Andrew Leigh (Fraser, Australian Labor Party) Share this | Hansard source

I rise to speak to the House about the Tax Laws Amendment (2011 Measures No. 4) Bill 2011 and I want to focus in particular on the measures in the legislation around the low-income tax offset. I want to speak this evening about the important role that measures such as the low-income tax offset play in improving participation in Australia. Boosting employment rates is a core Labor value. It lies at the heart of why many of us on this side of the House came into politics and making sure that we do all we can to remove barriers to workforce participation is an absolutely critical public policy objective.

The LITO is a mechanism that changes the tax-free threshold for the largest number of people. In 2007-08 the Henry review estimated that 6.8 million taxpayers had had their tax-free threshold changed as a result of the LITO. The full amount of the LITO, at the time that the Henry review was brought down, was available to individuals with a taxable income up to $30,000, beyond which it was reduced at 4c in the dollar. The LITO, which was put in place in 1993-94 at a maximum amount of $150, has been steadily increased under this government. In 2006-07 the LITO was $600 and then in the next financial year it was $750 and in 2008-09 we boosted it to $1,200. In 2009-10 it went to $1,350 and in 2010-11 it is $1,500.

The LITO is very much a measure that recognises that work provides dignity to Australian households. Work is important in terms of the income it brings. If you look at what drives inequality across countries, you see that with places like the US it is distribution of wages. There are many working poor in the US labour market. That is less true of countries like Australia. In Australia the divide between rich and poor really is mostly driven by the number of adults in a household at work. So, if we want to close the gap between rich and poor and if we want to reduce inequality in Australia, unemployment is really where it is at. But it is not just about the distribution of income. It is also about the intergenerational effects. The Prime Minister has spoken articulately about the value for children of growing up in a household where an alarm goes off in the morning and a parent goes off to work. She has spoken about the simple fact that a child who grows up in a household where no parent works is substantially less likely to hold a job when he or she enters the labour market. It is possible that some of this intergenerational impact is derived from the example of seeing a parent going off to work.

Over recent years a lot of other developed countries have put in place negative income taxes, also known as earned income tax credits. That is certainly a policy that I have a keen interest in. It is something that I did a lot of research on back in my PhD days. The closest thing that Australia has to that is the low-income tax offset, and it does reflect very much a recognition in Australian social policy that we have to reduce effective marginal tax rates, that when we have welfare phase-outs sitting on top of marginal tax rates that creates a substantial disincentive to work. Professor Bob Gregory of the ANU did some of the most important work on this, recognising that in Australia the highest effective marginal rates of tax were not paid by millionaires but, in fact, by those moving from welfare into work, who faced benefit withdrawal layered on top of an income tax system. LITO is a response to that. It recognises that we do need to put in place measures that encourage work, both for the income benefits and for the dignity that it brings.

One measure that is part of this legislation before us today ensures that the LITO does not become a tax minimisation vehicle. By increasing the LITO, the government has effectively doubled the amount of non-work income that can be allocated to children tax free. There is some evidence that around 200,000 distributions from trusts have increased in line with the increased LITO—essentially households taking advantage of the opportunity to minimise tax by allocating income to children.

Let me take the House through a couple of examples. In 2006-07, the effective tax-free threshold was $1,333 for non-work income for minors. When you look at the graph you see a sharp spike in the distribution from trusts in the range of $1,001 to $1,333. In the following tax year, 2007-08, the effective tax-free threshold rose to $1,667 for non-work income for minors and, lo and behold, the distribution shifts accordingly and suddenly you see a spike in the range of $1,501 to $1,667. In 2008-09, the effective tax-free threshold rose to $2,667 for non-work income for minors and, yes, you guessed it, the distribution of income from trusts again moves, suggesting that the trusts were taking advantage of this change to minimise tax.

LITO was always meant to benefit low-income earners. It was never intended to be a tax minimisation vehicle. We are putting these changes in place so that children cannot take advantage of the LITO for non-work income but will still have access to the full LITO for work income. The measure has no impact on the 660,000 small business trusts operating around Australia; it just discourages families from splitting income with their children to avoid paying tax. It is important that we do this to protect the fairness and the integrity of the Australian tax system. It is an important budgetary savings measure, saving around $740 million over three years.

