Carbon tax marks biggest overhaul since the GST

HOUSEHOLDS and businesses face the biggest tax shake-up in more than a decade in just over a week, as the carbon price and major changes to tax rates and family payments take effect.

By InvestSMART · 23 Jun 2012

By InvestSMART ·
23 Jun 2012

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HOUSEHOLDS and businesses face the biggest tax shake-up in more than a decade in just over a week, as the carbon price and major changes to tax rates and family payments take effect.

And unlike the back-to-back tax cuts of the Howard years, the upcoming changes will overwhelmingly benefit low and middle income earners while taxing higher income households more.

Under compensation for the carbon tax, everyone earning less than $80,000 a year will receive a tax cut.

For someone with an annual salary of $65,000 the tax saving is worth $303 a year. People earning $25,000 or less will receive the biggest tax cuts, of between $500 and $600 a year.

Households receiving Family Tax Benefit Part A will get extra support, while pensioners, students and some families have recently received increased cash payments.

People earning more than $80,000 will not receive any income tax cuts, though everyone who earns more than $50,000 will no longer pay the temporary flood levy.

Tax increases on superannuation will target higher income earners, while people earning less than $37,000 will effectively pay no tax on compulsory super contributions.

In health care, private health insurance subsidies for individuals earning more than $84,000 will be cut. The Medicare levy surcharge will rise for people who don't take out private health insurance.

Tax experts said the changes represented the most significant overhaul in tax since the GST was introduced in 2000.

The general manager of policy at the Institute of Chartered Accountants, Yasser El-Ansary, said a carbon price and associated changes would indirectly affect every taxpayer.

"I would say this is the biggest agenda of tax change for both individuals and businesses since the GST was introduced," Mr El-Ansary said.

"Call it whatever you like, in the end a carbon price or a carbon tax represents a major broadening of our indirect tax base," he said.

A partner at the accounting firm Pitcher Partners, Scott Treatt, said the changes redistributed income from high to low income earners more than previous Labor budgets and the tax cuts of last decade under the Howard government.

"This budget brought about tax cuts which didn't benefit the higher income earners not that you can really call someone earning $80,000 a year in the Australian economy a high income earner and gave the benefits solely to those earning less than that amount," he said.

The chief executive of the Australian Council of Social Service, Cassandra Goldie, said the changes ensured people who needed support were the ones receiving benefits or tax cuts. But, Dr Goldie expressed concern the compensation for people on the Newstart allowance was too low. "Dollar for dollar they will get less than people who are on the pension. But in fact their spending requirements are the same," Dr Goldie said.

The 1st of July marks the starting date for major tax changes.

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Frequently Asked Questions about this Article…

What major tax changes are coming on 1 July and why are they being called the biggest overhaul since the GST?

On 1 July a carbon price and a suite of major tax and payment changes take effect. Tax experts in the article described this package — which includes income tax cuts for many, changes to superannuation taxation, adjustments to family payments, and health-care subsidy changes — as the most significant tax overhaul since the GST was introduced in 2000.

Who benefits from the tax cuts and which income brackets see the biggest changes?

The changes are aimed at low and middle income earners. Everyone earning less than $80,000 a year will receive an income tax cut. For example, someone on a $65,000 salary would save about $303 a year, while people earning $25,000 or less are projected to receive the largest annual tax cuts (roughly $500–$600).

Do high-income earners face higher taxes under the new rules?

Yes. People earning more than $80,000 will not receive income tax cuts, and several measures target higher earners: tax increases on superannuation are aimed at higher income households, and private health insurance subsidies will be cut for individuals earning over $84,000. The Medicare levy surcharge will also rise for people who don’t take out private health insurance.

How does the new carbon price affect everyday taxpayers and investors?

According to Yasser El-Ansary from the Institute of Chartered Accountants, a carbon price broadens the indirect tax base and will indirectly affect every taxpayer. The article frames the carbon price as part of a broader tax agenda that changes the mix of direct and indirect taxation across the economy.

What changes are being made to superannuation tax rules and who is affected?

The reforms include higher taxation on superannuation targeted at higher income earners. Conversely, people earning less than $37,000 will effectively pay no tax on compulsory super contributions under the new settings, according to the article.

Will family payments or support payments change with the new tax package?

Yes. Households receiving Family Tax Benefit Part A will get extra support, and the article notes that pensioners, students and some families have recently received increased cash payments. However, Cassandra Goldie of the Australian Council of Social Service warned that compensation for people on the Newstart allowance is too low compared with pensioners.

How do the changes affect private health insurance and the Medicare levy surcharge?

The package reduces private health insurance subsidies for individuals earning more than $84,000, and it raises the Medicare levy surcharge for people who opt not to take out private health insurance, increasing the cost pressure on those without cover.

What practical steps should everyday investors and taxpayers take before the 1 July changes?

Because the changes take effect on 1 July, the article suggests everyone should be aware of where they sit relative to the new income thresholds (for example $37,000, $50,000, $80,000 and $84,000) so they understand likely impacts on take-home pay, superannuation taxation and health insurance subsidies. The article highlights redistribution toward low and middle incomes and notes the ending of the temporary flood levy for those earning more than $50,000.