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Australian Budget Tax Relief Starts

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

01 July 2008

Millions of Australians received a tax cut on 1st July with the first installment of the Rudd Government's AUD46.7bn tax package having gone into effect.

The tax relief is targeted particularly at low and middle-income earners, with a worker earning AUD40,000 per annum set to receive an extra AUD20.19 per week, or AUD1,050 per annum.

The tax cuts are part of the Rudd Government's AUD55 billion Working Families Support Package, which also includes help with childcare and education costs, starting from 1st July.

This package of measures will mean that a typical young family with two children will be AUD52 per week, or around AUD2,700 for the year, better off.

The tax cuts which started on 1st July will allow Australians to earn up to AUD14,000 in 2008-09 without incurring a tax liability (up from AUD11,000 in 2007-08), providing a real benefit to part-time workers.

Under the tax cut package, from 1st July:

  • The 30% threshold will be raised from AUD30,001 to AUD34,001
  • The low income tax offset (LITO) will increase from AUD750 to AUD1,200
  • The 40% threshold will increase from AUD75,001 to AUD80,001
  • The 45% threshold will increase from AUD150,001 to AUD180,01

From 1st July 2009:

  • The 30% threshold will increase from AUD34,001 to AUD35,001;
  • The LITO will increase from AUD1,200 to AUD1,350, meaning the effective tax free threshold for people earning AUD30,000 or less will increase to AUD15,000; and
  • The 40% tax rate will be reduced to 38%.

From 1st July 2010:

  • The 30% threshold will increase from AUD35,001 to AUD37,001;
  • The LITO will increase from AUD1,350 to AUD1,500, meaning the effective tax free threshold for people earning AUD30,000 or less will increase to AUD16,000; and
  • The 38% tax rate will be reduced to 37%.

The Rudd government has designed the personal income tax rate reductions to enhance incentives for labour force participation. Treasury modelling predicts that these tax cuts will lift aggregate labour supply by around 65,000 workers in the medium term.

According to the government, this extra supply of labour, together with the anticipated increase in the hours worked by workers currently in the workforce, will mean around 2.5 million additional hours of work in the economy each week.

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