Costello slashes taxes, revamps welfare By Matthew Liddy, ABC News Online
Treasurer Peter Costello's 10th Budget promises tax cuts for all Australians and a shake-up of the welfare system designed to get single mothers and disability pensioners into the work force.
High-income earners will pick up the lion's share of the tax breaks, with low to average earners keeping just $1.50 to $6 a week extra in their pockets.
Mr Costello says it is a "Budget for the future" but has brushed off questions about his own future and leadership ambitions, refusing to say whether the tax cuts were his or the Prime Minister's idea.
Last year, Mr Costello shifted the tax brackets to deliver cuts to Australians earning more than $50,000.
This year he has gone further, delivering tax relief across the board while forecasting an underlying cash surplus at $8.9 billion.
"This Budget is about sharing the benefits of the Government's strong economic management with all Australians," Mr Costello said.
From July 1, the 17 per cent tax rate - affecting income from $6,000 to $21,600 - will be cut to 15 per cent.
The 42 per cent tax threshold was already due to increase from $58,000 to $63,000 from the same date but will now climb to $70,000 from July 1 next year.
Further up the scale, the 47 per cent threshold will increase from $70,000 to $95,000 this year and then rise again to $125,000 from the middle of next year.
The changes will deliver savings of $1.50 a week for those on $10,000 a year, $6 a week for those earning $25,000-$55,000 a year and $41 a week for Australians earning $100,000 a year. (See how the tax cuts affect you.)
In percentage terms, the lowest-income earners will get a tax break of 18 per cent of tax paid and the highest nearly 10 per cent, while average earners will save as little as 2-3 per cent.
Super surcharge scrapped
The Government was tipped to cut the superannuation surcharge - affecting middle and upper-income earners - from 12 per cent to 7.5 per cent. Instead, Mr Costello has abolished it.
"The surcharge was introduced in 1996 when Labor left a large Budget deficit," Mr Costello told Parliament in his Budget speech.
"We have now paid off most of Labor's legacy ... so tonight I announce the complete abolition of the surcharge."
The move will save taxpayers $2.5 billion over the next four years.
Tax cuts are also in order for business, with the Government abolishing the 3 per cent tariff on imported business inputs which do not have substitutes in Australia from midnight tonight.
Treasury says the move will save business $1.3 billion over five years and "improve the international competitiveness of Australian business", particularly manufacturing.
Businesses will save $205 million over three years as the Government allows tax deducations for 'blackhole' expenditures.
Mr Costello says he is "very confident" the tax cuts will not come back to bite taxpayers in the form of an interest rates hike.
Welfare into work
As expected, the Budget outlines financial incentives and penalties designed to drive single mothers and disability pensioners, among others, off welfare and into work.
The Government says growing numbers of working-age Australians are dependent on welfare and wants to reverse that trend.
"If you are able-bodied and you are of working age, which is 15 to 65, then you are expected to look for work if you are capable of it," Mr Costello said.
"If more people are able to move from welfare to work then this will help them with higher incomes and better participation in mainstream economic life," he added in Parliament.
"It will also reduce the obligation on other taxpayers whose taxes pay for the welfare support."
Under the measures, single parents receiving the Parenting Payment will be expected to look for at least part-time work once their youngest child turns six and is ready for school.
And the Government will cut the Disability Support Pension for anyone capable of working more than 15 hours a week at award wages.
Instead, they will move onto the Newstart allowance and have to look for work.
The move is particularly targeted at people with bad backs, who the Government says may not be able to perform manual labour but could perform non-manual jobs.
Mr Costello says 6.5 per cent of the work force is on the Disability Support Pension, many of them because there is no requirement to look for work. He added: "6.5 per cent of the work force is not disabled."
But wary of a "scare campaign", the Government has quarantined the existing 700,000 disability pensioners from the changes.
"The object of these changes is to protect the genuinely disabled but to encourage those capable of part-time work to look for it," Mr Costello said.
The measures are to kick in from July next year, with Mr Costello saying they should see 190,000 extra Australians move into jobs by 2008-09.
Carrot and stick
As an incentive, the 17 per cent tax rate drops to 15 cents and the rate at which part-time workers lose their welfare entitlements when they earn more at work will drop.
"Instead of 70 cents in the dollar withdrawal it will be 60 cents after they have earned $250 per fortnight," Mr Costello said.
Mr Costello says the Government will spend more than $2 billion on services to help the groups find work over the next four years, more than the changes will save in welfare payments.
The money will be spent on rehabilitation programs and vocational education and training.
The Treasurer says child care has been "massively increased" to help cope with the added demand, including 80,000 new places in outside-school-hours care.
Mr Costello says that while the 'welfare into work' measures will cost money in the short-term, the Government expects to break even after eight years and then they will start saving money "down the line".
Along with the financial incentives come tougher penalties.
From July 1 next year, a job-seeker who does not meet requirements will have the payments suspended until they meet their obligations.
Repeated breaches will result in an eight-week suspension.
Despite some pre-Budget speculation to the contrary, decisions about penalties will remain with Centrelink.
Economic trends
The underlying cash surplus of $8.9 billion is about double that predicted in December's Mid-Year Economic and Fiscal Outlook.
Treasury has revised down its estimate of economic growth this year to 2 per cent, predicting that will climb to 3 per cent in 2005-06 and 3.5 per cent the following year.
On inflation, it projects a rate of 2.75 per cent next financial year, dropping to 2.5 per cent in 2006-07.
That contrasts with the Reserve Bank's assessment that inflation will reach 3 per cent this year.
Mr Costello says the unemployment rate is "expected to remain around its 28-year low".
Future Fund
Though scant on details, the Government has confirmed it plans to establish a 'Future Fund' to help pay for unfunded superannuation liabilities and save for the demands of an ageing Australian population.
"It will begin to fund the liabilities we have already incurred but not yet made provision to pay for," Mr Costello said.
"Earnings will accumulate in this fund and it will be safeguarded by legislation.
"Whilst the fund will invest the money allocated to it, no government will be able to draw money out of it until it is sufficient to meet all the unfunded liabilities to which it is dedicated.
"A statutory independent board will be created to manage the fund."
Mr Costello refused to say whether the complete proceeds from the full sale of Telstra would be paid into the 'Future Fund' but said that was the "object".
How the tax cuts affect you: Taxable income Annual tax saving (2005-06) Annual tax saving (2006-07) Annual tax saving as a % of tax paid (2005-06) Annual tax saving as a % of tax paid (2006-07)
