Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Labor 2013-14 Budget Savings (Measures No. 1) Bill 2014
Go To First Hit

Bill home page  


Download WordDownload Word


Download PDFDownload PDF

2013-2014

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

Labor 2013-14 Budget Savings (Measures N o . 1) Bill » 2014

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

(Circulated by the authority of the

Treasurer, the Hon J. B. Hockey MP)

 



Table of contents

Glossary.............................................................................................................. 1

General outline and financial impact............................................................ 3

Chapter 1               Repeal of the 2015-16 income tax cuts............................ 5

Index                                                                                                                  11

 



 

The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

Carbon Tax Repeal Bills

The package of bills that provide for the repeal of the carbon tax:

•        « Clean » « Energy » Legislation (Carbon Tax Repeal) « Bill » 2013;

•        True-up Shortfall Levy (General) (Carbon Tax Repeal) « Bill » 2013;

•        True-up Shortfall Levy (Excise) (Carbon Tax Repeal) « Bill » 2013;

•        Customs Tariff Amendment (Carbon Tax Repeal) « Bill » 2013;

•        Excise Tariff Amendment (Carbon Tax Repeal) « Bill » 2013;

•        Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Amendment (Carbon Tax Repeal) « Bill »  2013;

•        Ozone Protection and Synthetic Greenhouse Gas (Manufacture Levy) Amendment (Carbon Tax Repeal) « Bill »  2013.

LITO

low-income tax offset



Repeal of the 2015-16 personal income tax cuts

This « Bill » amends the « Clean » « Energy » (Income Tax Rates Amendments) Act 2011 to repeal the personal income tax cuts that were legislated to commence on 1 July 2015.  It also amends the « Clean » « Energy » (Tax Laws Amendments) Act 2011 to repeal associated amendments to the low-income tax offset that were legislated to commence on 1 July 2015.

Date of effect These amendments commence on, and apply from, the day after this « Bill » receives Royal Assent.

Proposal announced The former Government as part of compensation linked to the Carbon Tax package introduced two rounds of personal income tax cuts, which were included in the 2011-12 Mid-Year Economic and Fiscal Outlook (MYEFO) on pages 159 and 160.

The two rounds of personal income tax cuts were introduced through the  « Clean » « Energy » (Income Tax Rates Amendments) Act 2011 and the « Clean » « Energy » (Tax Laws Amendments) Act 2011 which received Royal Assent on 4 December 2011.

The first round of personal income tax cuts commenced on 1 July 2012, with the second round legislated to commence on 1 July 2015.

On 14 May 2013, the former Government announced, as part of the 2013-14 Budget, that the personal income tax cuts scheduled to commence on 1 July 2015 as part of the former Governments « Clean »   « Energy » Future package would be deferred as they were intended to compensate for an increase in the carbon price, which was not expected to occur until 2018-19 due to a revision to the former Government’s carbon price forecast.

The increase in tax revenue from this deferral was incorporated into the budget estimates ($1.5 billion over the forward estimates at the time), but the legislated personal income tax cuts were never repealed nor amended by the former Government in the months following the 2013-14 Budget.

This was still policy of the former Government at the 2013 Federal Election as funding for the second round of personal income tax cuts was not provided for in the 2013 Economic Statement or in the 2013 Federal Election costings.

Financial impact The repeal of the personal income tax cuts (including the related changes to the low income tax offset) that were legislated to commence on 1 July 2015 results in a revenue increase of around $2.2 billion over the current forward estimates period.

At Budget 2013-14, the start date for these income tax cuts was deferred to the income year in which the carbon price was estimated to exceed $25.40 (which at Budget 2013-14 was estimated to occur in 2018-19).  The deferral of these income tax cuts provided a gain to revenue of $1.5 billion over the then forward estimates period.

2013-14

2014-15

2015-16

2016-17

2017-18

$0m

$0m

$820m

$670m

$675m

Human rights implications :  This « Bill » does not raise any human rights issue.   See Statement of Compatibility with Human Rights — Chapter 1, paragraphs 1.23 to 1.27.

