Carbon Tax: How it affects your budget

On July 1, after months of political debate, the Australian Government’s new scheme to put a price on carbon pollution came into effect. But just what impact will it have on your budget? 

Fortunately for cash-strapped consumers a range of household assistance measures will ease the burden of the so-called 'carbon tax'.

Tax cuts 

Effective July 1, the tax-free threshold has been tripled, while the 15 per cent and 30 per cent marginal tax rates have increased to 19 per cent and 32.5 per cent, respectively.

These rates are set to change again in three years time, with the tax-free threshold and the 32.5 per cent tax rate to be increased to $19,401 and 33 per cent, respectively, from 1 July 2015.

Benefiting lower-paid workers, the Low Income Tax Offset (LITO) has been rolled into the increased tax-free threshold. As a result, LITO has been cut to $445, effective 1 July, 2012, and then to $300 from 1 July, 2015.

Combined with the new tax-free threshold, this has increased the effective tax-free threshold for people eligible to receive LITO to $20,542, effective 1 July, 2012 and to $20,979 from 1 July, 2015.

These changes have also simplified the tax system for workers earning less than the tax-free threshold, as they will not have any tax deducted from their salary or wages. More than a million taxpayers will no longer need to lodge a tax return.

Small business 

Small business has not missed out under the reforms.

Effective 1 July, 2012, the instant asset write-off threshold has been increased to $6,500 for depreciable assets, for businesses with annual turnover of less than $2 million.

Social security, family assistance changes 

The carbon tax compensation package has also included measures to increase pensions, allowances and family payments:

Pensioners/allowees 

A clean energy supplement has been introduced from 1 July, 2012, equivalent to 1.7 per cent of the maximum rate of a person’s pension or allowance. It will be paid as follows:

• In May/June 2012, an advance payment was made to cover the period to 20 March, 2013.
• From 20 March, 2013, the clean energy supplement will be paid fortnightly.
• The maximum clean energy supplement is $338 for singles and $510 per year for couples combined.

Self-funded retirees 

Those eligible for the Commonwealth Seniors Health Card will also receive the same clean energy supplement as paid to pensioners.

Family tax benefit recipients 

A lump sum advance was paid to family tax benefit recipients in May/June 2012 to cover the period to 30 June, 2013. During this time, family tax benefit payment amounts will remain unchanged.

From July 1st, 2013, a fortnightly tax-exempt clean energy supplement will be paid. The initial lump sum advance and the future fortnightly supplement will be equivalent to a 1.7 per cent increase in the maximum annual rate of the relevant family tax benefit payment.

Low income, single income family supplements 

Single income families are eligible from 1 July, 2012 for a Single Income Family Supplement of up to $300 a year.

A low income supplement is also available for low income households who can demonstrate that the assistance will not fully compensate them against the carbon tax’s expected cost impacts.

Home users of essential medical equipment

For those using a dialysis machine or other life-support equipment at home, an annual cash payment of $140 is available in addition to any other assistance.

Thanks to a range of assistance measures that have been implemented in recent months, the fiscal impact of the carbon tax on Australian households and businesses has been somewhat eased, and will continue to evolve over the next three years.