Instant tax cuts for all
By Louise Dodson, Chief Political Correspondent
May 11, 2005
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Ambitious ... Peter Costello's budget played to the politics of party leadership as well as the economy.
Photo: Penny Bradfield
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High-income earners are the biggest winners in Peter Costello's 10th budget, which includes across-the-board tax cuts, breaks for business and tough new welfare-to-work rules designed to encourage individual effort.
From July 1 the top tax rate of 47 per cent will not kick in until a person earns $95,000 a year - up from $70,000. That threshold will rise again, to $125,000, next year, saving those on this income or more $86.50 a week. These changes will mean almost a million people will escape the top tax bracket.
Middle-income earners also win, with the threshold for the 42 per cent tax rate rising from $58,000 to $63,000. For the lowest income earners the marginal tax rate drops from 17 to 15 per cent.
In an effort to minimise the risk of interest rates rising in response to the tax cuts, Mr Costello delivered a surplus of $8.9 billion, almost double what was estimated in December.
This was a budget as much pitched at taxpayers as the Liberal Party, with the Treasurer pushing his claim to take over from the Prime Minister this term.
Mr Costello refused to comment on his leadership ambitions or whether this budget would be his last.
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AdvertisementHe said his changes would ensure more than 80 per cent of taxpayers faced a top marginal income tax rate of 30 per cent or less from next financial year. "Australians deserve the lowest possible taxes consistent with responsible budget management and the provision of efficient government services," he said.
High-income earners will also benefit from the scrapping of the superannuation surcharge on July 1.
Business will receive cuts worth $1.8 billion over four years, including the removal of the 3 per cent tariff on imported business inputs.
The tax cuts are on top of those promised last year but do not take effect until July 1. It is the third year in a row that the Government has delivered tax cuts.
Mr Costello announced $14 billion in new spending over four years, including incentives for welfare recipients to get jobs, increased family assistance payments, funding for stricter quarantine and illegal fishing controls and new programs to improve the health of indigenous Australians. He also said there would be cost-cutting changes to the Pharmaceutical Benefits Scheme to remove the financial incentives for people to hoard drugs.
The budget, which Mr Costello said was "framed for the future", set up the new Future Fund, which will finance government superannuation liabilities which now come out of revenue. He said it would provide a big source of future investment funds and was "destined to be this generation's greatest contribution to the costs of an ageing population in 20 years time".
The welfare-to-work changes are tougher than expected. Sole parents and the disabled will be shifted to a new unemployment benefit known as enhanced Newstart if they fail to satisfy strict work tests. The tests, which come into effect next year, could result in an increase in the unemployment rate, which is at 5 per cent. Mr Costello estimated the changes would move 190,000 people off welfare over two years.
People aged 50 to 64 who receive unemployment benefits will face the same work tests as other recipients. However, those aged 55 and over will not have to participate in work-for-the-dole programs. Sole parents, the disabled and older workers will all get extra funding for vocational training.
The budget also included funding for the 450 extra troops sent to Iraq, more help for the peacekeeping force in the Solomons and the $1 billion tsunami relief promised to Indonesia.
The shadow treasurer, Wayne Swan, said the budget failed to put downward pressure on interest rates and "squanders the opportunity to secure Australia's future prosperity".
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