Budget 2008 - marginal tax rates

Nigel Ward · 14th May, 2008

Here are the rates to apply going forward taken from
Statement 1 - Budget Overview - Working Families Support Package

Personal income tax cuts

From 1 July 2008, the 30 per cent threshold will increase from $30,001 to $34,001, the 40 per cent threshold will increase from $75,001 to $80,001, and the 45 per cent threshold will increase from $150,001 to $180,001. In addition, from 1 July 2009, the 30 per cent threshold will be further increased to $35,001 and the 40 per cent tax rate will be reduced to 38 per cent. From 1 July 2010, the 30 per cent threshold will be increased again to $37,001 and the 38 per cent tax rate will be reduced to 37 per cent.

Low and middle income earners will be further assisted through an increase in the low income tax offset (LITO). From 1 July 2008, the LITO will increase from $750 to $1,200. It will continue to be withdrawn from an income level of $30,000. Those eligible for the full LITO will not pay tax after assessment until their annual income exceeds at least $14,000 (up from the current level of $11,000). Further increases in the LITO, to $1,350 from 1 July 2009 and to $1,500 from 1 July 2010, will mean that the effective tax free threshold will increase further to at least $15,000 in 2009‑10 and $16,000 in 2010‑11.
Given the large increase in the amount of the LITO, new withholding schedules will be created so that low and average income earners will receive half of the benefits of the LITO through their regular pay, rather than receiving the total as a lump sum when their income tax returns are assessed. This will bolster participation incentives by allowing people to gain sooner the rewards from work.

Senior Australians will also benefit from these changes. Senior Australians eligible for the senior Australians tax offset (SATO) and the LITO currently do not pay tax until they reach an annual income of at least $25,867 for singles and $21,680 for each member of a couple. As a result of the Government's tax plan, from 1 July 2008 these income levels will be lifted to $28,867 for singles and $24,680 for each member of a couple. By 2010‑11, the income levels will be $30,685 for singles and $26,680 for each member of a couple.
Chart 1 shows the 2008‑09 tax cuts as a per cent of taxable income.
Chart 1: Tax cut as a per cent of taxable income

Source: Treasury.
Aspirations for the tax system

The Government has a goal over the next six years that by 2013‑14 the personal income tax system will have the following features:

a reduction in the number of marginal tax rates from four to three;

a reduction in the current 45 per cent rate to 40 per cent; and

a reduction in the current 40 per cent rate (which by 2010‑11 will be 37 per cent) to 30 per cent.

The Government also has a goal of increasing the LITO to $2,100 by 2012‑13 so as to create an effective tax free threshold of $20,000. The effective tax free threshold for senior Australians eligible for the SATO will increase commensurately. The fringe benefits tax rate will be reduced reflecting reductions in the top marginal tax rate.
Achieving this six year goal will depend on economic conditions and the need to maintain fiscal responsibility.
The Government has taken the first steps towards achieving this goal by delivering the planned tax cuts in 2008‑09 to 2010‑11 and by making an initial provision to enable further tax cuts to be delivered from 2011‑12.
Click to expand...

Nodrog · 14th May, 2008

Hi Nigel,

thanks for that.

I read an interesting article today. In six years time what with higher inflation leading in increased wages/salaries many of the so called working class (ie < $150,000) may well have joined the rich elite given that the upper threshhold of $180,000 will stay the same. Ah how governments love bracket creep.

Cheers - Gordon

Nigel Ward · 14th May, 2008

Maybe the comprehensive* tax review will address the lack of indexation of brackets once and for all...

*Note - super and GST are "off limits" so query how comprehensive it will be...

Cheers
N.

Glebe · 14th May, 2008

Thanks for that Nigel.

I don't believe tax brackets should be indexed (ie indexing of incomings) unless the budget for each department is also indexed (indexing of outgoings).

Not gonna happen nor should it.

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Budget 2008 - marginal tax rates

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