Lindsay Tanner (Melbourne, Australian Labor Party, Shadow Minister for Finance) Share this | Hansard source

The Family Assistance, Social Security and Veterans’ Affairs Legislation Amendment (2005 Budget and Other Measures) Bill 2006 does a number of things, all of which Labor is supporting. The legislation extends the upper threshold for accessibility to family tax benefits to $37,500 from the current upper limit, for the maximum, of $33,361. It changes the arrangements with respect to the backdating of carer allowance for particular recipients. It provides the Secretary of the Department of Families, Community Services and Indigenous Affairs with the power to change the allocation of child-care places to move places from areas of relatively low or unexpectedly low demand to areas of high demand. Finally, it allows for the offsetting of debts with respect to child-care benefit against tax returns or refunds paid to individual taxpayers.

Labor broadly supports the legislation but is going to move a number of amendments relating to some of the issues that are traversed by this piece of legislation. In particular, Labor will be moving an amendment to provide for the withdrawal of the entitlement to family tax benefit B that currently applies to families in receipt of incomes of $250,000 per annum or greater, which is an issue that has been dealt with in some detail by some of the previous speakers from the opposition.

I want to address a broader question that the legislation indirectly raises, and that is the ever-growing proliferation of transfer payments, both broad income support payments and more specific and targeted payments from the Commonwealth budget. It is something that has been contributed to by governments from both sides of politics over the years, but it is a particularly strong trend under the Howard government. That raises a number of very important issues which are ripe for wider public debate and really have not been addressed. When we consider the various issues that are raised by these things, there are a number of matters that we need to properly consider in forming a view about the future of income assistance for people in Australia and about the future of specific payments that are provided with particular tags to families and to individuals to enable them to better access particular kinds of services.

We need to consider effective marginal tax rates that result as a collision between the family payments system and the tax system. Labor has sought to address this for some years, with proposals for tax credits as far back as the 1998 election. This is still a major problem, and the tinkering with the structures that we have seen on occasions has not alleviated it. Very large numbers of Australians face very strong disincentives to re-enter the workforce or to increase their contribution to the production process, as it means they would face a very high effective marginal tax rate for the additional dollars they earn, because of the intersection between family payments and the ordinary marginal tax rates.

The operation of the family tax benefits system has resulted in a chronic problem of overpayments. People have been forced to estimate their future incomes, often in circumstances where it is not necessarily easy for them to do so. They have then been lumbered with an unexpected debt, the repayment of which, in many circumstances, has been very difficult for them. The family tax benefit system has become a very cumbersome administrative burden for the Commonwealth and, inevitably, an additional cost to the taxpayer.

We have an extraordinary proliferation of income tests and assets tests, with sometimes conflicting and inconsistent approaches taken to different entitlements. Family tax benefit B is an entitlement that has been focused on by the Labor Party in this debate. There are some families who earn $1 million a year but are still entitled to receive this payment, even though the government is busily engaged in trying to reduce the entitlements of or remove entitlements from many people on very low incomes.

The role of government to smooth fluctuations for citizens and families over the life cycle was relatively limited 50 years ago, but it has now become central. Once there was not much more than child endowment, the age pension and some very specific social security payments, such as unemployment benefits, that inevitably applied to only a relatively small number of people. In Australia we now have an extraordinary array of schemes and arrangements that are designed to limit the economic effects on families and individuals of child rearing, studying and ageing. Child-care rebates, the baby bonus, family tax benefits, the child support scheme, HECS, Medicare, the private health insurance rebate, occupational superannuation, home and community care, aged care subsidies, the parenting payment and an infinite array of smaller and more targeted programs reduce or inhibit the impact of economic fluctuations derived from changing circumstances over the life cycle.

Clearly, families inevitably have economic challenges when raising children. There is the same challenge for low-income families, middle-income families and, to some degree, even people who are reasonably well off. Inevitably, having children and raising them impact on the family budget.

Similarly, study has a major impact on the costs that families and individuals have to bear. In the world of 50 years ago, the overwhelming majority of people left school at the age of 14, 15, 16 or thereabouts and went into the workforce. For women it was for a relatively short period of time before they married and, typically, they ceased to be in the paid workforce for at least some time afterwards. Now it is common for study to be the dominant activity for people well into their 20s. Therefore, the economic burden of sustaining them—borne by the individual or by their families—is much greater than it was many years ago.

Similarly, older people have a life expectancy that is much greater than it was 50 years ago. The burden on the community, the costs of retirement incomes and maintaining health services, which typically are accessed by older people at a much greater frequency, have grown in relative terms.