Compliance cost impact These amendments have no ongoing compliance cost impacts.  The amendments will also avoid transitional compliance costs being incurred by taxpayers associated with implementing changes to income tax rates and associated pay-as-you-go withholding rates.

 



Chapter 1          

Repeal of the 2015-16 income tax cuts

Outline of chapter

1.1                   This « Bill » amends the « Clean » « Energy » (Income Tax Rates Amendments) Act 2011 to repeal the personal income tax cuts that were legislated to commence on 1 July 2015.  It also amends the « Clean » « Energy » (Tax Laws Amendments) Act 2011 to repeal associated amendments to the low-income tax offset (LITO) that were legislated to commence on 1 July 2015.

Context of amendments

1.2                   Under the former Government’s « Clean » « Energy » Future plan, the second round of personal income tax cuts that were legislated to commence on 1 July 2015 and were intended to provide assistance for an expected higher floating carbon price in the 2015-16 income year.  

1.3                   However, in the 2013-14 Budget, the former Government announced it would defer these personal income tax cuts on the basis that “[t]hese tax cuts were intended to provide assistance for a projected increase in the carbon price to $29.00 in 2015-16, from the fixed price of $25.40 in 2014-15. As the carbon price in 2015-16 is now projected to be lower than $25.40 (at around $12.10), these tax cuts will be deferred until the estimated carbon price in the Budget reaches $25.40.  The Budget’s revised carbon price methodology projects carbon prices above $25.40 in 2018-19.” [1]

1.4                   Accordingly, revenue arising from this measure was incorporated into the Budget estimates, but the legislative personal income tax cuts were never repealed or amended by the former Government before the 2013 Federal Election.

1.5                   The Government, when in Opposition, committed to keeping the first round of personal income tax cuts and associated pension benefit increases as announced by the former Government.  The now Prime Minister in response to the 2013-14 Budget said ‘We reserve the right to implement all of Labor’s cuts, if needed .’

1.6                   The former Government took this policy to the 2013 Federal Election.

1.7                   The Government committed to keeping the first round of personal income tax cuts to compensate for the introduction of the carbon tax, and these have already been delivered. The abolition of the carbon tax will result in Australian households saving $550 a year.

1.8                   This amendment was previously introduced into Parliament on 13 November 2013 as the « Clean » « Energy » (Income Tax Rates and Other Amendments) « Bill » 2013 as part of the package of Carbon Tax Repeal Bills.

1.9                   These amendments do not affect the personal income tax cuts that commenced from 1 July 2012.

Summary of new law

1.10               This « Bill » repeals Part 2 of Schedule 1 to the « Clean » « Energy » (Income Tax Rates Amendments) Act 2011 to repeal the personal income tax cuts that were legislated to commence on 1 July 2015.

1.11               The tax cuts were designed to incorporate part of the benefit currently provided through the LITO into the statutory rates and thresholds.

1.12               This « Bill » also repeals Part 2 of Schedule 1 to the « Clean » « Energy » (Tax Laws Amendments) Act 2011 to prevent the commencement of related amendments to correspondingly lower the income threshold, amount and the withdrawal rate of the LITO that were also legislated to commence on 1 July 2015.

Comparison of key features of new law and current law

New law

Current law

No personal income tax cuts commence on 1 July 2015, which entails:

•        the tax free threshold remaining at $18,200;

•        the second personal marginal tax rate remaining at 32.5 per cent;

•        the maximum value of the LITO remaining at $445;

•        the withdrawal rate of the LITO remaining at 1.5 per cent; and

•        the threshold below which a person may receive LITO remaining at a taxable income of $66,667.

Personal income tax cuts commence on 1 July 2015, which entails:

•        the tax free threshold increasing to $19,400;

•        the second personal marginal tax rate increasing to 33 per cent;

•        the maximum value of the LITO falling to $300;

•        the withdrawal rate of the LITO falling to 1 per cent; and

•        the threshold below which a person may receive LITO increasing to a taxable income of $67,000.