I conclude by focusing on the big picture. We are speaking in this House about the importance of jobs. The member for Bradfield has also focused on the issue of public sector debt and so it is important to recognise what would have happened if those opposite had occupied the Treasury bench over recent years. In their book Shitstorm, Lenore Taylor and David Uren talk about the influence of US economists on the Australian political debate in early 2009. They say:

On the right, Stanford economics professor John Taylor argued there should have been more permanent tax relief. Turnbull was now firmly in the Taylor school, calling direct payments, like those he had supported in October, ineffective 'cash splashes'. Taylor argued that the temporary measures do little to stimulate demand because if people know a payment is a one-off they are more likely to save it and less likely to spend it, whereas across-the-board permanent tax cuts would encourage more spending because people knew they could count on the extra cash. His slogan was that the government policy should follow the three Ps—permanent, persuasive and predictable. It was an argument Turnbull embraced.

If those opposite had been in power, the effect of putting in place permanent tax cuts in the 2008 to 2009 period would have been that we would not have been able to get the budget back into surplus. We would have locked in substantial tax cuts rather than the timely, targeted and temporary fiscal stimulus which the Labor government put into place. That timely, targeted and temporary fiscal stimulus saved around 200,000 jobs. They may sound like statistics to those of us here, but each of those is a life that is not blighted by the impact of unemployment. Each of those is a career that is not scarred by spending time out of the labour market. Many of those are mums and dads whose households never felt the effect of unemployment.

It is that human effect of unemployment that is so easily discounted sometimes by those opposite. I graduated from high school in 1990—not a good year to leave school because of the impact of the early 1990s recession. There is good research on the impact of recessions on workers' careers. You can still see that scarring effect a decade on. By putting in place timely, targeted and temporary fiscal stimulus, the Labor government ensured that those jobs were saved, that the impact of unemployment did not blight so many careers. Because we did this in such a way that the fiscal stimulus could be withdrawn, we ensured that we were able to bring the budget back into surplus.

Australian public sector debt is extraordinarily low by OECD standards. Many developed countries now have debt levels well over half their annual GDP, some of them well over the total value of their annual GDP. By contrast, Australian public sector debt is well below one-tenth of our annual GDP. By contrast, the typical household carries debt loads that are often many times their household annual incomes. Looked at from that perspective, Australian public sector debt is low and manageable. The government will bring the budget back into surplus in 2012-13 as expected, and in a way that would not have been possible had the prescriptions that the member for Wentworth was pushing in early 2009 been realised.

It is interesting, though, to look at what the member for Wentworth would have done in light of some correspondence to the letters page of the Australian Financial Review this week. The member for North Sydney decided that it was important to write in and correct Australian Financial Review readers. He said:

This article claims my budget address at the National Press Club was light on detail, yet fails to mention it was a collaborative effort with the Coalition economic team, including Tony Abbott, Andrew Robb and other senior policymakers.

That recognises that there is very little of policy substance on the other side of the House. The member for North Sydney then went on to compare his own performance as shadow Treasurer with that of the member for Wentworth. Neither performance, though, stands up against what Labor has delivered since coming to office. As in the climate change debate, we listened to mainstream economics. We recognise that Keynesian economics tells you what to do when a global financial crisis beckons. It tells you to act quickly. Australia's fiscal stimulus was quick out of the blocks, faster than virtually any other developed country, with our household payments being delivered before Christmas 2008. We also used the opportunity to invest in much-needed infrastructure, in roads projects and in school infrastructure to improve educational outcomes in Australia.

But we also put in place stimulus that could be wound back because, as the Treasurer said, if you are Keynesians in the downturn you also have to be Keynesians in the upswing. You have to recognise that, just as government has a role to play in stimulating the economy and ensuring those 200,000 jobs are kept, it also has a role in ensuring that, as private sector demand expands, we step back, particularly in those areas where we are competing with the private sector. We continue with productivity-raising investments, such as the National Broadband Network and investment in trades training centres, better universities and better skills. But, where we are competing with the private sector, we step back.

Those opposite are in utter disarray. They are a Dad's Army team when it comes to economics. In today's Age Michelle Grattan states:

It is believed Mr Abbott recognises that Mr Turnbull would be the stronger shadow Treasurer but the post would give him a greater platform to advance his leadership ambitions.

So, the Leader of the Opposition does not intend to have a reshuffle. The member for North Sydney believes he outperforms the member for Wentworth; the member for Wentworth believes he outperforms the member for North Sydney. The Leader of the Opposition does not know which side to take, and Australians are left wondering whether there is anyone competent on the other side of the House—anyone who wants to focus on the big, long-term challenges facing the Australian economy.

I commend the bill to the House.

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