A bill to implement the tax cuts promised by Labor during the election campaign has been introduced into Parliament this morning by Treasurer Wayne Swan.
The bill, Tax Laws Amendment (Personal Income Tax Reduction) Bill 2008, increases the threshold at which the 30% marginal tax rate begins to apply and to decrease the 40% marginal tax rate to 38% (from 1 July 2009) and to 37% (from 1 July 2010).
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It also increases the maximum amount of low income tax offset and increases the income threshold at which the Medicare levy becomes payable for taxpayers who are eligible for the senior Australians tax offset.
The proposed tax changes have been heavily criticised by economic commentators because of their likely inflationary impact on the economy.
But the Rudd Government has consistently maintained that it would not break its election promises on tax cuts.
During the election campaign Labor promised to cut tax for everyone but high income earners. In doing so, Rudd matched the tax cuts promised by the Howard government, except for the tax cuts offered to people earning more than $180,000 a year.
Rudd said at the time he would use $2.3 billion saved from deferring tax cuts to high income earners to give families who qualify for the Family Tax Benefit a 50% rebate for education costs, up to $750, for example, for primary school students. Money spent on educational tools like laptops and broadband would be rebatable.
Another $400 million would be spent on establishing a national elective surgery strategy to reduce waiting lists.
During the election, Rudd also announced his long-term tax plan. He said that by 2013 Labor would collapse the number of income rates from four to three – to 40 cents, 30 cents and 15 cents in the dollar.
The explanatory memorandum presented to Parliament with the bill states the revenue implications of the bill:
- $7.110 billion in 2008-09
- $9.790 billion in 2009-10
- $13.930 billion in 2010-2011