Australia: Labor Party On Tax Reform

Last Updated: 8 September 1998

Labor's tax reform package

On 27 August 1998 the Australian Labor Party announced its tax reform package, which is Labor's reply to the Government's tax package released two weeks earlier (refer "On Tax Reform" Issue 2). Tax will be the main battleground in the Federal election to be held on 3 October 1998.

Labor has made the following promises:

  • It will not introduce a GST.
  • From 1 January 2000, an annual tax cut for low and middle income working families worth up to $3,300 a year for a family with two children - cost to revenue in 2001-02 $3.1 billion.
  • The current family allowance taper is to be reduced from 50 to 35% meaning gains of up to $1,147 a year for low and middle income families - at a cost to revenue of $300 million annually.
  • A tax rebate of up to $750 a year to supplement the earned income of singles and up to $1,000 for couples with no children - cost to revenue in 2001-02 of $2.7 billion.
  • The threshold at which the 34% personal rate increases to 43% will rise from $38,000 to $40,000 in 1999-00 to $42,000 in 2000-01 and $43,000 in 2001-02 - at a cost to revenue of $515 million in 1999-00, $995 million in 2000-01 and $1.42 billion in 2001-02.
  • There will be a cash refund for shareholders who cannot make use of imputation credits because they do not pay income tax, which will be of use especially for self-funded retirees on lower incomes - at a cost to revenue of $550 million in 2001-02.
  • The 150% research and development concession will be reinstated to benefit small and medium enterprises and high-innovation large firms.
  • A new 20% development allowance to encourage private business especially in regions of high unemployment - at a cost to revenue of $86 million in 2001-02.
  • Extension of the present rebate for infrastructure projects and a limited capital gains tax exemption for foreign fund investors in venture capital and abolition of the savings rebate (as also proposed by the Government).
  • Many of the Government's proposals will be adopted including taxing trusts as companies, requiring company tax to be paid on all dividends and extending the new entity tax regime to life insurers and adoption of the basic elements of the Government's pay-as-you-go business
  • payment system.
  • Re-imposition of the 0.2% additional Medicare levy on those earning more than $50,000 to fund
  • public hospitals.

Personal income tax

The centrepiece of Labor's package is a family tax credit. The amount of the tax credit rises at the rate of 10 cents for every dollar earned and continues up to a plateau level. The height of that plateau differs according to the number of children under 16 or student dependants under 18 in the family. After the plateau, the credit is withdrawn at the rate of 15 cents for every extra dollar earned. The details are shown in the following table:

The following diagram copied from Labor's tax reform package shows how the credit would work.

"Earned" income for the purposes of the tax credit includes salary and wages and income of a sole trader. Families with income of more than $5,000 in annual "unearned" income would not be eligible for the credit. "Unearned" income would include interest, dividends (excluding imputation credits), trust income, capital gains and rents.

Family tax credits

A feature of the family tax credits is the surprisingly high marginal rates that result from adding the 15% withdrawal rate where family income exceeds the plateau - see the boxed examples.

These effective marginal personal rates do not apply of course to those family earners who are not entitled to the family tax credit because family income is high enough not to attract the credit.

Tax rebates for working singles and couples without children

From 1 July 2000 a tax rebate for working singles and couples without children will provide annual tax relief of up to $750 for singles and single income couples without children, and a maximum of $1,000 ($500 each) for working couples without children. The rebate will be an off-set against tax payable at the end of the financial year.

The effect will be the same as increasing the tax-free threshold to at least $9,150 for singles and $7,900 for each member of a couple without children. Singles or couples without children in combination receiving more than $5,000 in unearned income will not be eligible for the rebate. Taxpayers with earned incomes below $38,000 will qualify for the maximum rebate, which will phase out to $60,000.

Tax relief for average wage earners

Labor will leave the personal tax rates and brackets unchanged, except that it proposes to increase the threshold at which the 43% marginal tax rate commences from $38,000 to $43,000. This would be in three steps, starting on 1 July 1999 as shown in the following table:

Refundable imputation credits

Labor proposes to allow excess imputation credits to be refunded to resident Australian shareholders, complying superannuation funds and registered charitable organisations. This appears to be identical to the Government's proposal.

Fringe benefits tax reform

Labor has adopted the Government's proposal to change fringe benefits and would include on group certificates the grossed-up value of fringe benefits for income-tested surcharges and government benefits where these are in excess of $1,000. In addition, it would limit the concessional rebate of FBT for benefits provided by not-for-profit institutions up to $17,000 of grossed-up benefits per employee. Other FBT proposals of the Government would also be adopted.

Capital gains tax reform

Labor proposes that capital gains tax will now accrue on assets from 1 January 1999 that were acquired prior to 20 September 1985.

Savings rebate

Labor will abolish the savings rebate with effect from 1 July 1999.

