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More help for families

This Budget provides a $36.7 billion package over five years for assistance to families, tax cuts and superannuation changes to boost retirement savings.

The centrepiece is the largest package of assistance for families ever put in place by an Australian Government, at a cost of $19.2 billion over five years. Large increases in Family Tax Benefit Part A commence immediately to help families with the cost of raising children. Income tests for both Family Tax Benefit Part A and Family Tax Benefit Part B are relaxed to increase the rewards from working. In addition, a new lump sum Maternity Payment will be introduced incorporating the existing Maternity Allowance and the Baby Bonus to provide further help at the crucial period around the birth of a child.

Building on the tax cuts provided in 2000 and 2003, there will be further structural tax reform in this Budget, providing large tax cuts to increase the levels of income at which people start to pay the 42 per cent and 47 per cent rates. Tax cuts worth $14.7 billion over the next four years mean that more than 80 per cent of taxpayers will face a top marginal tax bracket of no more than 30 per cent over the forward estimates period.

Improved incentives for retirement through superannuation are provided at a cost of $2.7 billion over three years. The maximum benefit under the superannuation co-contributions scheme for low and middle income earners will be increased and eligibility extended. The superannuation surcharge rate will be progressively reduced to 7.5 per cent in 2006-07.

As well as providing greater financial assistance to families, this package also improves work and savings incentives. It will help to increase workforce participation and savings for retirement, addressing the challenges Australia faces from its changing demographics over the next forty years.

Table 3: More help for families — Summary of measures

Table 3:  More help for families — Summary of measures

 

More help for families — changes to Family Tax Benefit Part A —
lump-sum payment and reduction in the taper between maximum and base rates

Expense ($m)
2004-05 2005-06 2006-07 2007-08
Department of Family and Community Services 2,362.0 2,402.0 2,469.0 2,531.0
Australian Taxation Office 88.0 118.0 125.0 129.0

The Government will provide $12.2 billion over five years (including $1.9 billion in 2003-04) for two changes to Family Tax Benefit Part A (FTB(A)).

There will be an increase in the rates of FTB(A) of $600 per child to be paid as a lump sum upon reconciliation of entitlement, commencing in respect of the 2003-04 financial year. The lump sum represents an increase in the maximum and base rates of FTB(A) per child of $600 per annum.

There will be an increase in the rates of FTB(A) of $600 per child to be paid as a lump sum upon reconciliation of entitlement, commencing in respect of the 2003-04 financial year. The lump sum represents an increase in the maximum and base rates of FTB(A) per child of $600 per annum.

Current and new rates of FTB(A) per year*
Current New
Maximum rate for each child aged under 13 $3,401.80 $4,001.80
Maximum rate for each child aged 13 - 15 $4,314.30 $4,914.30
Base rate for each child aged under 18 $1,095.00 $1,695.00

* These rates do not include the indexation increase to FTB(A) that applies from 1 July 2004

The lump sum will be paid to families as part of the reconciliation of FTB entitlement that normally takes place after families lodge their tax returns. If required, any family assistance overpayments received by the family will be offset against the lump-sum payment, with the remainder payable to the family. Around 2 million families eligible for FTB(A) in 2003-04 under the current arrangements will receive the full lump sum. In addition, a small number of new families at the top end of the income limit will be eligible for a lump sum of FTB(A) of up to $600 per child.

Currently, once the income of families with dependent children exceeds $31,755 per annum, their FTB(A) reduces from the maximum rate, at a rate of 30 cents for every extra dollar of income, until the base rate of payment is reached. From 1 July 2004, the taper rate that applies to this reduction will be reduced to 20 cents in the dollar. This will allow families to keep more of their extra earnings over the taper range and will improve rewards from work. It will also extend part maximum rate FTB(A) to a greater range of families. The taper applying to less than the base rate of FTB(A) remains unchanged at 30 cents in the dollar.

This measure includes funding for communicating these changes to families of $21 million over two years from 2003-04.

More help for families — payment of lump-sum to families eligible for Family Tax Benefit Part (A) in 2003-04

Expense ($m)
2004-05 2005-06 2006-07 2007-08
Department of Family and Community Services - - - -

As an immediate measure, the Government will provide $2.2 billion in 2003-04 for a lump-sum payment to all families who are eligible for or receive Family Tax Benefit Part A (FTB(A)) in the 2003-04 financial year. Eligible families will receive a payment of $600 for each child before 30 June 2004. Families will also receive the payment for each dependent child under 18 in respect of whom they receive Youth Allowance in 2003-04.

More help for families — changes to Family Tax Benefit Part B — increase in threshold and reduction in taper

Expense ($m)
2004-05 2005-06 2006-07 2007-08
Department of Family and Community Services 414.0 419.0 437.0 456.0
Australian Taxation Office - 19.0 22.0 23.0

The Government will relax the income test for Family Tax Benefit Part B (FTB(B)), at a cost of $1.8 billion over four years. From 1 July 2004, the amount that a secondary earner can earn each year before their FTB(B) starts to be reduced will be more than doubled to $4,000. At the same time, the rate at which FTB(B) is withdrawn once this income limit is exceeded will be reduced from 30 cents to 20 cents for every extra dollar of income.