Hence, the underlying causes of the massive proliferation of entitlements, government payments, transfer payments and income support payments are absolutely real. Many of the things that have been put in place to deal with these phenomena have been initiated by Labor governments, and we are proud of them. However, we do need to acknowledge that gradually a very messy mixture of entitlements and payments has been created in this country, often driven—in the case of the Howard government—by the need to present electoral goodies at election time. This has created a conflicting, contradictory and ultimately inefficient morass of payments. Although these payments have a legitimate underlying purpose, we need to ask whether we can do this better, more efficiently and more equitably.

Since 1969-70, the proportion of the federal budget devoted to social welfare and health insurance has risen from under 20 per cent to over 50 per cent. The proportion of the overall Commonwealth budget that is committed to payments to families and individuals to counteract the impacts of these changes on family finances over the life cycle has risen dramatically. It is now the majority of the federal budget. These days the government is not just an item in the family budget; it is running it. This ever more complex financial relationship between families and the state raises significant issues in respect of individual responsibility and public sector efficiency. Most of us are living much longer. We require more skills to participate in the production process and women in particular are participating in formal employment much more.

The complex mess that governments have created to respond to these pressures is crying out for serious reform. One example of this is being debated this evening. In 2003-04 family tax benefit B was paid to 38,500 families who earned over $100,000 per annum and 76 families who earned over $1 million per annum. According to research by the Parliamentary Library, by 2006-07 single-income families who earn $60,000 per annum, rent and have two children in child care will pay no net income tax—the combined effect of family tax benefits, child-care assistance and rent allowance for these families will in effect cancel out the income tax that they would have to pay.

In my view, that is an extraordinary level of direct government intervention in the financial circumstances of middle-income families. In effect, governments are taxing families then returning the money with strings attached, creating complex relational and financial effects along the way, most of them undoubtedly benign or positive but some not so. Comprehensive reform of this complicated web of financial relationships is, I think, essential, and it needs to be built not just on dry financial considerations, important though they may be, but also on the relational impacts, the behavioural impacts, of these arrangements.

We in the Labor Party support financial assistance for families. We effectively created it. We support financial assistance for people studying in order to better their skills. Again, the origins of much of this assistance that is entrenched in our system in this country come from Labor governments. We support proper, decent retirement incomes for elderly people. We support the provision of child care and child-care subsidies by the Commonwealth.

But I believe that we need to engage in a big search for a better way to deal with these issues, to reform and rationalise the way that we provide financial assistance, to ensure that individuals and families can exercise greater choice, greater flexibility over how they are able to use the financial assistance that the Commonwealth does provide to them. We need to ensure that we manage to rationalise the multiplicity of income tests and assets tests. We need to ensure that we are not paying welfare payments to millionaires. We need to ensure that there is a clear understanding that the purpose of these payments is to make provision for assistance to individuals and families who otherwise would have great difficulty in providing for themselves because of the circumstances that happen to apply in their particular stage of the life cycle.

We need to keep in mind the imperatives of government efficiency, because every time we add a new payment, a new entitlement, we add a new layer of administration. We add a new layer of processing. We add a new burden not only on the taxpayer in the primary payment, which is likely to be justified, but also in processing—in the time and the energy that is spent by Public Service departments, by the various organs of government which have to administer these schemes, but also by individuals. You only have to look at some of the forms that applicants have to complete for some of the entitlements that are now part of what government offers to individuals and families to see that there is also a burden that is imposed on the citizen and on families as a result of these unduly complex, and in some cases conflicting, entitlements.

Nobody knows how big that burden is. Nobody knows what the efficiency costs to government and the transactional or friction costs that are associated with delivering such a bewildering proliferation of different entitlements are. But it is long overdue that we have a very serious look at all of these entitlements in order to work out better ways of delivering the assistance, better ways of ensuring that the maximum amount of money goes to where it should go, that we are genuinely supporting effort, that we are genuinely supporting people studying, that we are genuinely assisting families to raise children and that we are genuinely assisting people in their older age to live a decent life.

I believe that we are just at the start of a major debate on these issues, and I look forward to contributing further to that debate. There will be many ideas, many possibilities, and I commend the amendments that are to be moved by the member for Sydney in this debate on the bill. I think they establish one very important principle that should be central in the further and wider reform considerations that I am keen to engage in and that I know others are—that is, we should not be in the business of providing transfer payments to very high-income families. We should not be in the business of providing welfare to millionaires. That should be a bottom-line factor in our considerations.

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