The federal government is set to unveil a new income tax for a first time in a decade on Tuesday.
The Government’s economic advisory committee has recommended the change after a review of the tax’s impact on the economy and the tax is expected to be unveiled at a press conference.
The review found that the current tax rates are too low and that a change in the tax rate would not lead to more revenue.
“It’s an incredibly important change that will impact on all of us, including the top earners,” Federal Treasurer Scott Morrison said.
“This will help us reduce the rate of tax, but it will also provide some relief for small businesses.”
The committee’s recommendation comes after months of discussion about the tax.
In February, the treasurer announced that the tax would be raised by 25 per cent over three years.
“Our plan is for a tax of at least 25 per in our budget for businesses, at least that’s what we’re going to set out in the Budget,” he said.
The plan would be introduced on Tuesday, with the full detail to be released in the next few weeks.
Treasurer Scott Morahan.
Photo: Alex Ellinghausen Mr Morrison said the tax was “one of the key parts of our economic strategy”.
The committee report found that while the current rate was “too low”, it was “not a very effective way of reducing tax”, because it “does not create the necessary revenue to pay for the other taxes that we need to fund our government”.
“The best way to get the job done is to continue to reduce the rates,” Mr Morrison told ABC radio.
“The rate will continue to fall as we work with businesses, and they will be rewarded for doing that.”
He said the government would not raise the rate by 25 cents a dollar from July 1.
“We are not going to increase the rate from July one, because that’s not what our plan is, that’s a policy decision that we have to make in the context of the next financial year,” he told reporters.
“What we have is a tax that’s just a fair amount of money.”
He described the proposal as a “significant” change and said it would make Australia’s economy more competitive and “support the middle class”.
But the report also said it was not enough to provide relief for all Australian households.
It recommended that the rate be raised to 30 per cent by 2019 and 25 percent by 2021.
“At the moment, there are people on very low incomes who would have to pay much more to live in Australia than they would in New Zealand or Switzerland, which is a very good thing,” Mr Morahan said.
He said a 25 per per cent rate would be “a very generous and fair” change for people on low incomes.
But Labor’s shadow treasurer Nick Xenophon said the proposal was a “disaster” for small business.
“A 25 per dollar tax for every dollar of income would cost Australian businesses $5 billion a year,” Mr Xenophon told ABC Radio.
“They are going to pay the biggest increase in tax rates on a working family since the 1970s.”
The treasurer said the “fair and progressive” rate would apply to “every single Australian”.
He said if there were a change to the current system, it would be made “in consultation with business and other stakeholders”.