Country Report Australia October 1996 Main report

Economic policy: Family tax relief measures--

The federal government has delivered on its key promises relating to tax relief for families. The first part of the relief package applies to both single and two-income families and involves lifting the main income earner's tax-free threshold by A$1,000 for each dependent child (subject to an income test).

The second part of the package applies to single income families, and increases the tax-free threshold by A$2,500 for families with at least one child under the age of five and is also income tested. In two-parent families, the breadwinner's partner may earn up to around A$4,500 per year without the family losing its single income status.

--are paid for by higher taxes on the wealthy--

Higher income earners face increased taxes and will not be eligible for the family tax package. In particular, the federal government has imposed a tax surcharge on superannuation payments made by those earning in excess of A$70,000 per year. The tax on superannuation contributions will rise by 1 percentage point for each A$1,000 of income over A$70,000 to a maximum rate of 30%, which will apply to contributions made by those earning A$85,000 or above. Prior to these changes, all superannuation contributions were taxed at 15%. Families earning over A$70,000 will also lose a portion of the rebate available for child care. In addition, higher income earners (singles earning over A$50,000 per year and couples earning over A$100,000 per year) will be required to pay an additional 1% Medicare levy if they fail to take out private health insurance.

--as well as by reduced business funding--

The major budget measures directly affecting industry are a reduction in the 150% tax concession available for research and development to 125%, and the abolition of the computer bounty from 1997/98. This bounty is a rebate paid to computer manufacturers, currently 8% of the factory cost of production; stopping it will save the government around A$115m per year. Bounties were also terminated for the production of books, machine tools and robots as of budget night.

--but the diesel rebate survives

The federal government has announced that it will not scrap the rebate of excise paid on diesel fuel used in off-road applications by the agricultural and mining industries. (The excise was originally levied to help pay for the damage caused to roads by heavy vehicles. The off-road use of diesel by the agricultural, mining and fishing industry was made eligible for a rebate, on the grounds that it did not contribute to road damage.)

Miners had been particularly worried that they would be removed from the rebate scheme, especially after a remark by the prime minister, John Howard, during an industry dinner address that the mining sector would have to bear its share of A$8bn in budget cuts. The agricultural industry, which received around A$600m from the scheme in 1995/96, had already been given assurances that the rebate would remain in place for it (the government probably feeling that its removal might prove the last straw for many farmers, worried about gun control legislation, native title and the continuing financial consequences of the recent drought). However, the scheme is to be adjusted to limit eligibility. Details are not yet available, but it seems likely that a cap will be put on the annual rebate paid to the mining sector, currently A$800m.

© 1996 The Economist lntelligence Unit Ltd. All rights reserved
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