Due to a budget blowout caused by “an over-hang from the global financial crisis and strong Australian dollar”, the federal government has informally announced (drip fed via a series of casual comments in various interviews) that the income tax cuts, that were to take effect from 1 July 2015, are no longer going to happen. I recall one minister claiming that the tax cuts were only deferred for a later date, but when this government says ‘deferred’, it generally means ‘never going to happen’. I explain what these tax cuts were going to be later in this article, including what tax rates will now apply for future years.
In a separate informal announcement (via another series of casual comments in interviews), the government has cancelled the proposed increase in Family Tax Benefit payments. The increase in Family Tax Benefit Part A payments was to come into effect on 1 July 2013, and would have delivered up to $300 a year for single-child families and up to $600 a year for multiple-child families. The cancellation of this increase to the FTB payments is due to the lower-than-expected tax collection from the Mineral Resource Rent Tax.
Note: On Federal Budget night (14 May 2013), the Treasurer Wayne Swan announced that the baby bonus would be abolished from 1 March 2014, but would be replaced with new family payments for newborns involving adjustments to the Family Tax Benefits Part A. The increased FTB-A payments will be $2,000 for the first child, and an additional $1,000 for each child after the first. Another key difference between the 2 schemes is that it is harder to get the FTB-A ( threshold is about $112,000), than the baby bonus (threshold is about $150,000).
No more 2015/2016 tax cuts
The income tax cuts that were to take place from 1 July 2015 will no longer happen: the 2015/2016 tax cuts would have raised the tax-free threshold from $18,200 to $19,400, while also increasing the tax rate for those earning over $37,000 (but under $80,000) by 0.5%. I believe the small increase in the tax rate for this income group was designed to partially offset the increase in the tax-free threshold (see Table 1 below).
Note: The tax cuts that took effect from the 2012/2013 financial year will remain in place, which includes a tax-free threshold of $18,200 (see Table 2 below). Under the current income tax rules you can earn up $20,542 (when taking into account the Low Income Tax Offset) before income tax is payable. Note that prior to 1 July 2012, the tax-free threshold was only $6,000, although you could earn up to $16,000 before income tax was payable due to LITO.
Table 1: Current income tax rates and proposed
Proposed (now cancelled)
2012/2013 year onwards
From 2015/2016 year
|Threshold $||Marginal rate||Threshold $||Marginal rate|
|LITO||Up to $445||1.5% withdrawal rate on income over $37,000||Up to $300||1% withdrawal rate on income over $37,000|
|Effective tax-free threshold*||20,542||20,979|
Source: Adapted from the Office of the Deputy Prime Minister and Treasurer 2011, Joint media release with Prime Minister (No .081) 10 July 2011, ‘Combining tax cuts with significant tax reform’, *Includes the effect of the tax-free threshold and the low income tax offset (LITO)
Table 2: Income tax rates for 2012/2013 financial year (and future years)
|Income||Marginal tax rate||Tax payable|
|$18,201- $37,000||19%||19 cents for each $1 over $18,200|
|$37,001-$80,000||32.5%||$3,572 plus 32.5 cents for each dollar over $37,000|
|$80,001-$180,000||37%||$17,547 plus 37 cents for each dollar over $80,000|
|$180,001 and above||45%||$54,547 plus 45 cents for each dollar over $180,000|
Source: Adapted from information on the ATO website (www.ato.gov.au). Note that Medicare Levy of 1.5% is also payable by most taxpayers.
For more information on income tax rates see SuperGuide article Australian income tax rates for the 2012/2013 and 2013/2014 years (this article also contains the tax rates for the 2011/2012 year).