Cutting income tax

Improving rewards through tax cuts

The tax cuts improve rewards from working overtime, acquiring skills or seeking promotion. They will help Australia retain highly skilled workers. They:

• 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

Over 80 per cent of taxpayers will face a top marginal tax bracket of no more than 30 per cent for the next four years. This includes those on average earnings. Increasing the 42 per cent tax threshold ensures they remain well inside the 30 per cent tax bracket over the next four years.

Delivering ongoing tax reform

The New Tax System introduced on 1 July 2000 provided major income tax reform. In the 2003-04 Budget tax thresholds were adjusted further.

This Budget delivers further structural tax reform.

These three stages of tax reform deliver significant tax cuts for all Australians.

• Taxpayers earning $20,000 paid $2,770 in tax prior to The New Tax System (excluding the Medicare levy) whereas taxpayers on that income would now only pay $2,145, a reduction of around 23 per cent
• Taxpayers on $50,000 (around average weekly earnings) paid $14,102 in tax prior to The New Tax System (excluding Medicare Levy) and now pay $11,172 a reduction of around 21 per cent
• By 1 July 2005, a taxpayer on $90,000 who paid $32,902 in tax prior to The New Tax System (excluding the Medicare levy) will pay $26,912 in tax in 2005-06, a reduction of around 18 per cent.