Australia Mulling Stimulus Measures

by Mary Swire, Tax-News.com, Hong Kong

13 October 2008

Australian Finance Minister Lindsay Tanner has said that the government is considering what measures it could take to avert a potential recession in the domestic economy, including through the tax system, although Prime Minister Kevin Rudd has dismissed the idea of bringing forward tax cuts planned for next year.

The Labor government inherited a fiscal surplus from the outgoing Liberal/National coalition last year, and it has predicted a budget surplus of AUD19.7bn (USD13.3bn) next year, money which Tanner has suggested could be used "very quickly" for increased public spending or extra tax cuts.

"Whether it's welfare payments, pensions, unemployment benefits or family payments, there's a whole range of government payments, or changes in the tax system," he said in an interview with ABC radio.

In his first budget as Treasury back in May, Wayne Swan announced, among other measures, an AUD46.7bn four-year package of personal income tax cuts, in addition to a cut in withholding tax for managed funds to help boost the country's financial services sector. However, speaking in parliament on Monday, Prime Minister Kevin Rudd dismissed a suggestion from the opposition that some tax cuts should be brought forward, arguing that it was more important that the government concentrate on its "nation-building agenda" of infrastructure investment. "It's in the long-term interests of this economy that we do so and it supports economic growth on the way through," he said.

Under the personal income tax programme announced by Swan, the 30% rate will apply from AUD34,001 (up from AUD30,001) from July 1 2008. The 30% threshold will then increase to AUD35,001 from July 1, 2009 and to AUD37,001 from July 1, 2010. These tax cuts are in addition to the 2007-08 budget measure to increase the 40% threshold from AUD75,001 to AUD80,001 and the 45% threshold from AUD150,001 to AUD180,001 from 1st July 2008.

The government has also decided to cut the rate of withholding tax on certain distributions from Australian managed investment trusts (MITs) to foreign resident investors, from a non-final rate of 30% to 7.5%, making Australia's withholding tax rate one of the most competitive in the world.

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