Jun 10, 2005

Tax Relief – Modest and Overdue


Wayne Swan MP

Federal Labor Shadow Treasurer

10 May 2006

Middle Australia will need every cent of the tax cuts and family benefit increases delivered in this budget.

The measures amount to modest reform and are long overdue.

On face value, the tax cuts pass the fairness test, with half the tax cuts delivered to taxpayers earning under $50,000 and half to those earning more.

But for taxpayers on average incomes the budget doesn’t even give back what Peter Costello has taken from their pockets over the last decade.

Without the measures in this Budget the tax burden on average income earners would have increased by $13.40 per week compared to 1996 levels, by next year.

But Peter Costello is giving them only $9.81 back.

Some families will be disappointed. For example a two-income family with two children on $100,000 p.a will gain just $19.62 in tax cuts and no increase in family benefits.

In comparison, a single-income family on the same income will gain $51.92 in tax cuts from 1 July – two and a half times as much.

The cut in the top marginal rate is appropriate as part of this overall package and will see Australia stay in the middle of OECD rankings.

There are welcome improvements in work incentives – largely as a consequence of the Government adopting tax proposals outlined by Labor over the past year.

The new effective tax free threshold of $10,000 will improve incentives for those moving from welfare to work and parents returning to work, but it won’t be available in the fortnightly pay packet when it is needed most.

Similarly the decision to lift the 30 cent threshold from $21,000 to $25,000 and reduce the Medicare Levy shade-in will improve incentives for low-income earners.

However middle Australia will still face a tax grab on extra earnings of 51.5 cents in the dollar, and second income earners will still routinely face marginal tax rates of up to 60 cents in the dollar.

Despite the Budget changes, sole parents and people with disabilities will still go backwards when welfare to work measures are implemented from 1 July this year, with marginal tax rates increasing by up to 20 cents in the dollar.