The Coalition has leapt to seize control of the campaign agenda by announcing it will implement tax cuts worth $34 billion over five years if it wins the election.
The cuts, to be implemented incrementally over the next three years, will by 2010:
- Cut the top 45% tax rate for people earning more than $150,000 (or $180,000 after July 2008) per year, to 42%.
- Cut the 40% tax rate for people earning more than $75,000 ($80,000 after July 2008) to 37%.
- Lift the threshold for the 30% tax rate from $30,011 to $37,001.
- Leave the bottom 15% tax rate unchanged, but lift the current low income tax offset rate of $750 to $1500, providing an effective tax free threshold for eligible low income earners of $16,000.
Moving to pre-empt critics of the huge $34 billion price tag for the cuts, Costello announced revised growth rates for the Australian economy of 4.5% for 2007-08, up from the 3.75% growth forecast at budget.
The revision means the budget should achieve a surplus of $14.8 billion of 2007-08 even with the income tax cuts, keeping the budget surplus above the magic 1% of GDP nominated by both sides of politics as a threshold for responsible economic management.
Treasurer Peter Costello also outlined a long-term tax vision that would see tax scales of 15%, 30%, 35% and 40%, with a low income tax threshold of $20,000 achieved by 2012-2013, a period that would take the Coalition beyond its next term should it be re-elected.
The cuts will put an extra $20 per week in the pocket of an average income earner by 1 July 2008, and $35 by 1 July 2010. For a family with the principal earner on average weekly earnings and the second income earner in part-time work, the income tax cut will be around $30 per week, rising to $50 per week in 2010.
Launching the dramatic tax cut promise this afternoon, Treasurer Peter Costello said the change was needed to encourage greater workforce participation.
“The changes which we announce today will boost the estimated workforce by around 65,000 people,” Costello said. “Encouraging more people into the workforce, particularly by reducing their effective tax-free threshold and particularly by lifting the threshold up until which you pay 15 cents in the dollar, is boosting the number of people joining Australia’s workforce.”