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

The member for Moncrieff finished his monologue—and it was a monologue because he could not even retain in the chamber the 30 members on his side of politics who were called into the parliament to come and listen to him. As soon as they were able to, they made good their escape and I do not blame them, having listened to that contribution. He finished his monologue by saying that this government is a low income-taxing government. Nothing could be further from the truth. This is the highest taxing, highest spending government in Australia’s history. We can come to that conclusion on the basis of income tax alone, but if we add the orphan tax, the $40 billion-plus GST, then unambiguously this government breaks the record, smashes the record, as the highest taxing government in Australia’s history. This is a government that denies that the GST is a Commonwealth tax. But ask the Auditor-General or ask the Statistician—they know it is, and they have said that. Of course the GST is a Commonwealth tax, because we are all here in this parliament debating it week after week, month after month. It passed through this parliament and then the government said, ‘We don’t own this tax,’ so it is an orphan tax.

The changes made in this budget to the income tax system constitute a small step towards income tax reform, and I would not put it any higher than that. But a small step towards tax reform should be supported, and this why Labor is supporting these changes to the tax arrangements in the  Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Bill 2006. Towards the end of last year, well before the federal budget was prepared, I responded to an invitation from the Treasurer to all interested parties to lodge pre-budget submissions to give our views on what should be included in that budget. I did so, setting out a tax reform down payment, part of which—but only part—has been delivered by this government. I suggested that the 42c rate be cut to 36c. What has the government done? It has cut the 42c rate by just 2c to 40c. I suggested increasing the low-income tax offset from $235 to $625. What has the government done? It has increased the low-income tax offset from $235 to $600. I also suggested that the low-income tax offset be phased out at a higher level of income, at $70,000, whereas this government increased the threshold for the phasing out of the low-income tax offset from $21,600 to $25,000—a very small step but at least a step in the right direction.

The proposals that I put forward in that submission would have given tax relief of $12 a week to low- and middle-income earners and amounts slightly higher than that to people on incomes around $80,000 a year. Instead, the government has given income tax relief of less than $10 a week to low- and middle-income earners. We know that $10 a week is being gobbled up through the triple whammy. Take the higher interest rates. The Treasurer and the Prime Minister of this country gave the impression that there would be no increases in interest rates in this term of parliament if the coalition were re-elected. We have already had two of those and, as I will explain shortly, there is the very strong prospect of a further interest rate rise just down the track.

So the government has implemented a very modest reform proposal. I think it could have been far more innovative. I think it could have done a lot more to reduce the high marginal rates of income tax that afflict our system. It is worth looking at where those high marginal rates of income tax can be found. They can be found where people are wanting to move from welfare to work. We are supposed to encourage Australians to move from welfare to work. Both sides of politics argue that people are better off in a job, yet, instead of encouraging people to move from welfare to work, this government has erected obstacle after obstacle in their way. For example, a sole parent pensioner is going to get the shock of her life on 1 July this year. A single mother will be forced, when her youngest child turns eight, to move from the sole parent pension to the Newstart allowance. That is a $29 cut in her allowance. Worse still, the income-free area—that is, the area in which the sole parent can earn income and not lose any benefit—will be smaller under the Newstart allowance than under the sole parent pension and then the rate at which the benefit is lost will be harsher than under the sole parent pension.

The government, through its so-called welfare reforms, is still creating effective marginal tax rates of up to 75 per cent for single mothers. When you add together the lost benefits and the tax paid as single mothers seek to move from welfare to work, you get 75c in the dollar. If you then add in travel costs, and with the high price of petrol they are going up, child-care costs, and with the high price of child care they are going up, and work clothes, you get a situation where poor single mothers will be expected to work for less than $3 an hour. That is just a reminder of the approach of this government to the idea of moving from welfare to work. It is not moving from welfare to work; it is moving from welfare to welfare. What will a poor single mother do in these circumstances where she is confronted with a $29 drop in remuneration from these benefits? She will have another baby and pick up a $4,000 maternity allowance, which is set to go to $5,000 in 2008. So it is bouncing people from one welfare payment to another, with no assistance and no incentive to move from welfare to work.

