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Individual taxpayers the big winners in federal budget 2005-06
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Individual taxpayers are the big winners in the federal government’s 10th budget, with tax cuts worth $21.7 billion promised over the next four years, starting from 1 July 2005. This is in addition to the $14.7 billion in tax cuts provided in last year’s budget. 
 
Delivered by the Treasurer Peter Costello this evening, the 2005-06 federal budget has been used to implement a number of major initiatives aimed at sustaining Australia’s economic performance, increasing incentives to work and save, and implementing policies that increase Australia’s productivity. 
 
In addition to the $21.7 billion worth of tax cuts over four years, major initiatives announced in the budget include:

  • Abolition of the Superannuation Surcharge 
  • Business tax cuts of $1.8 billion over four years 
  • Changes to the welfare system so that welfare recipients who are able to work part-time are obliged to do so 
  • Boosting skills through reforms to vocational skills and education, and increasing skilled immigration 
  • The establishment of a ‘Future Fund’
 
Institute lobbying pays off on key accounting issues 
 
Following comprehensive lobbying efforts by the Institute, a number of issues affecting Chartered Accountants have been addressed in the budget, including international tax reform, the treatment of blackhole expenditure, taxation of financial arrangements and the superannuation surcharge.  
 
However, while personal tax measures are welcomed as a short-term measure, it falls short of the major reforms the Institute has been proposing. As detailed in the Institute’s pre-budget submission and personal tax policy paper, the Government needs to address:
  • Indexing of marginal tax thresholds to remove ‘bracket creep’ 
  • Alignment of corporate and personal tax rates  
  • Optional tax returns for certain taxpayers
A more comprehensive analysis of the budget’s tax measures will be available tomorrow morning in a special budget edition of the CA Tax Bulletin. Subscribers will receive the bulletin Wednesday morning and non-subscribers can access the document on the Institute’s website. 
 
Copies of the Budget Papers can be downloaded from www.budget.gov.au 
 
Fiscal and economic forecasts 
The government has forecast a budget surplus of $8.9 billion in 2005-06. GDP growth is forecast to increase from two per cent in 2004-05 to three per cent in 2005-06 and unemployment is forecast to remain around the current level of 5.1 per cent. 
 
Summary of budget announcements: 
Taxation
  • Personal tax cuts from 1 July 2005:
    • The 17% marginal rate will fall to 15% 
    • The 42% threshold will be raised to $63,001 
    • The 47% threshold will be raised to $95,001
     
     
  • Personal tax cuts from 1 July 2006:
    • The 42% threshold will be raised to $70,001 
    • The 47% threshold will be raised to $125,001
     
     
  • Senior Australians who are eligible for the Senior Australian Tax Offset will now pay no tax on their annual income up to $21,968 for singles and for couples up to $36,494 
     
  • Business tax reform:
    • Removal of three per cent tariff applying to business inputs, where no substitutable goods are manufactured in Australia, from 11 May 2005 
    • Following earlier announcements, from 1 July 2005, business will be able to obtain deduction for certain ‘blackhole’ expenses 
    • Imposition of Australian capital gains tax treatment of non-residents to be limited in the main to real property and the business assets of Australian branches of non-residents 
    • Re-introduction of a four year income tax exemption for temporary residents for most foreign source income, including capital gains on foreign assets 
    • The foreign loss and foreign tax credit quarantining rules will be removed 
    • Extension of the proposed tax-timing hedging rules, beyond gold producers and cotton traders to all tax payers in all industries with audited financial accounts
Superannuation:
  • The superannuation surcharge will be abolished for superannuation contributions made from 1 July 2005 
  • A Future Fund will be established to meet the Commonwealth’s unfunded superannuation liabilities, currently estimated at $91 billion 
  • Additional funding of $88.4 million over five years to assist with a smooth transition to Superannuation Choice
Incentives to work
  • A $3.6 billion package to move people from welfare to work and increase labour force participation from 1 July 2006, including:
    • Single and partnered parents receiving Parenting Payment to be subject to an obligation to seek part-time work of at least 15 hours a week when their youngest child turns six 
    • Newstart recipients aged between 50 and 64 will be obliged to seek full-time work in the same way as younger recipients, however those over 55 will not be required to participate in work for the dole 
    • People seeking to go onto the disability support pension (DSP) on or after 1 July 2006 will have a new eligibility criteria whereby they will receive DSP if they are assessed of being capable of less than 15 hours of work per week, and if they are assessed as being capable of 15-29 hours of work per week they will receive enhanced Newstart and be subject to an obligation to seek part-time work of at least 15 hours a week 
    • From 1 July 2006, the maximum withdrawal rate for Newstart will be reduced from 70 cents to 60 cents in the dollar. Further people will be able to earn up to $250 per fortnight before this rate commences, compared to $142 currently. This new income test will also benefit recipients of some other allowances
Other initiatives:
  • $28.2 million over four years will be provided to the Australian Customs Service to undertake additional compliance activities and increase the number of audits on import duty and goods and services tax (GST) assessments 
  • Additional funding of $19.2 million over four years to support the Financial Reporting Council in its expanded role of overseeing auditor independence and audit standards-setting arrangements 
  • $12.8million over five years provided to the Australian National Audit Office to meet the costs of providing additional auditing services to Government departments and agencies 
  • The Medicare levy for senior Australians will be raised to ensure they do not pay the Medicare levy until they occur a tax liability. 
  • A tax-free bonus will be provided to eligible carers in June 2005 worth:
    • $1,000 for recipients of Carer Payment 
    • $600 for recipients of Carer Allowance
     
  • The level of income allowed before Family Tax Benefit Part A starts to be withdrawn will increase to $37,500 a year from 1 July 2006 
  • Increased funding to the vocational education and training system:
    • Provision of up to 4,500 new pre-vocational places for people interested in a trades career 
    • An additional 7,000 schools-based new apprenticeships
     
  • Increasing skilled migration places by 20,000 in 2005-06, and making it easier for business to attract skilled workers to fill short-term vacancies through changes to the taxation of foreign source income for temporary residents.
 
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