Supplementary Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)General outline and financial impact
The A New Tax System (Personal Income Tax Cuts) Bill 1998 contains amendments to the Income Tax Rates Act 1986 to provide significant personal income tax cuts announced in the Governments tax reform policy document, Tax Reform: not a new tax, a new tax system .
Following negotiations with the Australian Democrats, the Government has agreed to revise certain aspects of its tax package, including exempting basic food from the GST.
The Government also agreed with the Democrats to reduce the tax cuts for individual taxpayers whose taxable income is more than $50,000 a year.
The amendments being moved by the Government will increase the proposed 40% rate to 42%, and reduce the proposed threshold for the top rate of 47% from $75,000 to $60,000.
These changes are illustrated in the following table:
| Taxable Income ($) | Existing Tax Rate | Tax Rate proposed in the Bill | Revised Tax Rate after the amendments |
|---|---|---|---|
| 50,001-60,000 | 47% | 40% | 42% |
| 60,001-75,000 | 47% | 40% | 47% |
| 75,001+ | 47% | 47% | 47% |
Date of effect: The proposed amendments do not affect the application date contained in the Bill. The revised rates will come into effect on 1 July 2000 and will apply to assessments for the 2000-2001 year of income and later years of income.
Proposal announced: The Government announced the revised tax scale on 28 May 1999.
Financial impact: The amendments will reduce the cost to the revenue resulting from the personal tax cuts from $13.1 to $11.99 billion in 2000-2001, $13.5 to $12.33 billion in 2001-2002 and $14.5 to $13.17 billion in 2002-2003.
Compliance cost impact: See Regulation Impact Statement.
Summary of Regulation Impact Statement
Impact: Low
Main Points:
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- The number of employers who will convert from monthly to quarterly remittance of tax instalment deductions will fall from 13,500 to 12,250. Even though the compliance cost savings are slightly lower than the original proposal, the savings are still expected to be approximately $1 million per annum.
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- The cash flow cost to employers is estimated to fall from $38million to $35 million per annum.
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- The overall cost of compliance to employers remains unchanged.