Detailed explanation of new law

1.13               Schedule 1 to this « Bill » repeals Part 2 of Schedule 1 to the « Clean »   « Energy » (Income Tax Rates Amendments) Act 2011 [Schedule 1, item 2]

1.14               Part 2 of Schedule 1 to the « Clean » « Energy » (Income Tax Rates Amendments) Act 2011 contained amendments to be made to subsection 3(1) and Clause 1 of Part I of Schedule 7 to the Income Tax Rates Act 1986 that were to apply to the 2015-16 income year and later income years.   Those amendments were to increase the statutory tax-free income threshold for individuals to $19,400, and to increase the second lowest personal marginal tax rate from 32.5 per cent to 33 per cent.

1.15               The amendments contained in this « Bill » mean that rather than the changes described above applying from the 2015-16 income year, the statutory tax-free threshold for individuals remains at $18,200, and the second personal marginal tax rate remains at 32.5 per cent.

1.16               Schedule 1 to this « Bill » also repeals item 3 in the table in subsection 2(1) of the « Clean » « Energy » (Income Tax Rates Amendments) Act 2011 , which provided for Part 2 of Schedule 1 to commence on 1 July 2015.  [Schedule 1, item 1]

1.17               Schedule 2 to this « Bill » repeals Part 2 of Schedule 1 to the « Clean »   « Energy » (Tax Laws Amendments) Act 2011 [Schedule 2, item 2]

1.18               Part 2 of Schedule 1 to the « Clean » « Energy » (Tax Laws Amendments) Act 2011 contained amendments to section 159N of the Income Tax Assessment Act 1936 that were to apply from the 2015-16 income year.   Those amendments were to decrease the maximum amount of the LITO to $300, increase the income threshold to be eligible for the LITO in subsection 159N(1) to $67,000, and decrease the withdrawal rate of the LITO in subsection 159N(2) to 1 per cent.

1.19               The amendments contained in this « Bill » mean that rather than the changes described above applying from the 2015-16 income year, the maximum amount of the LITO remains at $445, the threshold in subsection 159N(1) remains at $66,667, and the withdrawal rate of the LITO in subsection 159N(2) remains at 1.5 per cent.

1.20               Schedule 2 to this « Bill » also repeals item 3 in the table in subsection 2(1) of the « Clean » « Energy » (Tax Laws Amendments) Act 2011 , which provided for the amendments to Part 2 of Schedule 1 to commence on 1 July 2015.  [Schedule 2, item 1]

Consequential amendments

1.21               There are no consequential amendments made as a result of this measure.

Application and transitional provisions

1.22               These amendments commence on, and apply from, the day after this « Bill » receives Royal Assent.   [Clause 2]

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Labor 2013-14 Budget Savings (Measures No. 1) « Bill » 2014

1.23               This « Bill » is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

1.24               This « Bill » amends the « Clean » « Energy » (Income Tax Rates Amendments) Act 2011 to repeal the personal income tax cuts that were legislated to commence on 1 July 2015.  It also amends the « Clean » « Energy » (Tax Laws Amendments) Act 2011 to repeal associated amendments to the low-income tax offset that were legislated to commence on 1 July 2015.

Human rights implications

1.25               This « Bill » does not engage any of the applicable rights or freedoms.

1.26               The only consequence of the proposed « Bill » will be to forestall a number of changes that would otherwise come into effect from 1 July 2015.  As it maintains existing arrangements, it does not raise any new human rights issues.

Conclusion

1.27               This « Bill » is compatible with human rights as it does not raise any human rights issues.



Clauses

« Bill » reference

Paragraph number

Clause 2

1.22

Schedule 1:  « Clean » « Energy » (Income Tax Rates Amendments) Act 2011

« Bill » reference

Paragraph number

Item 1

1.16

Item 2

1.13

Schedule 2:  « Clean » « Energy » (Tax Laws Amendments) Act 2011

« Bill » reference

Paragraph number

Item 1

1.20

Item 2

1.17

 

 




[1]   Budget Paper No. 2, 2013-14 Budget, p 24.