A few days ago, Australia`s federal government announced the 2018 budget. The budget set three main goals, namely, to boost economic growth, restore fiscal surpluses and reduce taxes. Among them, including the implementation of individual income tax relief tax reform has become the top priority of the budget.
The biggest bright spot in the new budget is tax cuts by adjusting personal income tax rates for the next seven years. Australia`s income tax starts at A $18,200 a year, with an income tax of 19 percent, 32.5 percent, 37 percent and 45 percent at A $37,000, A $86,999, and A $ one hundred and eighty thousand, respectively. The budget, led by "lower, fairer and simpler", gradually simplified the personal income tax collection system.
As a seven-year, large-scale individual tax cut, it will face a number of votes and Senate discussions before it can be achieved. If the plan is supported by the Senate, the personal income tax reduction plan will be implemented in three stages.
In the first phase, from July 1, 2018, the tax ceiling of 32.5 percent will be increased from A $86,999 to A $90,000, and the new tax credit will give low-and middle-income earners A $530 a year in tax cuts over the next four years.
In the second stage, lower the income tax threshold of the middle income earners. The ceiling for different tax rates will be raised by varying degrees until fiscal year 202-24-2025.
In the third phase, in 2024, seven years later, the new tax reform policy, the individual tax system will be greatly simplified and flattened. By then, the fixed tax rate of 37 percent will be removed and taxes on annual income of A $40, 000 to A $ two hundred thousand will be reclassified to 32.5 percent.
Under the new personal income tax relief program, the Australian government has pledged to save 10 million Australians tax expenses. So who is the biggest beneficiary under the tax cut?
Nurses, carpenters, social workers and truck drivers, the winners of the tax-cutting war, are entitled to A $530 tax breaks in 2019, as shown in the chart below. But compared with the tax breaks available to surgeons in 2025, the cuts appear to be minimal, with surgeons receiving A $7225 a year in 2025.
Those with higher incomes benefited more significantly later in the program, while those with lower incomes were milder and faster.
In this year`s budget, Australian Treasury Secretary Morrison stressed that 94 percent of Australian taxpayers would pay a tax of no more than 32.5 Australian cents per Australian dollar under the individual tax plan. If we keep the original tax system in place, the ratio is 63%, not 94%.
Morrison also said the cost of reforming the tax system for more than 10 years was A $140 billion. The plan still needs Senate support before it becomes law, and nearly millions of Australians will benefit from it once passed.
In addition, the new budget emphasizes the importance of investment for economic growth, promising to lower corporate tax rates for all businesses. The federal government is committed to a 10-year corporate tax reduction program, with all companies receiving a 25 percent preferential tax rate by 2026-27.
There is also the R & D tax incentive, a deep reform of the 3 billion R & D tax incentive system, aimed at preventing businesses from using tax breaks for their daily activities and effectively rewarding high-intensity R & D companies.
In response to Australia`s government tax reform plan, Ernst & Young Australia`s chief economist believes that government hopes to directly stimulate the economy through tax breaks, especially individual income tax breaks, to help increase consumption, but the tax cuts are not immediately effective. It will take time to test.
According to the budget, the starting point for the budget deficit for fiscal year 2018 / 2019 is A $14.5 billion, with a two-year surplus planned. In addition, net debt is likely to peak at 18.6 percent of GDP in the current fiscal year and is scheduled to fall to 14.7 percent in three years. At the same time, set a tax ceiling of 23.9% of GDP. Analysts generally see it as a pre-election budget that is expected to be popular with voters. However, the growth in revenue expected by the Australian government will depend largely on the continued upturn of the world economy and the upbeat performance of commodity markets.
