Peter Dutton (Dickson, Liberal Party, Minister for Revenue and Assistant Treasurer) Share this | Hansard source

Can I begin by thanking all those members who have contributed to this debate on the Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Bill 2006. I even extend that courtesy to my old Independent friend, the member for New England, for his contribution, and I have taken on board all of his advice, as varied as it is. On a serious note, the measures contained in this bill will cut personal income tax for all Australian taxpayers from 1 July 2006. Importantly, they will cut business tax by $3.7 billion over the next four years by substantially improving Australia’s depreciation arrangements.

Personal tax cuts are another step in comprehensive tax reform that has seen income tax cut previously in 2000, 2003, 2004 and 2005. From 1 July this year, the marginal tax rates of 47 and 42 per cent will be reduced to 45 and 40 per cent respectively. In addition, this bill will increase tax thresholds, so that the 15 per cent tax rate will apply on income of up to $25,000, the 30 per cent tax rate will apply up to $75,000, the 40 per cent tax rate will apply up to $150,000, and the 45 per cent rate will apply to income thereafter. The low-income tax offset will be enhanced by increasing it up to $600 and the level of income where the offset will begin to phase out is increased from $25,000 from 1 July 2006. This means that those eligible for the full low-income tax offset will not pay tax until their annual income exceeds $10,000.

As part of this debate, there has been some mischief by members opposite on the issue of the low-income tax offset. I place on the record that the entitlement to the low-income tax offset is carefully targeted towards low-income earners and can be claimed upon assessment in a taxpayer’s annual tax return. Claiming the low-income tax offset upon assessment avoids taxpayers incurring significant debts when they have an increase in income throughout the year. Labor’s proposal to allow taxpayers to claim the low-income tax offset throughout the year will result in tax debts for taxpayers whose incomes increased throughout the year because they will have claimed too much low-income tax offset. The government has strategies to minimise the creation of tax debts, while the opposition does exactly the opposite—it wants to create more.

Senior Australians who are eligible for the senior Australians tax offset will now pay no tax on their annual income up to $24,867 for singles and up to $41,360 for couples. Overall, in percentage terms, the greatest tax cuts have been provided to low-income earners. These tax changes will ensure that more than 80 per cent of taxpayers face a top marginal tax rate of 30 per cent or less over the forward estimates period. Reducing the top marginal tax rate and significantly increasing the top threshold will improve the competitiveness of Australia’s tax system compared with other OECD countries.

Australia’s top marginal tax rate will be in line with the OECD average and the increase in the top threshold will place Australia 10th highest in the OECD. This package provides $36.7 billion of benefit to taxpayers over four years and reinforces Australia’s reputation as a low-tax country. These tax cuts significantly restructure the personal income tax system to increase disposable incomes to enhance incentives for participation and to improve Australia’s international competitiveness.

The measures in this bill will also substantially improve Australia’s depreciation arrangements by increasing the diminishing value rate for determining depreciation deductions from 150 per cent to 200 per cent. The effect of the measure is to provide the equivalent of a 33 per cent increase in the allowable depreciation rate for all eligible assets. This will increase incentives for Australian business to invest in new plant and equipment and make it easier for businesses to keep pace with new technology and remain competitive. Investment is a key element of productivity growth and, hence, of economic growth.

The increased depreciation rates under the diminishing value method align depreciation deductions for tax purposes more closely with the actual decline in the economic value of an asset, which will lead to improved resource allocation in the economy. This is consistent with the government’s tax policy strategy of ensuring that the tax system has minimal effect on the allocation of resources in the economy. Taxpayers will get the benefit of the improved depreciation arrangements for assets acquired on or after 10 May 2006. For the reasons I have outlined above, I commend this bill to the House.

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