On Sunday 9 July, the Australian Government announced the detail of its proposal to put a price on carbon pollution. As part of those announcements, the Government also announced a range of household assistance measures which are designed to help offset the price impacts of the changes. These measures include proposed tax cuts and increases in pensions, allowances and family payments. The following is a summary of the key measures as we understand them.
From a Financial Planning perspective, please remember these changes are yet to be legislated. This summary is provided to help you as an individual understand the consequences from a personal Financial Planning perspective. If you have any queries, please send an e-mail to Andrew Heaven at WealthPartners to discuss. A big thank you to Colonial First Tech for providing the bulk of the analysis in such a timely manner.
Proposed tax cuts and tax reform
The Government has announced that the household assistance package will include both tax cuts and a number of tax reform measures to simplify the tax system and improve incentives to work.
From 1 July 2012, the Government proposes to triple the tax free threshold and to increase the 15% and 30% marginal tax rates to 19% and 32.5% respectively. From 1 July 2015, the tax free threshold and the 32.5% tax rate would be further increased to $19,401 and 33% respectively. The following table summarises the current and proposed marginal tax rates.
The Government has also announced that it proposes to roll the Low Income Tax Offset (LITO) into the increased tax free threshold. As a result, the LITO will be reduced from its current level of $1,500 to $445 from 1 July 2012, and then to $300 from 1 July 2015. Combined with the new tax free threshold, this will increase the effective tax free threshold for people eligible to receive LITO from the current level of $16,000 to $20,542 from 1 July 2012, and to $20,979 from 1 July 2015.
The Government has outlined that these changes will also simplify the tax system for part time, casual and low income workers. They will have no tax deducted from their salary or wages provided their income is under $350 per week. The Government estimates that that these changes will mean over a million taxpayers will no longer need to lodge a tax return.
Social security / family assistance changes
As part of the household assistance measures, the Government have also announced that it proposes to increase pensions, allowances and family payments.
Pensioners, Allowance Recipients and Commonwealth Seniors Health Card Holders
A clean energy supplement is proposed from 1 July 2012. This supplement will be equivalent to 1.7% of the maximum rate of a person’s pension or allowance, and will be paid as follows:
- In May/June 2012, an advance payment will be made to cover the period to 20 March 2013.
- From 20 March 2013, the clean energy supplement will then be paid as a fortnightly amount.
The maximum clean energy supplement will be $338 pa for singles and $510 pa for couples combined.
Family tax benefit recipients
A lump sum advance is proposed to be paid to family tax benefit recipients in May/June 2012 to cover the period to 30 June 2013. During this time, family tax benefit payment amounts will remain unchanged.
From 1 July 2013, a fortnightly tax-exempt clean energy supplement is proposed.
The initial lump sum advance and the future fortnightly supplement will be equivalent to a 1.7% increase in the maximum annual rate of the relevant family tax benefit payment.
Low income supplement and single income family supplement
From 1 July 2012, it is proposed that single income families may be eligible for a single income family supplement of up to $300 pa. This measure recognises that single income families may not benefit from proposed changes to the income tax system by as much as dual income families in a comparable financial position.
A low income supplement is also proposed for low income households who can demonstrate that the income tax and social security assistance will not fully compensate them against the expected cost impacts of a carbon price.