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Effect of budget taxation measures in 1978/79

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NO. 94



The Treasurer, Mr. P h illip Lynch, today commented on the effect of the changes

made in the 1977/78 Budget on income tax for individuals in 1978/79.

Mr. Lynch said that the Government's tax indexation and tax scale reforms

together would reduce 1978/79 revenue by $1,857 m illion - $973 m illion more

than the estimated cost of fu ll indexation.

All taxpayers would receive sign ificant tax reductions on 1 February 1978

and, through tax indexation, again on 1 July 1978. .

Some examples had been advanced by commentators to show th at, for some

taxpayers, the gain next year under the new arrangements might fa ll short

of the gain that would have applied under the pre-Budget arrangements.

Misleading conclusions had been drawn from these hypothetical exercises.

One such exercise had compared the 1977/78 composite rate scale (seven-twelfths

of the present scale and fiv e -tw e lfth s of the new scale) with the1

new rate scale indexed by 5 per cent.

By adopting the composite 1977/78 scale as a basis of comparison, instead of

the present pre-Budget scale, the exercise In this case had come forward with

a distorted analysis. :

This kind of exercise also overlooked the fact that income, tax paid in

1978/79 would be subject to any decisions on taxation taken in the 1978/79


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Notwithstanding what has been said on th is subject, the Government wanted to

make i t absolutely clear that a ll people would benefit in 1977/78 and subsequently

The Government would ensure t h a t , in 1978/79» a ll taxpayers would be better

o ff than they would have been under the present system with f u l l indexation.

This was a firm commitment.

Mr. Lynch said that the hypothetical exercises being conducted had served

to obscure the gains to taxpayers that would apply from February 1978.

The cuts in personal income tax that would apply in both .1977/78 and 1978/79

were unprecedented.

An analysis of the so-called Hayden scheme introduced in the 1975/76

Budget would put the matter in perspective.

The following figures compared the tax payable in 1974/75 and .1975/76 in

the case of a taxpayer with no dependants and with other concessional

allowances equal to 10 per cent of net income:-

Net Income Tax Payable Increase in

Tax under

Previous "Hayden "Hayden Scale"

Scale Scale

$ $ $ %

4,000 340 400 17.6

5,000 550 670 21.8

6,000 808 1 ,020 2 6 . 2

7,000 1,114 1,370 2 3 . 0

8,000 1,468 1,720 17.2

9,000 1,868 2,070 10.8

10,000 2,300 2,420 5.2

This table illu s t r a te d that there were r e a l, not hypothetical, detriment

cases under the "Hayden tax scale".

I t was also relevant that in June 1975 average earnings were in the region

of $8,000 per annum.

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On any basis o f comparison t h e pr e s en t Government's t a x reform measures

were more s i g n i f i c a n t and more f a r - r e a c h i n g than those o f any previous

Government. .

25 August, 1977.