More than five million individual taxpayers with savings in banks, building societies and credit unions will only pay half the tax on the interest they receive, meaning more money in their pocket come tax time that could be used to grow their savings even further.

Assistant Treasurer Bill Shorten today released a discussion paper outlining the Government’s proposed approach to introducing a 50 per cent tax discount for interest income, as announced in the 2010-11 Budget.

"The introduction of the discount will benefit more than five million taxpayers, with particular benefits for low- and middle-income savers who are more likely to put their savings into banks, credit unions or building societies, rather than investments," Mr Shorten said.

"A tax discount for interest income is an important step towards a more consistent taxation regime for savings."

In 2012-13, individuals will be entitled to a tax discount equal to 50 per cent on up to $500 of interest income received.

From 1 July 2013, individuals will be entitled to a tax discount equal to 50 per cent on up to $1,000 of interest income received each year.

The discount will apply to interest received from deposits held with any bank, building society or credit union, as well as interest on bonds, debentures and annuity products.

"If you are an average income earner and have $10,000 savings in an account that earns 5 per cent interest, you will only pay around $80 of tax on the interest income in 2012-13, compared to around $160 if this measure is not passed," Mr Shorten said.

"The tax discount for interest income will improve incentives for individuals to put their money into interest-bearing savings accounts, reducing some of the discrepancies in tax treatment that currently exists between different investment and savings options. I encourage interested taxpayers and others to make submissions to the discussion paper."

This measure is part of the Government's Simpler, Fairer, Stronger tax reform package, and is contingent on the passage of the Minerals Resource Rent Tax legislation.

The Government values consultation and invites interested parties to view the discussion paper and provide comments. Copies of the discussion paper can be obtained from the Treasury website (www.treasury.gov.au). The closing date for submissions is 5 August 2011.

12 July 2011