This measure will increase the FTB(B) that many families receive, particularly those where the secondary earner is in casual or part-time employment. This will benefit around 550,000 families. The reduced taper rate will benefit mainly women returning to work after having children. The cut off income for eligibility for FTB(B) will rise from $11,559 to around $18,600 for a family with a child under five.

This measure will increase the FTB(B) that many families receive, particularly those where the secondary earner is in casual or part-time employment. This will benefit around 550,000 families. The reduced taper rate will benefit mainly women returning to work after having children. The cut off income for eligibility for FTB(B) will rise from $11,559 to around $18,600 for a family with a child under five.

Maximum rates of FTB(B) per year*
Maximum rate for a family with a youngest child under 5 years $2,920.00
Maximum rate for a family with a youngest child aged 5-15 years (or 16-18 years if a full time student) $2,036.70

* These rates do not include the indexation increase to FTB(B) that applies from 1 July 2004

More help for families — protect Family Tax Benefit Part B for secondary earners returning to the workforce after the birth of a child

Expense ($m)
2004-05 2005-06 2006-07 2007-08
Department of Family and Community Services - 181.0 187.0 194.0
Australian Taxation Office - 10.0 10.0 10.0

The Government will change Family Tax Benefit Part B (FTB(B)) to benefit a parent returning to work after the birth of a child, at a cost of $592.0 million over three years. From 1 July 2005, where the secondary earner (usually the mother) returns to work, income from employment will not be counted against their eligibility for FTB(B) already received. That is, they will keep the FTB(B) already received prior to re-entering the workforce. This option applies once in relation to each child.

More help for families — introduction of Maternity Payment

Expense ($m)
2004-05 2005-06 2006-07 2007-08
Department of Family and Community Services – Maternity Payment 741.0 758.0 993.0 1,019.0
Department of Family and Community Services – Abolition of Maternity Allowance -182.0 -191.0 -196.0 -201.0
Australian Taxation Office – Abolition of Baby Bonus - -50.0 -100.0 -140.0
Total 559.0 517.0 697.0 678.0

The Government will provide $3.5 billion over four years to introduce a new universal Maternity Payment that will streamline and increase assistance available to families at the time of the birth of a new child. The Maternity Payment will be introduced on 1 July 2004 and will provide $3,000 to families for each new child born after this date. The rate of the Maternity Payment will be increased to $4,000 for babies born after 1 July 2006 and to $5,000 for babies born after 1 July 2008. The Maternity Payment will not be income tested and will be paid as a lump sum.

The cost of the new payment will be partially offset by abolishing the Maternity Allowance, saving $770 million over four years, and phasing out the Baby Bonus, saving $290 million over four years.

Claims for the Baby Bonus can continue to be made in respect of children born (or for whom legal responsibility is otherwise gained) prior to 30 June 2004. Claims will be able to be made for the full five year entitlement.

The new Maternity Payment will also be payable to parents who have a child entrusted to their care for adoption before 26 weeks of age.

The Maternity Immunisation Allowance, currently $210.66, will become universally available to all recipients of the Maternity Payment.

Reductions in personal income tax

Revenue ($m)
2004-05 2005-06 2006-07 2007-08
Australian Tax Office -1,925.0 -3,800.0 -4,250.0 -4,750.0

The Government will provide tax cuts worth $14.7 billion over four years.

From 1 July 2004 the 42 per cent threshold will be increased from $52,001 to $58,001 and the 47 per cent threshold will be increased from $62,501 to $70,001. A further reduction in income tax will be provided from 1 July 2005 when the 42 per cent threshold will be increased to $63,001 and the 47 per cent threshold will be increased to $80,001.

These increases in the top two thresholds will mean that more than 80 per cent of taxpayers will face a top marginal tax bracket of no more than 30 per cent over the forward estimates period and can earn more before they move into a higher tax bracket. This will reduce bracket creep and improve rewards from taking on additional work, pursuing advancement and acquiring skills.

Incentives for saving for retirement — enhancement of Government superannuation co-contribution scheme

Expense ($m)
2004-05 2005-06 2006-07 2007-08
Australian Taxation Office - 595.0 730.0 790.0

The Government will enhance the superannuation co-contribution scheme by increasing the maximum co-contribution, giving $1.50 for every $1 of personal contribution, and by raising the income thresholds so that more employees will qualify under the scheme. These changes will apply for personal contributions made from 1 July 2004.

The maximum Government contribution will be increased under the new arrangements from $1,000 to $1,500. The Government will pay $1.50 for every $1 of contribution up to the co-contribution maximum.

The income level up to which the maximum co-contribution applies will be increased from $27,500 to $28,000. For incomes above $28,000, the maximum co-contribution will reduce by 5 cents for each dollar of income, and phase out completely at an income of $58,000. The co-contribution currently phases out at an income of $40,000.

This measure will increase the incentive for people to save for their retirement through the superannuation system.

Incentives for saving for retirement — surcharge rate reduction

Revenue ($m)
2004-05 2005-06 2006-07 2007-08
Australian Taxation Office - -55.0 -170.0 -385.0

The Government will reduce the maximum surcharge rate to 12.5 per cent for 2004-05, 10.0 per cent for 2005-06 and 7.5 per cent for 2006-07 and subsequent years.

This accelerates the current schedule to reduce the maximum surcharge rates to 13.5 per cent for 2004-05 and to 12.5 per cent for 2005-06 and subsequent years.

This measure will further improve the incentives for higher income individuals to make superannuation contributions.


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