Peter Costello

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Personal Income Tax Cuts



From 1 July 2003, Australian taxpayers will share in personal income tax cuts worth $10.7 billion over the next four years.

These tax cuts are additional to the significant reductions in income tax introduced as part of The New Tax System on 1 July 2000. They strike a balance between the Government's goals of maintaining a sound budget position, meeting the higher costs of defence, education, health and other priority programmes and the desire to provide lower taxes for individual taxpayers.

Low income earners will benefit from changes to the low income tax offset. Other taxpayers will benefit from increases in the personal income tax thresholds as shown in the table below.

Current tax thresholds New tax thresholds Tax rate
Income range ($) Income range ($) (%)
0 - 6,000 0 - 6,000 0
6,001 - 20,000 6,001 - 21,600 17
20,001 - 50,000 21,601 - 52,000 30
50,001 - 60,000 52,001 - 62,500 42
60,001 + 62,501 + 47

Attachment A shows the estimated reductions in income tax for Australian taxpayers over a range of incomes. The changes to the thresholds will also be reflected in the thresholds that apply to non-residents.

The Government will assist low income earners by raising the low income tax offset to $235 per year - an increase of $85 per year. Those eligible for the full offset will not pay income tax until their annual income exceeds $7,382, up from $6,882 at present. The maximum low income tax offset of $235 will be claimable by taxpayers with an annual income up to $21,600 - up from $20,700. The offset will phase out at a rate of four cents for every dollar earned over this higher amount. This is the same phase-out rate that applies to the existing low income tax offset. As a result of the changes to the low income tax offset, the income level up to which the offset can be claimed increases from $24,450 to $27,475.

Taxpayers with an annual income between $20,000 and $27,475 will benefit from both the increase in the 30 per cent income tax threshold to $21,600 and the changes to the low income tax offset. For some taxpayers with income in this range, the reduction in their tax liability will be as much as 10.7 per cent.

Increased personal income tax thresholds and the changes to the low income tax offset will mean that Australian taxpayers can keep a higher proportion of the earnings they receive after tax, providing improved incentives to pursue work, advancement and higher skills.

The tax cuts also increase the benefits for senior Australians from that announced in the 2001-02 Budget. From 1 July 2003, senior Australians who receive the Senior Australians Tax Offset will be able to earn more income without paying tax. Singles will be able to have an annual income of $20,500 (up from $20,000) and couples up to $33,612 (up from $32,612), depending on the income earned by each member of the couple. The Medicare levy threshold for senior Australians will be increased to ensure that they do not pay the Medicare levy until they begin to incur an income tax liability.

Contact: David Alexander
(02) 6277 7340



Table: Personal Income Tax Cuts - Taxpayers with Annual Income Between $10,000 and $100,000


13 May 2003

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