Andrew Murray (WA, Australian Democrats) Share this | Hansard source

Schedules 1 to 4 of the Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Bill 2006 amend the tax laws and the Medicare Levy Act 1986 to provide changes to personal income tax rates and thresholds, the low-income tax offset, the Medicare levy phase-in rate and the fringe benefits tax rate. Schedules 1 to 4 will cost $10.6 billion over four years.

Schedule 1 increases the 30 per cent tax threshold from $21,601 to $25,001. It reduces the second highest marginal tax rate from 42 per cent to 40 per cent and increases the threshold for that rate to $75,001. It reduces the highest marginal tax rate from 47 per cent to 45 per cent and increases the highest tax threshold to $150,001. Schedule 1 also makes a range of consequential amendments resulting from the reduction in the top marginal tax rate.

Schedule 2 reduces the fringe benefits tax rate from 48½ per cent to 46½ per cent from 1 April 2006. Schedule 3 amends the Income Tax Assessment Act 1936 to increase the low-income tax offset from $235 to $600 and increases the income threshold from which the tax offset begins to phase out from $21,600 to $25,000. Schedule 4 amends the Medicare Levy Act 1986 to increase the income threshold that applies to taxpayers who are eligible for the senior Australians tax offset and reduces the Medicare levy phase-in rate from 20 per cent to 10 per cent.

Schedule 5 amends the Income Tax Assessment Act 1997 to increase deductions for the decline in value of depreciating assets under the diminishing value method and project pools. This schedule costs an astonishing $1.2 billion over four years.

The government changes to the personal income tax scales will take effect from 1 July 2006. These changes come on top of changes already due to take effect from 1 July passed following the announcement by the government in last year’s budget. The changes to personal income tax scales already passed in 2005 were to lift the top threshold for the 30 per cent band from $63,000 to $70,000, but that will now be $75,000. The changes to personal income tax scales already passed in 2005 were to lift the top threshold for the 42 per cent band from $95,000 to $125,000, but that will now be $150,000. And, of course, the changes to personal income tax scales now drop the top rate of 47 per cent, presently applying above $95,000, to 45 per cent applying above $150,000.

In addition, the government announced a large increase in the low-income tax offset from its present level of $235 to $600 from 1 July, and the threshold at which the offset begins to phase out will also rise, from $21,600 to $25,000.

The impacts at different income levels of the cumulative changes and tax arrangements vary. The Democrats have long advocated a tax-free threshold of $10,000, and this tax cuts package does deliver an effective $10,000 tax-free threshold. The budget papers indicate that, once the proposed low-income rebate has been taken into account, a person whose income is below $25,000 per annum has an effective tax-free amount of $10,000 per year excluding Medicare. Under the proposed Medicare levy rates, no Medicare levy is payable until a person’s income exceeds $16,772 per annum in 2006-07. A reduced rate of levy is paid until a person’s income reaches $19,332. This bill before us raises the disposable income of persons earning $10,000 by 3.8 per cent and persons earning $25,000 by 4.6 per cent.

The budget also delivers additional family tax benefits, and for that you must see other legislation that increases the real income of low- and middle-income Australians. None of this justifies an estimated 5.4 per cent increase in disposable income for those earning $125,000 and 6.5 per cent for those earning $150,000 when lower and middle-income Australians still suffer such high effective marginal tax rates.

Debate interrupted.