N
of the Income Tax Assessment Act 1936. Item 1 provides
that if a taxpayer's taxable income is 'less than $27 475' (rather
than the current $24 450) the taxpayer will be entitled to a rebate.
Item 2 increases the maximum amount of this rebate from $150 to
$235. Item 3 increases the level at which the maximum rebate is
payable from $20 700 to $21 600. The amount of the rebate is
reduced by 4 cents for every $1 of income above $21 600.
Items 4 and 5 of Schedule 1 amend Schedule 7 (Part 1 Clause 1) of the Income Tax
Rates Act 1986 by increasing the income thresholds for the various
rates of income tax.
Item 4 amends the tax thresholds for resident
taxpayers applicable for the 2003-2004 income year onwards as follows:
| Current tax thresholds |
New tax thresholds |
Tax rate |
| Income range
($) |
Income range
($) |
(%) |
| 0 – 6,000 |
0 – 6,000 |
0 |
| 6,001 – 20,000 |
6,001 – 21,600 |
17 |
| 20,001 – 50,000 |
21,601 – 52,000 |
30 |
| 50,001 – 60,000 |
52,001 – 62,500 |
42 |
| 60,001 + |
62,501 + |
47 |
Item 5 makes corresponding changes to the
tax thresholds for non-resident taxpayers.
Items 8 and 9 of Schedule 1 amend the Medicare
Levy Act 1986 to ensure that senior Australians do not pay the
Medicare levy until they are liable for income tax under the new provisions
proposed in this Bill.
Under section 160AAAA of the Income Tax Assessment
Act 1936 senior Australians receive a 'tax rebate for low income aged persons'. Together
with the change in the $20 000 tax threshold to $21 600 and
the increase in the low income tax offset, this rebate means single seniors
pay no tax up to $20 500 for singles and $33 612 for couples.
Item 9 amends subsection 3(1) of
the Medicare Levy Act by increasing the threshold at which senior
singles begin paying the Medicare Levy to $20 500. There is no change
to the 'senior family threshold' of $31 729 which 'is already sufficient
to ensure that senior couples do not incur a Medicare levy until they
incur an income tax liability'.(10)
- Second Reading Speech, House Hansard, 29 May 2003, p. 14922.
- The Australian Financial Review 14 May 2003, Budget Supplement p. 13.
- The Age, 14 May 2003.
- The Australian, 14 May 2003, p. 24.
- John Wasiliev, 'Tax
cuts no joke for self-funded retirees', Australian
Financial Review, 17
May 2003, p. 28.
- House Hansard, 15 May 2003, p. 14497.
- Senator Andrew Bartlett,
'Budget Response', Media Release 03/326, 15 May 2003.
- The Greens, Media Release, 13 May 2003.
- Media Release, 13 May 2003.
- Explanatory Memorandum, p. 6.
Peter Prince
2 June 2003
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
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