Where are the other high effective marginal tax rates in the system? They are on the second earner in a family; again this is usually the mother. Under the family tax benefit arrangements there are punitive penalties for a mother who has had a baby and is at home but wants to move from home to work. The tax paid and family tax benefits lost are huge. The consequence is that around 70c in the dollar is lost. If a top marginal rate of 48.5c seems high to coalition members, surely 70c or 75c in the dollar for single mothers or for women wanting to move back into the workforce is high. But what has the government done about this? It has done very little, and in many areas it has exacerbated the problem because that is what the Prime Minister wants: he wants women to stay at home, have babies and not move back into the workforce. How do we know that? Because he pays wealthy women to stay at home. He gives them family tax benefit part B of $3,300 a year as long as they agree to stay home and not move back into the workforce.

Is it any wonder that, of any OECD country, Australia has among the lowest number of hours worked per woman? They are responding to the disincentives that have been put in place by this government. So these changes do not constitute anything but a very small step towards genuine tax reform. Moreover, they do not constitute genuine tax cuts. Why do I say that? Because for most income earners these tax changes do not give back bracket creep. I have done the calculations and, compared with 2001, people earning $40,000 will still be $15, almost $16, behind the eight ball as a result of bracket creep, even after these tax changes come into force. People on $50,000 will be $25 a week worse off, still behind as a result of the insidious effects of bracket creep. People who are on $60,000 will be more than $33 a week worse off as a result of bracket creep, even taking account of these changes, and people on $70,000 will be $23 worse off. If there is no further tax relief then the problem of bracket creep will march on and on, and the figures will become horrendous by around 2009.

My colleague the member for Hunter drew attention to the potential impact of this budget, in particular the tax changes, on interest rate pressure. He was right to raise this issue. At the time of the last budget, during my speech in the appropriation debate I warned that the way the budget was constructed was likely to put upward pressure on interest rates. This was dismissed completely by government members during the debate. But what happened? Interest rates did rise. The way in which the government could have done something this time to alleviate the prospect of an interest rate rise as a result of the fiscal stimulus would have been to cut government spending. But they did not cut government spending, other than by a paltry $2 billion over four years. But new spending will amount to $20 billion over four years. I can just imagine the discussions that took place in their Expenditure Review Committee meeting. There were not any spending cuts. A minister would have gone in with an ambit claim and would have walked out looking hangdog because only three-quarters of the ambit claim got up. That is why I say that this is the biggest taxing, biggest spending government in Australia’s history.

The member for Moncrieff reacted to the very sensible suggestion of the member for Hunter that there is no reform agenda to create productivity growth in this country. In fact the member for Moncrieff claimed that productivity growth is going strongly in Australia. He had better have a look at the statistics. Productivity growth went into reverse gear in 2004 and has barely recovered since that time. We have barely had net productivity growth since 2004. That goes to the heart of the problem: the lack of a productivity-raising agenda and the petering out of the productivity surge from the great reforms of the Hawke and Keating Labor governments. This government has not embraced a productivity-enhancing agenda, and that is why you do get inflationary pressures and that is why you do get pressure on interest rates.

On the very question of productivity growth, the member for Moncrieff referred to a session that members of the House of Representatives Economics, Finance and Public Administration Committee had with the Governor of the Reserve Bank. The member for Moncrieff said that the Governor of the Reserve Bank said that there would be ‘no problem with tax cuts’. I was the one who asked that question. The governor said that there would be ‘no problem with tax cuts in terms of an impact on interest rates’. But there is a problem with a lack of productivity growth. The Intergenerational report, released by the Treasurer in 2002, assumed that productivity growth would fall back from the record surge of 2.05 per cent per annum, created by the reform program of the Hawke and Keating governments, to 1.75 per cent per annum from 2005 and onwards. Under that scenario the Intergenerational report forecast the slowest rate of growth in per capita gross domestic product from 2010 onwards since the decade of the Great Depression. That is going back from 2.05 per cent per annum to 1.75 per cent per annum. But it has not gone back to 1.75 per cent per annum. It has gone back to zero. And worse, it has gone into negative territory and has failed to recover.

