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Budget 2005: Personal income tax cuts.



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NO.040

PERSONAL INCOME TAX CUTS

From 1 July 2005, all Australian taxpayers will share in tax cuts worth $21.7 billion over the next four years. This is in addition to the $14.7 billion in tax cuts provided in last year’s Budget.

The 2005-06 Budget tax cuts will boost disposable incomes and improve the incentives for all Australian taxpayers to participate in the workforce, to invest and to save. They will also improve the international competitiveness of Australia’s personal income tax system by substantially raising the thresholds for the top two marginal tax rates.

From 1 July this year:

● the 17 per cent marginal tax rate will be cut to 15 per cent;

● the 42 per cent threshold will increase to $63,001 (as announced in the 2004-05 Budget); and

● the 47 per cent threshold will increase to $95,001 (compared with $80,001 announced in the 2004-05 Budget).

From 1 July 2006:

● the 42 per cent threshold will increase again to $70,001; and

● the 47 per cent threshold will increase again to $125,001.

These tax cuts will increase the rewards from workforce participation for all Australian taxpayers, and improve the competitiveness of our personal income tax system in comparison with other developed nations. They will also ensure that over 80 per cent of Australian taxpayers will face a top marginal tax rate of 30 per cent or less over the next four years. The top marginal rate will apply to only 3 per cent of taxpayers from 2006-07.

Attachment A shows the reductions in income tax that will be provided for Australian taxpayers, compared to their tax payable in 2004-05, over a range of incomes.

The reduction in the 17 per cent rate to 15 per cent means that taxpayers who are eligible for the full low income tax offset will not pay tax until their annual income exceeds $7,567 (up from $7,382 currently).

Senior Australians will also benefit. From 1 July 2005, senior Australians who receive the Senior Australians Tax Offset will be able to earn more income without paying tax. Singles will be able to have taxable income up to $21,968 (up from $20,500) and couples up to $36,494 (up from $33,612), depending on the income earned by each member of the couple. The Medicare levy threshold 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.

ATTACHMENT A

PERSONAL INCOME TAX CUTS - FOR TAXPAYERS BETWEEN $10,000 AND $130,000, COMPARED WITH THEIR 2004-05 TAX LIABILITY

© Commonwealth of Australia 2000