Business tax measures

Labor will tax trusts as companies and will adopt the Government's proposals, together with some additional measures:

  • it will tax distributions flowing from the revaluation of unrealised gains on trust assets which have accrued from 1 January 1999, irrespective of when the asset was acquired
  • it will tax distributions consisting of realised real gains on assets acquired prior to the introduction of capital gains tax which accrue from 1 January 1999
  • it will review the treatment of trust losses to ensure that the current arrangements are adequate to ensure that trust losses cannot be transferred between persons who have not borne the economic risk of those losses
  • it will tax distributions of interest made to non-resident beneficiaries from 1 January 1999, where the effective control of the income remains with the trustee, at ordinary non-resident personal income tax rates, rather than under the interest withholding tax regime

Labor will also adopt the Government's proposal for a deferred company tax and to tax life insurers in the same way as other business entities.

Pay as you go

Labor will adopt the basic elements of the pay-as-you-go business payments system (including the abolition of provisional tax) proposed by the Government, and devote substantial resources to the Australian Taxation Office to improve compliance.

Indirect taxes

Not surprisingly the ALP has focused on the need to leave the existing indirect taxes system intact. They have spent more time saying why they will not introduce a GST rather than offering constructive comment for improvement of the existing indirect tax system.

A Labor Government will, from 1 July 1999:

  • Remove the 12% wholesale sales tax ("WST") currently imposed on fruit, cordial and fruit juice products (including vegetable juice) - a drop in tax of $73.2 million in 1999-00.
  • Remove the WST exemption for caviar and tax it at the luxury rate of 32% - increase of tax of $100,000 in 1999-00.
  • Remove the WST exemption currently applying to business jets and impose the standard rate of 22% - $10 million in 1999-00.
  • Increase the customs duty rates for four-wheel drive vehicles from 5% to 20% (the rate currently applying to passenger motor vehicles).
  • Apply a "per stick" excise to cigarettes. The ALP has indicated that it will apply the tax to the number of cigarettes produced, not the weight of tobacco in the cigarettes. Cigars and other tobacco products will continue under the weight-based system. This policy is in line with that of the current Government as announced in their recent tax policy. Tax increases in 1999-00 are estimated at $250 million.

Business tax incentives


Labor has indicated that it will increase the present 125% R&D tax concession to 150%. However, the concession will only be available to:

  • companies with fewer than 500 employees; or
  • companies with over 500 employees which spend 2.5% of their turnover on eligible R&D activities.

Labor has focused its concession on what it describes as "high growth sectors" such as telecommunications, pharmaceuticals, computer software and automotive components.

The ALP proposes to provide a fast tracked claiming procedure for businesses with less than $250,000 per annum of R&D spend.

Labor estimates that the R&D changes will cost $51 million in 1999-00 and $238 million in 2000-01.

Development allowance

A new development allowance will be introduced to provide an accelerated tax deduction at a rate of 20% on total eligible investment expenditure undertaken after 1 July 1999 and before 30 June 2003.

The scheme will be capped at $5 billion of eligible expenditure. Although the allowance will be similar to the 1992 scheme, it will not be focused on such large scale projects. For instance, one of the priorities for approval will be for investment between $5 million and $100 million.

Entitlement to the development allowance will flow from certification by the Treasurer after evaluation by Labor's proposed new National Development Authority.

Extension of infrastructure rebate

A Labor Government will:

  • Retain the existing Infrastructure Rebate, but broaden its scope beyond road and rail projects to cover investments such as electricity, water, sewerage, renewable energy projects and gas pipelines.
  • Lift the current funding cap of $75 million per annum to ensure an additional $2.5 billion of regional infrastructure projects obtain assistance over a 5 year period. The investment profile equals $500 million per annum for each of the years of income 1999 to 2003.
  • Provide an additional amount of $10 million in 2000-01 and $20 million in 2001-02 to assist in the construction of a very fast train link between Sydney and Canberra should that project proceed.

Incentives for venture capital

A Labor Government will put in place a series of measurements to encourage more venture capital investments in "start-up" and early stage enterprises.

To encourage specialist US investment funds to invest in Australian venture capital projects, Labor will allow the overseas fund, in concert with Australian investors, to invest through a limited number of tightly regulated Approved Venture Capital Funds (AVCFs). The AVCFs will not have to pay capital gains tax on gains made on their approved venture capital investments. This tax-free status will flow back to investors in the AVCFs. The net cost of allowing the exemption in question is estimated at less than $1 million in 2001-02.

To further encourage venture capital activities, Labor will commit $12 million to develop a partnership with Australian business schools, regional development organisations and the venture capital industry.

Labor will commission an Inquiry into the venture capital industry with particular emphasis on what additional initiatives are needed to accelerate the successful growth of start-up an early stage Australian industry.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information please contact:

Michael Croker
Coopers & Lybrand Tower
580 George Street
Sydney 2000

Tel No: +61 29 28 57 777
Fax No: +61 29 26 18 777
E-mail:  Click Contact Link 

Visit the PricewaterhouseCoopers in Australia website at Click Contact Link

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions