Lifting participation and rewarding hard work

The Government believes in the value of hard work and has taken steps to increase the reward for effort and encourage workforce participation.

Personal Tax Cuts And Tripling The Tax Free Threshold

From 1 July 2012, the tax free threshold has tripled from $6,000 to $18,200, the first increase in more than a decade. This directly improves the rewards for work for low income earners, with the effective tax free threshold rising to $20,542. People with taxable income below this threshold will no longer pay any tax or Medicare levy on that income.

All taxpayers with incomes up to $80,000 received a tax cut in 2012-13, with around 60 per cent of taxpayers getting a tax cut of at least $300.

Many part-time workers, particularly many women, will receive a tax cut of up to $600, further encouraging participation. Wage earners with income below the new tax free threshold will get to keep all of their wages in their regular pay packets. This will also mean that up to one million taxpayers will no longer need to go to the effort of lodging an annual tax return. And tax time is made simpler for all taxpayers through tax prefilling by the Australian Taxation Office.

These tax cuts build on the three previous rounds of tax cuts the Government delivered from 2008, which extend right across the income scale. For example, someone earning $50,000 will pay around $2,000 less tax in 2013-14 compared to 2007-08.

Removing Barriers To Participation

The Government is also removing out-dated barriers to participation that impose high effective marginal tax rates on secondary earners and better targeting assistance provided through tax offsets.

Recent reforms include phasing out the dependent spouse tax offset (DSTO), which dates back to a time when male breadwinners maintained a housewife. The Government has also consolidated other dependency offsets into a single offset, removing out-dated offsets and targeting assistance to taxpayers supporting carers and relatives with disability. For example, it is a relic of a bygone era to assume that unmarried daughters will stay home and keep house rather than study or work and yet the child housekeeper offset was designed with this in mind. These reforms reflect community attitudes by targeting assistance to taxpayers who are genuinely unable to work.

Value of tax cuts and change in the Medicare levy from 2012-13 compared to 2007-08 tax scales

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Note: the estimated value of the tax cuts is calculated on an income year basis (not an underlying cash balance basis).