Andrew Southcott (Boothby, Liberal Party) Share this | Hansard source

We were unable to get our full tax cuts through the parliament. An argument that is presented with this begrudging support of tax cuts for all Australians is that these tax cuts may contribute to inflation. One thing I do know is that budget deficits, such as those Labor built up, are much more likely to lead to higher interest rates than budget surpluses. Labor’s last five budgets, in the early 1990s, racked up over $69 billion of budget deficits. In that period, the budget deficits each year were 2.8 per cent of GDP, 3.9 per cent of GDP, 3.7 per cent of GDP, 2.7 per cent of GDP and, finally, 1.9 per cent of GDP. Compare that with the recent track record of the government’s budget surpluses. It is hard to argue that tax cuts lead to inflation when you have budget surpluses. We currently have a budget surplus of one per cent of GDP; 10 years ago we had a $10 billion budget deficit—in fact, in 1992 and 1993 we had budget deficits of $17 billion.

The Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Bill 2006 provides tax cuts. From memory, it used to be that, once you earned over $38,000, you would move from paying 34c to 43c of each dollar in tax. Under these changes taxpayers can earn up to $75,000 and pay only 30c in the dollar in tax. (Quorum formed) Ten years ago you had to be on only 1½ times average weekly earnings before you would pay 47c plus 1½c for the Medicare levy on every extra dollar you earned. Under the tax cuts which are part of the bill we are discussing, a worker would have to be on three times average weekly earnings before moving to the top marginal rate of 45c in the dollar. In fact, the total tax for someone on average weekly earnings of $50,000 will be $11,100 per year—on average 22.2 per cent of a worker’s salary will go on tax. But, if they want to earn more through improving their qualifications, promotion or working more hours, for every extra dollar they earn they will get to keep 70c—so only 30c will go to tax. The new tax scales we are proposing are much fairer and also create an incentive for people to save, work and upgrade their qualifications. They have the choice of what to do with their money and get to keep more money as well.

When we look at the scales, we see that from nought to $6,000 the rate is nought per cent, from $6,000 to $25,000 it is 15c in the dollar, from $25,000 to $75,000 it is 30c in the dollar, from $75,000 to $150,000 it is 40c in the dollar, and from $150,000 and over it is the new top rate of 45c in the dollar. We would never have been able to propose tax rates like these without having a majority in the Senate. It has always been the case that, while some of our tax cuts have been supported, we have been unable to have a fair range of tax scales right across the board.

While these are the general tax rates, there are a number of other things for people in different circumstances. For example, in this bill there is an increase in the low-income tax offset. The threshold for the full rebate will increase to $25,000. The area where the phase-out occurs will increase from $27,475 to $40,000. The amount of the low-income tax offset will increase from $235 to $600. For those eligible for the full low-income tax offset—that is, people on incomes below $25,000—there will be no tax until their annual income exceeds $10,000.

Let us look at senior Australians—a very important constituency in my electorate of Boothby. According to the last census of August 2001, over 23,000 residents were aged over 65. That is almost one in five of all residents. Out of the 150 electorates in Australia, Boothby has the sixth highest proportion of people aged over 65. There will be a reduced amount of Medicare levy paid by low-income senior Australians. For those receiving the senior Australian tax offset, there will be no Medicare levy on people on incomes below $24,867. They will pay less than the full rate of the Medicare levy, up to incomes of $29,255.

There is also a senior Australian tax offset. For senior Australians—that is, those who are eligible to receive an age pension or a service pension and are meeting certain age criteria—who are single there is no tax on their annual income up to $24,867 and, for couples, there is no tax on income up to $41,360. This is on top of the announcements in the budget, for example, of a utilities allowance of $102.80 for every household who has a member in it who is of an age pension or service pension age.

When we look at the interaction of the tax cuts in this budget and the increases in the family tax benefit and look at, for example, a single-income couple with children, we see that couples in this circumstance have a real net tax threshold of $48,065—that is, the point at which effectively they start paying tax. When you take into account the family tax benefit that they are receiving and the tax that they are paying, the point at which their tax exceeds the family tax benefit is $48,065. This is a very important initiative of the Howard government. It is something that we have really expanded over the last 10 years and is a very important support for families with young children. One of our priorities is to support low- and middle-income families with children and to provide them with assistance by giving them the family tax benefit. We believe that they are best placed to decide how it should be spent to improve the circumstances of their family. The real net tax threshold of a dual-income couple with children is $51,000. This is the point at which effectively they are paying tax. Again, this is a very significant help. (Quorum formed)

As well as the tax cuts, the changes to the low-income tax offset and the reduction of the Medicare levy for people on low incomes, this bill also increases the diminishing value rate from 150 per cent to 200 per cent for calculating a depreciation deduction. The effect of this is to increase the amount of tax deductions due to depreciation in the first years of a business asset’s effective life. This is a particularly important change for small and medium business and should lead to new investment in plant and equipment, which is necessary for economic growth.

One of the Labor Party’s criticisms of the budget is about productivity. The government’s approach to productivity reflected in this bill has been things like the increase in the diminishing value rate to improve investment in plant and equipment for small and medium businesses, small businesses being one of the engine rooms of the economy. Not part of this bill but part of the government’s approach to productivity is the Work Choices legislation. Anyone who knows anything about workplace relations recognises that increased flexibility improves labour productivity. This is going to be the key in the future as we face an ageing population. We will not see increases in our population and our workforce is predicted to grow only slightly over the next 15 years and into the 2020s. As our workforce will be growing only slowly, it is absolutely critical that we have mechanisms that will provide ways of improving labour productivity.

Over the last 10 years since the Howard government was elected we have seen real wages growth of 16.7 per cent. We heard at the time we introduced our first changes to the Workplace Relations Act that it would lead to lower wages, lower conditions and so on. Look at our record. Our record shows that workers have never been better off. They could only have dreamt about having a Labor government that could have delivered what we have delivered through strong economic management providing very strong real wages growth in a low inflation environment.

Another argument that has been presented is that our budget may contribute to inflation. Over the period of the previous Labor government, inflation averaged 5.2 per cent. Under this government, for the last 10 years, inflation has been 2½ per cent. That is midway between the two per cent to three per cent band which the Reserve Bank uses to target monetary policy. As I said at the beginning of my speech, there is one thing I am pretty sure of, and that is that having budget deficits of $17 billion, almost four per cent of GDP, is much more likely to lead to higher inflation and higher interest rates than having budget surpluses and no government debt—having reduced government debt from $96 million in 1996 to zero and actually having a surplus in the Future Fund.

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