During that same meeting with the Governor of the Reserve Bank, I asked a follow-up question about the impact of the Work Choices legislation. We heard the member for Moncrieff say that the Work Choices legislation will create more jobs. I doubt that. That is the one claim this government has made for the Work Choices legislation. I said to the Governor of the Reserve Bank, ‘If it creates more employment, it can’t be consistent with productivity growth,’ and he said, ‘You’re right.’ So the big claim for the Work Choices legislation can be that it is going to either increase employment or somehow increase productivity growth, but it cannot do both. This highlights absolutely the lack of a productivity-raising agenda.

The member for Moncrieff went back into history and spoke about interest rates, inflation and the recession in the late 1980s and early 1990s. It is therefore apt that I refer to a statement that the Governor of the Reserve Bank made when he was deputy governor back in 1992. I think it is worth reading. He said:

It was clear by the late eighties that policy, including monetary policy, had to be tightened to bring a substantial slowing of the economy. The economy was growing too fast. We were living beyond our means and there was an unsustainable amount of debt financed asset speculation occurring. Some people think that if only the instruments of monetary policy had been adjusted in a more skilful and timely manner, we might have avoided a recession, but I very much doubt it.

…     …         …

… on this occasion, we had to run a monetary policy somewhat tighter than in earlier recessions and to take the risk that the fall in output would be greater than forecast. To do less than this would be to throw away the once-in-a-decade opportunity for Australia to regain an internationally respectable inflation rate.

…     …         …

It is true that we paid a substantial price to reduce inflation, but we had to do it at some stage. We have paid the cost … the task now is to maintain low inflation when we return to growth.

The member for Moncrieff ought to be careful when he invokes the words of the Governor of the Reserve Bank, because the Governor of the Reserve Bank argued formerly—I respect the Governor of the Reserve Bank, but I do not necessarily agree with him on this—that monetary tightening at that time was necessary to break the back of inflation. The trouble is that the circumstances are being repeated. You would think a government would learn from history, but again we have asset price speculation, very strong consumer demand, record current account deficits and record trade deficits—48 trade deficits in a row—and the Treasurer of this country will soon preside over foreign debt of half a trillion dollars.

When the international markets look at the value of the Australian dollar and the structural imbalances in the Australian economy when the resources boom tapers off, it is very likely that the Australian dollar will fall. What is the consequence of that for inflation? It will increase the price of imported goods. We already have strong inflation in the price of non-traded goods. It has only been due to the high dollar—together with the fact that China is producing very low-cost manufactured goods—that the price of imported goods has not risen. If the Australian dollar falls, as we expect it will, that will import inflation. Add that to the inflation already going on in the non-trading sector and you get an inflationary surge. That is why I say the likelihood is that there will be a further interest rate rise towards the end of this year. I am not saying it is a certainty, but the structural balances that were evident in 1989 are writ large again in 2006 and the government is doing nothing about it. The government has not embarked on a reform agenda at all.

I welcome the presence in the House of the Minister for Education, Science and Training. I hope you do a better job than your predecessor. Education is the key that opens two doors. One door leads to productivity growth and prosperity and the other door leads to opportunity for all Australians. With all the revenue coming in, this government has had a marvellous opportunity to invest in the nation’s future—to invest in the nation’s children, to increase our skills base, to increase the number of students going to university—and it has failed to do so. The government has an elitist attitude towards university education. For two years in a row—for the only time in the last half-century—enrolment of undergraduate students has fallen. The minister’s predecessor said to the Australian newspaper that he fully expected the number of university graduates in this country to continue to fall over the next 10 years. I hope, Minister, that you will repudiate that statement. The key to productivity growth in this country is to lift the skills base by making sure that more young people go into the trades and into university.

This is a budget of squandered opportunity. I welcome the tax changes as a very small step towards reform. We must cut those high marginal rates of income tax facing people wanting to move from welfare to work and second-income earners. Sadly, in this budget, the government has done nothing about that, so it gets a very low mark. But at least there is a positive mark, because these changes are a very small step in the right direction. The government needs to embrace a genuine productivity enhancing agenda and should lose no time in doing so.

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