The Government is delivering its commitment to help working families cope with day‑to‑day cost of living pressures through its Working Families Support Package. In this Budget, the Government is helping working families by cutting income tax, reducing the costs of educating and looking after children, making housing more affordable, and making sure that grocery and petrol prices are competitive.
The Government will deliver its election commitment to cut personal income tax over the next three years. The tax cuts will increase disposable incomes for all Australian taxpayers and provide further incentives for individuals, including part‑time workers, to participate in the workforce.
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.
Table 3 outlines the personal tax rates and thresholds over the next three years.
Table 3: Personal tax rates and thresholds
|Current||From 1 July 2008||From 1 July 2009||From 1 July 2010|
|0 - 6000||0||0 - 6000||0||0 - 6000||0||0 - 6000||0|
|6,001 - 30,000||15||6,001 - 34,000||15||6,001 - 35,000||15||6,001 - 37,000||15|
|30,001 - 75,000||30||34,001 - 80,000||30||35,001 - 80,000||30||37,001 - 80,000||30|
|75,001 - 150,000||40||80,001 - 180,000||40||80,001 - 180,000||38||80,001 - 180,000||37|
|150,001 +||45||180,001 +||45||180,001 +||45||180,001 +||45|
|Effective tax free
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 It will continue to be withdrawn from an income level of $30,000.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
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.
The 2008‑09 Budget includes initiatives to help families cover the cost of caring for and educating their children.
Helping families meet the cost of caring for their children
The Government will increase the Child Care Tax Rebate from 30 per cent to 50 per cent at a cost of $1.6 billion over four years. This will ensure that in addition to any Child Care Benefit payable, half of a family's total out of pocket child care costs will be met each year. The cap on the amount that can be paid will also be lifted from the current amount of $4,354 to $7,500 per child. In addition, the Government will pay the 50 per cent Child Care Tax Rebate every three months, instead of once a year, providing support to families closer to when costs are incurred.
Helping families meet the cost of educating their children
From 1 July 2008, the Government will provide eligible parents with an Education Tax Refund. Parents who receive Family Tax Benefit Part A and have children undertaking either primary or secondary school studies or whose school children receive Youth Allowance or a related payment will be able to claim a 50 per cent refund every year on eligible educational expenses.
The amount that can be claimed is up to:
- $750 for each child undertaking primary school studies, giving a refund of up to $375 per child, per year; and
- $1,500 for each child undertaking secondary school studies, giving a refund of up to $750 per child, per year.
The Education Tax Refund is expected to cost $4.4 billion over four years.
These changes will make a genuine difference to the daily lives of working families. Chart 2 shows the increase in disposable income from 2007‑08 to 2008‑09 that a couple with one child in long day care and one child in primary school could expect to receive under the new tax, child care and education arrangements. The example shows the gains in family disposable income for a family with the primary earner on $40,000 and the secondary earner on $30,000 when full‑time, at different days worked for the second earner.
Chart 2: Working families benefit from the tax cuts and
additional financial support for child care and education
The Government recognises that rising interest rates and house prices are making it difficult for families to buy their own home and that rental costs have been increasing strongly. This Budget includes significant measures to assist home buyers and renters and to drive reforms that boost housing supply. The Budget provides $2.2 billion of assistance over four years to help make housing more affordable.
One of the greatest obstacles to buying a first home is saving for a deposit. The Government recognises that home ownership is important to the wellbeing of Australians and will introduce enhanced low tax First Home Saver Accounts to assist first home buyers in meeting this challenge. These Accounts will also encourage households to increase their own saving by providing significantly higher after‑tax returns than conventional savings accounts.
The first $5,000 of individual contributions to First Home Saver Accounts each year will now attract a Government contribution of 17 per cent. Earnings will be taxed at a low rate of 15 per cent, and withdrawals will be tax‑free if used to purchase or build a first home in which to live. The rate of Government contribution has been changed to a flat 17 per cent in order to increase assistance to low and middle income earners. Other changes have been made to simplify the operation of the Accounts for both providers and users. This initiative will help strengthen a savings culture. The Government will provide $1.2 billion for the Accounts over the first four years.
To encourage construction of affordable rental housing for households with limited means, the Government will provide $623 million over four years for a National Rental Affordability Scheme. The Scheme will provide incentives for investors to build up to 50,000 new rental properties by 2011‑12 to be rented at least 20 per cent below market rates. Subject to market conditions, the Government will expand the Scheme to build a further 50,000 new dwellings from 2012‑13.
The Government will also introduce a Housing Affordability Fund worth $500 million over five years to increase the supply of housing and reduce final costs to home buyers. The fund will help reduce the costs of providing new housing related infrastructure and improve development approval processes, to generate savings for home buyers. The Fund will commit up to $30 million to roll out the Electronic Development Assessment project across the country to help speed up planning processes.
The Government will also establish a National Housing Supply Council to assess the adequacy of housing supply over the next 20 years, and will be identifying surplus Commonwealth land that could be developed into additional new housing.
To help Australians experiencing rental or mortgage stress, the Government is increasing funding for financial counselling services. Funding for Centrelink's Financial Information Service will be increased by $10 million over four years, and funding for the Commonwealth Financial Counselling program will be doubled, bringing it to $10 million over four years. This funding is aimed at improving financial literacy and management skills in the community, particularly in those areas with little or no access to financial counselling services. The extra funds will be used for practical tools and resources to provide individuals and families with support and information to better manage their personal financial affairs, including coping with increased mortgage payments.
The Government recognises that families face significant cost of living pressures caused by rising grocery and petrol prices. The Government has undertaken practical initiatives to help ensure all Australians do not pay more than they have to for groceries and petrol.
