Stewart McArthur (Corangamite, Liberal Party) Share this | Hansard source

Thank you. It does clearly demonstrate the point I am making in the speech, which members of the public will be able to identify more clearly. I thank those opposite.

In addition to the maintenance of surplus budgets, the Treasurer should be commended for his policy to provide for the future superannuation liabilities of public servants and Defence Force personnel by investing in the Future Fund. The government has resisted the temptation to spend the surplus and instead we have invested the surplus to pay off the liabilities incurred today that will fall due in the future. Australia’s unfunded superannuation liability is expected to grow to around $148 billion by 2020 and over $200 billion by 2046-47. Through the Future Fund we are ensuring that we are not imposing a higher tax burden on future generations to pay for our largesse. It is important to win the Future Fund public debate and stop the opposition from spending the retirement savings of government and defence employees. Our responsible policies are paying dividends in keeping inflation low despite a growth economy. Inflation is forecast to be 2½ per cent in 2007-08, down slightly from 2¾ per cent this year and well within the Reserve Bank’s target band.

The national economy is forecast to grow more strongly at 3¾ per cent in 2007-08, up from 2½ per cent this year, and GDP growth is projected to remain at three per cent for the forward estimates. Australia’s long-term prosperity is highly dependent upon its growth prospects. No economy is able to expand without fundamental growth and productivity improvements. At 3¾ per cent GDP growth, the Australian economy is projected to grow more strongly over the next year than the OECD nations, at 2¾ per cent, and than other key trading partners the United States and Japan, which have projected growth of three per cent and two per cent, respectively.

China and India are expected to drive further strong growth in the world economy over the next year. The global economy is anticipated to continue sustained growth at the level of five per cent GDP growth in the 2008 year. China is set to continue with growth in excess of 10 per cent. The budget papers show China achieved 10.7 per cent growth in 2006 and is forecast to report GDP growth of 10½ per cent and 10¼ per cent in the 2007 and 2008 years, respectively.

India is of growing importance to Australia as a trading partner and global economic power. The budget papers report that over the past five years India has been our fastest growing export market with our exports to India worth $7.4 billion in 2005-06. The budget papers report the Indian economy has enjoyed strong annual growth of six per cent on average over the past 25 years. Over this time India has grown from being the world’s ninth-largest economy in 1980 to being the fourth-largest economy currently. In 2006 the Indian economy grew by 9.1 per cent and strong growth is forecast to continue, albeit moderating slightly, at 8¼ per cent in 2007 and 7¾ per cent in 2008 due to tightened monetary conditions.

There is a good basis of shared history that can bring India and Australia closer together. Indians speak English and have a democratic system of government. I have had the pleasure of meeting the Prime Minister of India, Dr Singh, who, by way of background, is a market economist. He had an interesting conversation with a delegation to India that I was participating in. I was delighted to hear his assessment of the Indian economy at that time, and his points of view on the way in which India would develop to be a good economy if it adopted a more market orientated approach.

Despite the positive impacts of world economic growth and the resources boom on the Australian economy, we stand in good stead to maintain a sustainable growth rate. The budget papers project the wage-price index to grow at 4¼ per cent in 2007-08. The more flexible industrial relations system has ensured that wage pressures in some sectors, such as the resources and construction sectors, have not flowed over to create unsustainable pressures in other industries. I emphasise that point. On previous occasions—that is, in 1981 under Prime Minister Fraser—we had a wages breakout of massive proportions.

More than 326,000 new jobs have been created since the introduction of the government’s workplace relations reforms in March 2006 and the majority of these new jobs—more than 275,000—have been full time. Again I emphasise that feature. Over the life of this government more than two million jobs have been created. This means more Australian families are earning higher incomes and are in a more secure financial position. The unemployment rate has fallen to 4.4 per cent, the lowest since 1974, and employment growth is estimated at 2½ per cent for 2006-07. Employment growth is anticipated to moderate in 2007-08. It is particularly interesting to note that Treasury expects the national participation rate to rise to 65 per cent, which is partly explained as a result of the government’s Welfare to Work policies, which encourage people who are on disability support pensions and parenting payments who have the capacity to work to do so.

There has been much public debate about the shortage of skilled workers to meet the demands of industry in the current growth environment. It is important that we as a nation encourage more people who have the capacity to work to do so, and this is the intention of our welfare reforms. This budget, through providing increased incentives by cutting personal tax rates and increasing the rates of child care by 10 per cent, is making a further investment for the future in this regard.

I now turn to tax reform. The government has recognised the pressures on Australian families to juggle household costs and raise a family and has been able to deliver further reductions in income tax in this budget. Some people might suggest that when you have a strong economy and increased tax income the government should do more—spend more money. This is the way old-fashioned socialists think—as the member for Batman, who is at the table, would understand—and even old-fashioned Christian socialists think like that. But the Liberal Party and the Howard government believe that when you have met your financial obligations the surplus funds should be returned to taxpayers to do with as they choose in the form of tax cuts and higher take-home pay. Even the member for Batman would agree to higher take-home pay. He is smiling at the table; I am sure he would like more take-home pay for his former union members.

The budget provides $31.5 billion worth of personal income tax cuts over four years, building on previous reductions in tax. The threshold for the 30 per cent tax rate will rise from $25,000 to $30,000 income from 1 July 2007 and the low-income tax offset will also increase on this date. These reforms will particularly help low-income earners. I noticed the member for Melbourne commended that particular initiative; I am sure the member for Batman would be happy with it also. From 1 July 2008 the 30 per cent tax rate will apply for incomes up to $80,000 and the highest marginal tax rate will not cut in until incomes reach $180,001. As a result, only two per cent of taxpayers will pay the top rate, where incomes are 3½ times average weekly earnings. Again, this is a commendable initiative. Over the years I have been arguing the case that the cut-in factor of average weekly earnings was a very big difficulty for higher income earners. This particular change in the thresholds is a step in the right direction.

Media reports of the budget spoke about the new initiatives, while the government’s past achievements were overlooked. I therefore put on the record the massive change in personal income tax rates under the Howard government. The tax-free threshold has been increased to $6,000, and the low-income tax rate has been cut from 20 per cent down to 15 per cent. When we were elected, a 34 per cent rate applied to incomes above $20,700. From 1 July 2008 the 30 per cent rate cuts in at $30,001 income. From 1 July 2008 Australians will pay no more than 30c tax in the dollar for incomes up to $80,000. We inherited from Labor a top marginal rate of 47 per cent, which applied to incomes at $50,001. There has been a remarkable change in relativities. Our budget reforms will mean that, from next year, the top marginal tax rate of 45 per cent will apply only to incomes over $180,001.

It has only been through disciplined economic management and surplus budgets that the government has been able to achieve this outstanding reform of the personal income tax system. These reforms are removing barriers to workers receiving due rewards for their efforts by increasing the share of take-home pay and improving the incentive for people to be more productive and to move from welfare into paid employment. I seek leave to incorporate into Hansard the comparison between the rates as they were on 1 July 1996 and the new rates.

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