Statement 1:
Budget Overview
(Continued)
Easing the cost of living
This Budget implements policies that will ease the cost of living for working families and make tax returns simpler and fairer.
Delivering personal income tax cuts
This Budget delivers the next round of personal income tax cuts, meeting the Government's commitment to deliver real benefits to working families.
The changes include from 1 July 2010 lifting the low income tax offset to $1,500, providing an effective tax free threshold of $16,000 for Australians with incomes up to $30,000. The 30 per cent tax threshold will be lifted from $35,001 to $37,001 and the 38 per cent tax rate will be reduced to 37 per cent for taxpayers with incomes between $80,000 and $180,000.
An individual earning $50,000 a year, will be $450 better off as a result of this round of tax cuts, and $1,750 a year better off as a result of the three rounds of tax cuts delivered by the Government.
This fulfils the Government's election commitment to deliver personal income tax cuts, easing cost of living for working families and boosting workforce participation. The cumulative effects of tax cuts since 2008‑09 are estimated to increase employment by around 85,000 workers in the medium term.
Fairer and simpler tax returns
The Government is committed to easing the cost of living for all Australians and making it easier for workers to fill out their tax return.
From 1 July 2012 the Government will provide individual taxpayers with an optional standard deduction of $500 in lieu of claiming work‑related expenses and the cost of managing their tax affairs. From 1 July 2013 this will increase to $1,000.
This will allow taxpayers to spend less time and effort preparing their tax returns.
Under the current system, interpreting what is deductible, correctly quantifying work‑related costs and apportioning expenses between income‑earning purposes and private purposes adds a great deal of complexity and imposes high compliance costs on taxpayers. Providing a standard deduction will remove this burden for many taxpayers.
The changes mean that in the first year an estimated 4.6 million individuals in 2012‑13 will financially benefit and have a simpler tax return. From 1 July 2013, an estimated 6.4 million individuals will benefit financially and have simpler tax returns.
Taxpayers with higher work‑related expenses will not be disadvantaged as they will be able to opt out of claiming the standard deduction and can continue to claim their higher deduction when lodging their tax returns.
Supporting banking competition
This Budget provides a significant boost to banking competition by phasing down the interest withholding tax (IWT) rate paid by banks and other financial institutions on most interest paid on offshore borrowings. This will also help to secure Australia's place as a leading regional financial centre.
This significant reform implements recommendations of the independent Australia's Future Tax System review as well as the Australian Financial Centre Forum report.
For Australian branches of overseas financial institutions, with respect to borrowing from their head offices, the rate of IWT will be reduced from 5 per cent to 2.5 per cent in 2013‑14 and to zero in 2014‑15.
For other offshore borrowings by financial institutions, including local subsidiaries of overseas banks, the IWT rate will be reduced on most interest paid to non‑residents from 10 per cent to 7.5 per cent in 2013‑14, then to 5 per cent in 2014‑15, with an aspirational target of zero subject to the Government's medium‑term fiscal strategy.
The current arrangements may particularly disadvantage Australian branches and subsidiaries of foreign financial institutions, as offshore borrowings from their parents are often a significant source of funding for the loans they make.
Given some of these lenders are active in the home loan market and also active in lending to Australian businesses, including the infrastructure sector, the Government expects this important reform will support further competition in the banking sector.
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