The Government is committed to doing all it can to ensure that prices at the supermarket are fair.
The Australian Competition and Consumer Commission (ACCC) has been directed to undertake an inquiry into the competitiveness of grocery prices in Australia and report its findings by 31 July 2008. The Government wants to ensure consumers have access to a more competitive market for basic food items and has instructed the ACCC to take a broad approach to its inquiry so that all aspects of the grocery supply chain are included — from the farm gate to the checkout counter.
The Government has also directed the ACCC to undertake a monthly survey of grocery prices for a typical basket of groceries (for example, meat, vegetables and dairy products) across Australia, and establish a dedicated website for grocery prices. Consumers will benefit as they will be able to determine which supermarket chain in their region provides the lowest price for different baskets of goods.
The Government has also made it easier for foreign supermarket chains to enter the Australian market by relaxing restrictions that previously limited their capacity to acquire and hold vacant land to build new supermarkets. Foreign retailers had advised that previous arrangements were limiting their ability to plan new developments in growth areas.
The Government understands the pressures that high petrol prices place on the family budget and is determined to ensure competition and transparency in Australia's retail petrol market.
The ACCC has been given tough new powers to conduct formal monitoring of the prices, costs and profits relating to the supply of unleaded petrol products in the petroleum industry, and to provide an annual report of its findings. This will help improve retail price transparency and understanding of retail price movements. In addition, the Government has also asked the ACCC to renew its focus on informal monitoring of liquefied petroleum gas (LPG) and diesel prices to determine whether any further powers for the ACCC in this area are appropriate.
The Government has created the new position of Petrol Commissioner at the ACCC. The Petrol Commissioner is responsible for overseeing the ACCC's formal monitoring of unleaded petrol prices in Australia and the establishment of a National FuelWatch Scheme.
The National FuelWatch Scheme
The Government will introduce a National FuelWatch Scheme on 15 December 2008 that is designed to promote competition and improve price transparency in the Australian retail petrol market.
The National FuelWatch Scheme will require petrol stations to notify the ACCC of their next day's prices by 2 pm each day and to maintain this advised price for a 24 hour period. It will apply to fuel products, including unleaded petrol, premium unleaded petrol, LPG and diesel. The National FuelWatch Scheme will ensure that consumers are able to make an informed decision about where to buy the cheapest petrol in their area.
The Government will review the effectiveness of the National FuelWatch Scheme 12 months after its commencement.
The Government values the important contribution made to our community by older Australians and carers, and is committed to providing both groups with ongoing support.
Helping seniors and carers make ends meet
To assist with the cost of household bills, the Government has increased the Utilities Allowance from $107.20 per year to $500 per year (with annual indexation) for those of age or service pension age in receipt of income support, and for people receiving the Mature Age Allowance, the Partner Allowance and the Widow Allowance. For the first time, eligibility for the Utilities Allowance has been extended to recipients of the Disability Support Pension and the Carer Payment, irrespective of age. Further, the Government has increased the Seniors Concession Allowance from $218 per year to $500 per year (with annual indexation) to assist self funded retirees with a Commonwealth Seniors Health Card. These payments are now being paid quarterly to better coincide with the arrival of household bills. The Government has also increased the Telephone Allowance from $88 to $132 per year for those with an internet connection. These increases took effect on 20 March 2008 and will cost $5.6 billion over five years.
The Government will provide a further $1.4 billion in lump sum payments to eligible seniors by 30 June 2008. A $500 bonus will be provided to every Australian over age‑pension age (or service pension age, where qualifying) in receipt of an income support payment and recipients of the Seniors Concession Allowance, Mature Age Allowance, Partner Allowance, Widow Allowance, Widow B Pension and Wife Pension (see Chart 3).
In recognition of the concern by senior Australians that their cost of living can rise faster than the Consumer Price Index, the Government will introduce new indexation arrangements for the Age and Service Pensions. The Government will index these pensions to the highest of the Consumer Price Index, the Male Total Average Weekly Earnings benchmark or the Living Cost Index for Age Pensioner Households. These arrangements will ensure that the Age and Service Pensions keep pace with both increases in prices and improvements in community living standards.
Chart 3: The Government has increased allowances to help with household bills
Recognising and rewarding carers
The Government will provide a further $1.1 billion over five years to carers. This includes $239 million for extending eligibility for the Utilities Allowance to Carer Payment recipients and $15 million relating to the increase in the Telephone Allowance.
By 30 June 2008, the Government will provide $427 million in lump sum payments to eligible carers. A $1,000 bonus will be paid to all recipients of Carer Payment and a $600 bonus will be paid to recipients of Carer Allowance for each eligible person in their care. Recipients of both the Carer Payment and Carer Allowance will be eligible for both payments. These payments are in addition to the annual payment of $1,000 on 1 July to recipients of the Carer Allowance for each child being cared for under the age of 16 years.
Fairer assessment arrangements for accessing the Carer Payment (child) will apply from 1 July 2009, at a cost of $274 million over five years. As a result, an additional 19,000 carers of children with severe disabilities are expected to be able to access the Carer Payment (child) in 2009‑10.
The Government will also provide $20 million over four years to help families adjust when a child has experienced a catastrophic event such as a severe illness, a major disability or an injury due to an accident.
Further, the Government will immediately provide an extra $100 million in capital funding to the States to build new supported accommodation for people with disabilities. Up to 35 new facilities will benefit approximately 200 people who do not have access to appropriate accommodation or whose older carers can no longer provide long term care. This new housing will be supported by the Government's election commitment to redirect $900 million over four years into the Commonwealth, State and Territory Disability Agreement.
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