Ongoing structural tax reform

The tax cuts in this Budget seek to improve incentives by increasing the income thresholds for the 42 per cent and 47 per cent tax rates. This will increase the amount of income people can earn before they face those rates.

The tax cuts will:

• increase the income threshold for the 42 per cent tax rate to $58,001 in 2004-05 and $63,001 in 2005-06
• increase the income threshold for the 47 per cent tax rate to $70,001 in 2004-05 and $80,001 in 2005-06

This will increase the rewards for those who wish to work overtime, seek promotion or acquire skills.

It will also ensure that over 80 per cent of taxpayers face a top marginal tax bracket of no more than 30 per cent for the next four years.

This includes those on average earnings. If the threshold for the 42 per cent tax bracket was not lifted, taxpayers on average weekly earnings (adult full–time total earnings) would move into this bracket in 2004-05. Increasing this threshold ensures that such taxpayers remain well inside the 30 per cent tax bracket over the next four years, even allowing for robust wages growth.