Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Hansard source

I would like to thank all senators who have taken part in the debate on the Tax Laws Amendment (Personal Income Tax Reduction) Bill 2008. The measures contained in this bill honour the government’s election commitment to cut personal income tax for all Australian taxpayers from 1 July 2008. It implements important taxation reform, championed by the government, to position the economy for continued growth. The tax changes in the bill are fiscally responsible. They are designed to enhance individual incentives and workforce participation and productivity, particularly for part-time workers and secondary earners. This will lift the supply capacity of the economy. Ultimately it will help to fight inflation and prepare Australia for its future economic challenges.

Chronic labour and skill shortages are reported regularly by business as major constraints on business expansion. These in turn put pressure on wages and inflation. Effectively dealing with inflation requires strategies that both tackle skill shortages and lift workforce participation. The tax cuts are a key component of the government’s five-point plan to fight inflation. The five-point plan to fight inflation also involves fiscal restraint, encouraging savings and tackling skill shortages and infrastructure bottlenecks. It is anticipated that the tax cuts will over time result in an additional 2.5 million hours of work being added to the economy each week and that this will generate approximately 65,000 additional people in the workforce.

By increasing the disposable income of households, these tax cuts will provide much needed relief for working families. In particular they will assist households to retire debt and repair the household balance sheets. This government trusts Australian working families to know how best to use the tax cuts. They are in the best position to decide how to balance the household budget prudently and will be in a better position to do that as a result of these tax cuts.

The tax cuts will be progressively phased in, taking effect in three stages: from 1 July 2008, from 1 July 2009 and from 1 July 2010. The measures to take effect in the first year focus on taxpayers—particularly part-time and secondary income earners—with the greatest labour supply response. The tax changes in this bill include increases in the 30 per cent marginal tax rate and its thresholds, a reduction in the 40 per cent marginal tax rate and increases in the low-income tax offset. The 30 per cent threshold will increase from $30,001 in 2007-08 to an eventual level of $37,001 on 1 July 2010, with the first increase in the threshold being to $34,001 from 1 July 2008. This means that the 15 per cent marginal tax rate will apply up to and including $34,000 of income in 2008-09. In addition, the 40 per cent marginal tax rate will be reduced from 1 July 2009 to 38 per cent and further to 37 per cent from 1 July 2010.

These changes are the first stage in the government’s plans to flatten Australia’s personal income tax scales to 15 per cent, 30 per cent and 40 per cent. This bill increases the amount of the low income tax offset over three years, from $750 in the 2007-08 income year to a level of $1,500 from 1 July 2010, with the first increase to $1,200 taking effect from 1 July 2008. This offset will continue to phase out from $30,000. Therefore, from 1 July 2008 those eligible for the full low-income tax offset will not incur a net income tax liability until their annual income exceeds $14,000. This will increase to $15,000 from 1 July 2009 and to $16,000 from 1 July 2010. These changes are in line with the government’s longer term plan to provide a more generous low-income tax offset, delivering an effective tax-free threshold of $20,000 to low-income earners. Importantly and for the first time, from 1 July 2008 eligible taxpayers will receive half of the benefits of this offset to their regular pay. This will allow people to realise sooner the benefits of working more.

As a result of the increase in the low-income tax offset, from 1 July 2008 senior Australians eligible for the senior Australian tax offset will be able to earn more income before they are liable to pay income tax. From 1 July 2008, eligible senior Australians will not pay tax on their annual income—up to $28,867 for singles and up to $24,680 for each member of a couple. Further, increases to these thresholds will apply from 1 July 2009 and 1 July 2010. This package will enhance workforce participation, which is a vital component of the government’s five-point plan to tackle inflation. These tax cuts will also reward the hard work of Australians whose efforts are so critical to keeping the economy strong.

To sum up, this bill delivers on the government’s election commitment. It provides significant reductions in taxes that will help relieve cost of living pressures and will enhance incentives for workforce participation and skill formation. In this context, I note that in recommending that this bill be passed the Senate Standing Committee on Economics noted in its report on 1 May 2008:

There is a strong case for Australian working families to receive the promised tax cuts to assist them in dealing with financial pressures.

All Australian taxpayers will share in the tax cuts, but importantly the tax cuts will tip the balance in favour of middle- and low-income earners, especially parents returning to work. I again thank senators who have participated in the debate. I commend the bill to the Senate. Senator Murray, could I say we are in agreement on many of the points you made. As I think you would be aware, we have announced a very full review of the tax system and its impacts. In that review process we are hoping to take up many of the issues you have raised. Thanks to all senators.

Question agreed to.

Bill read a second time.