Wayne Swan (Lilley, Australian Labor Party, Shadow Treasurer) Share this | Hansard source

I certainly am, Mr Deputy Speaker. I am talking about the take-home pay of hardworking Australians who pay tax and go to work to earn an income that they can live on, and their living standard is a function of what they earn in the workplace and how much tax they pay to the Howard government. At the moment, the miserly tax cuts that many of these lower paid workers were given have been gobbled up by the attack on their wages and working conditions. Nothing could be more pertinent to this bill than those two features of the Howard government’s attack on their living conditions. Nothing could be more pertinent to this bill than the impact of tax and its interaction with the government’s extreme industrial relations legislation.

The tax cuts in this bill for high-income earners are significant—principally, the measure to reduce the top marginal rate from 47c in the dollar to 45c in the dollar above $150,000 per annum. As a consequence of these changes, our top marginal rate is now much closer to the OECD medium. That is a positive outcome from the perspective of having an internationally competitive taxation system, but what is worrying is that the tax cuts for most workers can be swallowed up many times over by the savage assault on their wages and working conditions. That is the point. What is left in the hand after they pay tax on earnings, which are diminishing for the many workers who are subject to vicious AWAs such as we have seen at Spotlight?

That brings me to work incentives. Labor believes it is not just the high-income earners who deserve incentive. The tax measures we are debating today fail to systematically address the high effective marginal tax rates that plague our tax transfer payments system. It must be said that most of the elements adopted by the government to ameliorate the worst work disincentives mirror those proposed by Labor over a year ago when there was far less room in the budget for substantive reform. For taxpayers on low incomes—that is, those moving from welfare to work and the many second-income earners—the main change is a new effective tax-free threshold of $10,000, delivered through a new $600 tax offset. This is a big improvement—indeed, we put it forward last year—but it is worth while putting it into perspective with the problem it is trying to address. For taxpayers earning less than $10,000 per annum, effective marginal tax rates fall by up to 15c in the dollar by removing the overlap of tax and withdrawal of cash benefits. However, the taper range for social security allowances and family tax benefit part B extends further, up to roughly $20,000 per annum. Over this income range, an EMTR of around 70c in the dollar can still apply. So, while work incentives are improved for those earning less than $10,000 a year, they remain poor for those earning between $10,000 and $20,000 per annum. That is not a good outcome—nor is it a substantial income.

Also blunting the budget’s impact on workforce participation is the government’s decision not to incorporate the new $600 tax offset in fortnightly PAYG withholdings. Instead, it will only be paid when tax returns are lodged at the end of 2006-07. A lot of people on low incomes are in for a rude shock. They are going to be expecting a fortnightly tax cut, but it is not going to be there. These people face the rising costs of petrol and groceries and the difficulty of getting to work. The cost of all these things keeps going up. The government says, ‘While prices go up on a fortnightly basis, we’ll give the offset to you in a lump sum at the end of the year’—as if people want to suspend eating for a year or suspend all other costs for a year. Costs happen regularly. This government has decided in a very mean and narrow way to deliver this tax relief to low-income earners as a lump sum at the end of the financial year, when they need it on a fortnightly basis, during the year, to meet the rising expenses of life.

Of course, the government’s failure to provide this tax relief on a fortnightly basis will almost certainly reduce any expected behavioural response, as those who stand to benefit will not notice any improvement in their take-home pay each fortnight—precisely when they are making judgments about whether a return to work is worth it. It will be felt especially by mums returning to work who use child care. Out-of-pocket child-care costs often make the biggest dent in their take-home pay, yet the tax relief contained in the budget will not be available each fortnight to help offset it. This is a repeat of the debacle of the government’s 30 per cent rebate for out-of-pocket child-care costs promised 18 months ago. Not one cent of that rebate will be delivered until after 1 July this year. I do not know whether this government understands how people live—if it provides support solely in one-off payments at the end of the year.

Before the budget, Peter Costello’s tax system punished mums who work, and that remains the case after the budget. Yesterday at estimates we had confirmation from Treasury officials that the decision not to incorporate the enhanced low-income tax offset into fortnightly tax withholdings will reduce the behavioural impact of the measure. The Treasury itself has admitted that the government’s decision to do this on a yearly basis will not enhance workforce participation, which the Treasurer has previously claimed in this House remains the government’s No. 1 priority. As usual, the government says one thing and its policy heads entirely in the other direction. This is one example of where the tax measures announced last week fall short of systematically addressing high effective marginal tax rates.

Middle-income families will still face a tax grab on extra earnings of 51.5c in the dollar, well above the new top rate of 45c, because the increase in the family tax benefit part A threshold shifts taper zones but does not reduce them. Also, despite the changes in the budget, single-income families with children will still face a staggering EMTR of between 82 and 98.9 per cent on annual incomes between $25,000 and $35,000. For a family—and this is a stunning figure which shows the narrowness and meanness of the Howard government—on $25,000 a year, these absurd disincentives mean they will keep less than $800 of a $10,000 per year increase in earnings. If that were happening to high-income earners in this community, there would be a riot. This government is very strong in taxing people on low incomes and handing out punishing disincentives but very weak in delivering the reforms that are required to enhance participation and deliver sustained financial security to families who are struggling to balance work and family life.

