Craig Emerson (Rankin, Australian Labor Party) Share this | Hansard source

Last night when I was speaking on the appropriation bills, I covered taxation issues and foreshadowed that I would then move on to wages. The truth of the matter is that this government has presided over an acute skills shortage and, as a consequence, it is very worried, as is the Reserve Bank, about the prospect of wage rises that would create a wage-price inflationary spiral. The government’s Work Choices legislation is much better understood not only as an attack on unions and, through unions, an attack on the Australian Labor Party but also as an attempt to suppress wages and therefore avert an interest rate rise. The problem the government has is that, with these acute skills shortages, employers in some sectors, especially the mining sector and related sectors, are needing to offer large wage increases in order to attract and retain skilled employees. Therefore, the government wants to suppress wages at the bottom end. We know that is the case through the creation of its so-called Fair Pay Commission. The authority to establish the minimum wage is taken away from the Industrial Relations Commission and given to the much tamer outfit of the so-called Fair Pay Commission.

The government wants to suppress the minimum wage—we know that. A consequence already of its delays in establishing this Fair Pay Commission has been a wage freeze in the order of 15 months. We have a government that wants to keep the minimum wage low, but the government also has indicated publicly that it is prepared to intervene in state jurisdictions when, for a selected number of employees, the states’s industrial relations commissions are hearing the case for minimum wage rises. One report on this in the Australian Financial Review on 16 May is headed:

Andrews to block union pay push.

The subheading is:

Challenge to state powers. Concern over wage inflation.

That is confirmation that, as much as anything, the Work Choices legislation is being used as a device to suppress wage increases for average earners and vulnerable workers in order to achieve the government’s desired overall economic objective—to avoid an interest rate rise. How has the government managed to get itself into this situation? Why has it not foreseen the emergence of skills shortages in this country that then creates these sorts of pressures? The Treasurer and the Prime Minister say this legislation is all about choice, freedom and flexibility—it is not. It is about smashing unions and keeping downward pressure on the wages of the most vulnerable because the government cannot keep downward pressure on the wages of executives and is certainly not interested in doing that. Nor can the government keep downward pressure on the wages of highly skilled workers in the mining sector and other booming parts of the Australian economy.

I now move to the issue of superannuation. The government’s changes have been regarded as sweeping and as a massive simplification. On that score, it is true that removing all taxes effectively on superannuation payouts does simplify the system. By the way, so would removing income tax altogether. That would make for a marvellously simple income tax system; you just would not have one.

I want to draw the attention of the House to a few considerations. The government’s changes, as foreshadowed but not absolutely determined because they are set out in the discussion paper, would appear to have the effect that in the future all people over the age of 60 will not pay income tax. Some may choose to pay income tax, but effectively income tax would be a voluntary tax for people over the age of 60. Why do I say that? The answer is that people over the age of 60 can take their superannuation, continue working if they so choose and put the superannuation into a preferred vehicle that is going to be designed by the government; and any income arising out of that investment vehicle will also be tax free. So any returns on superannuation beyond the age of 60 will be tax free, and any other income that the person over the age of 60 earns will be subject, through the senior Australian tax offset, to a tax-free threshold of around $20,000 for a single person and $40,000 for a couple.

I want to make it perfectly clear that I am not complaining about this. I am not objecting to this, but I am drawing the attention of this parliament to the reality that under the government’s changes people over the age of 60 will no longer need to pay income tax. A lot of people would say, ‘Isn’t that a marvellous thing?’ A lot more people would say, ‘Wouldn’t it be marvellous if no-one had to pay income tax?’ With the time remaining I want to explore from where the pressure will emerge if in the future a large proportion of the population will not be paying income tax—and it will be a large proportion. In 2002 the government released the Intergenerational Report that reminded us that there is a massive problem of population ageing in this country. Having a look at the Australian Bureau of Statistics official projections we see that now, in 2006, about 18 per cent of the population is over the age of 60. But by 2041 that will be around 31 per cent. That is a massive increase—from 18 per cent to 31 per cent. The implications of that are surely profound. A much larger proportion of the population will be income tax exempt as the population continues to age.

That can be remedied by any one of three ways. The first possibility is that income tax rates on those who are working will have to go up dramatically in order to provide the revenue to fund the services for working age, older and younger people. The second possibility is that the services that are currently provided to people over the age of 60 will no longer be affordable in the future—that is, an age pension may not be affordable in the future. Aged-care and health-care services may not be affordable in the future because of this dramatic narrowing of the income tax base. The third possibility is that the government of the day, if it were a conservative government, will say, ‘That GST at 10 per cent is just not doing the job anymore; we will increase the GST rate in order to compensate for the fact that we are losing so much of the income tax base.’ We know that the GST is a very regressive tax, and the implications of increasing the GST rate on the poor and the vulnerable would be horrendous. The other possibility is removing the exemption for food. So when the government finalises its consideration of superannuation, it needs to tell the Australian people which of those options it favours for the future. Either withdrawal of services for older people, much higher income tax rates and work disincentives for working age people, or an increase in the GST rate: something has to give.

It all sounds marvellous, it all sounds simple, but the truth of the matter is the chickens will have to come home to roost at some time in the future. It is all very well for a government to say, ‘Isn’t this terrific; aren’t we great,’ and then leave a huge problem for the future. I look forward to the government explaining which of those remedies it would employ to compensate for this massive loss in the income tax base.

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