That brings me to capital depreciation measures, a positive measure in the bill we are debating today. Most assets are now depreciated on the basis of their effective life. This means that the Commissioner of Taxation describes the effective life of an asset to be over when the asset can be written off. Two methods are generally available: the prime cost method, which divides the cost equally over each year of an asset’s life; and the diminishing value method, which allows a taxpayer to claim a deduction of 150 per cent of the written-down value of the asset. Under the pre-budget rules, the deduction in the first year is 150 per cent of the prime cost value and in the second year it is 150 per cent of the residual value—that is, the purchase price less the write-off in the first year. Although the asset is depreciated more rapidly in the earlier years, the same net reduction applies over the effective life of the asset. The government has now increased the rate for the diminished value method to 200 per cent so that deductions will be even more front-end loaded over the life of the asset. This is effectively a form of accelerated depreciation. Labor supports it given the importance of capital deepening in boosting productivity.

There was certainly significant scope in this budget to embark on a process of significant and staged tax reform. When the Treasurer released his Mid-Year Economic and Fiscal Outlook in December, it projected budget surpluses of $42 billion over four years. By the time the Treasurer delivered the budget three weeks ago, the budget envelope, before any new tax or spending measures had been announced, had swelled to $93 billion over the same period. As jackpots go, that is a huge increase—an increase over the period from December to May of $51 billion.

Never before has a Treasurer been presented with such an opportunity to shape our economic future. In the area of tax, the option was certainly open to the Treasurer to announce significant and staged reform, and he did not. There was no vision—no plan for where our tax system should be in 10 years; no plan to fix, once and for all, the high effective marginal tax rates that are holding back workforce participation and undermining the financial wellbeing of too many families in our community; and no proposals to simplify the tax system or make it fairer. Despite the positive and long overdue measures in this bill, middle Australians are still taxed very heavily. When they put in they do not necessarily get enough back. Families who work hard and try to get ahead deserve to see some reward from their efforts. This is particularly the case for second-income earners, who often re-enter the workforce to help pay off the mortgage or meet school fees.

A couple of weeks before the budget, the Treasurer said in a speech to the National Press Club that he wanted to see Australian society and the Australian workforce become the most female-friendly in the world. What we actually see, with the continuation of these high effective marginal tax rates and the fact that they have been made worse in some cases in this budget, is a Treasurer who operates a tax system which is one of the most unfriendly to females in the Western world.

When second-income earners, who are principally women, lose anywhere between 50c and 80c of every additional dollar they earn, these high tax grabs really slug the female workforce, who predominantly earn less than men, who are predominantly looking for better hours of work which are family friendly, who frequently have less choice about how they do that work and who frequently face much greater stress in trying to place their kids in affordable care or in some arrangement which is consistent with their work hours. It is simply obscene when the Treasurer goes to the Press Club and claims he wants to make our tax system and our society the most female friendly in the world and then leaves in place a tax system which punishes their additional participation in the workforce when they want to do a few extra hours to help the family to get ahead, to buy the school uniforms or to set themselves up to deal with the educational expenses of their kids—to do that something extra for their family to move ahead. The government has designed a tax system which really hits those people for six.

So there can be no false claims about the government being female friendly when it comes to tax or society more generally. That is particularly also the case when you look at what is occurring, or not occurring, in child care. We can see the broad sweep of what is happening with their extreme industrial relations changes and how the people who are going to suffer most and first and hardest are those low-income earners, predominantly women who are not necessarily working full time. This government cannot claim to be family friendly when you combine the impact of the IR laws and the tax burden, particularly on middle- and low-income earners, over the life of the government. The government cannot claim to be friendly to low- and middle-income earners and certainly cannot claim to be all that friendly to families. And they most certainly cannot claim to be female friendly when it comes to taxation.

It is not good enough that they have left in place a system where second-income earners lose 60c, 70c or 80c out of each dollar of their additional earnings. Further tax reductions along with child-care reforms are needed to improve incentives for second-income earners. Such reductions will also benefit individuals moving from welfare to work, who also face high effective marginal tax rates of 70 per cent or more. That is a whole story in itself—what the government is doing to people who are attempting to stand on their own two feet by moving from welfare to work. They are attacking their incomes, not just through the industrial relations system but through some very mean, narrow and ultimately unproductive changes to the welfare system which will really punish many people in vulnerable situations.

In a sense, this bill sums up so much of what is wrong with the Howard government. Its failure to invest for the future by not introducing the incentive into the tax system that is required, along with its failure to invest in the skills of our workforce and the education of our kids and our future workers, sums up so much of what is wrong with the government. If we do not attend to these problems, prosperity for this country well into the future cannot be guaranteed. If we are going to guarantee prosperity for the future, we have to invest in it. We have to put incentive in the tax system to enhance participation. The Treasurer’s budget speech did not mention the word ‘participation’ even once, and you can see why when you see the sort of perverse outcomes that still remain in the system despite the once-in-a-generation opportunity the Treasurer had to fix up these problems. That is why I have moved the amendments circulated in my name.

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