Mike Symon (Deakin, Australian Labor Party) Share this | Hansard source

It is always a pleasure to follow the member for Fraser, although his memories of the 1990s recession are probably a bit different from mine. I left school a few years before he did and, up until the 1990s, I had been in full-time work. But due to the downturn I spent quite a bit of time looking for work. Those sorts of things obviously do play a part in your life, and they stay with you. Anyone who has been through that sort of downturn should never forget the effect, because it is real and so many people are affected in different ways.

Tonight I am here to speak on Tax Laws Amendment (2011 Measures No. 4) Bill 2011, and in particular I will direct my comments to the first two schedules of the bill. Schedule 1 sees the implementation of the government's budget measure that will provide cash flow benefits to small businesses, individual investors and other eligible taxpayers. Under the pay-as-you-go instalment system, taxpayers earning business or investment income pay instalments during the year towards their final tax liability for that income year. This helps taxpayers meet their income tax liabilities and is important for the effective and timely collection of that tax.

At the advent of the global financial crisis, the federal Labor government implemented a number of measures to protect our economy and assist taxpayers. One of these measures was the introduction of a two per cent gross domestic product adjustment factor to pay-as-you-go instalments, and it has applied for the last two income years. The 2011-12 income year was to see the GDP adjustment to PAYG, using the formula of the Taxation Administration Act of 1953, go to eight per cent. The common-sense measure in this bill to smoothly transition to four per cent instead of two per cent—that is, from two to four per cent instead of up to eight per cent—is welcome as our economy recovers from the global financial crisis. It provides a transitionary measure to help the many local small businesses not only in my electorate of Deakin but right across Australia.

It is always great to be able to talk about a local business in this place. Michael and Linda are the hardworking owners at Mishou's cafe in Mitcham and they know the challenges of owning a small business. They work particularly hard, making coffees and lunches not only for the passing trade but also for the many offices and workers in Mitcham, which is where my electorate office is based. Certainly my staff are some of their best customers. It is good to support local businesses such as Mishou's. Measures like this will make a real difference to business people like them, and their bottom line is important.

Even though things are not all that bad in Australia compared to the rest of the world, not everything is back to the way it was. Local businesses will tell you that only two or three years ago their trade was so much higher and, although they have got some of that business back, it has not all returned. For them, a smooth adjustment is necessary. Cash flow benefits from measures such as this are important now but overall, of course, there will be no net cost to the Commonwealth because over the forward estimates these measures will cancel each other out. What is put forward one year is uplifted later on.

The amendments contained in this bill do not reduce the income tax liability of the businesses and taxpayers affected by the measure but merely change the timing of those tax payments. They will also provide eligible taxpayers with a smoother transition from the two per cent GDP adjustment factor that applied for the previous two income years to the proposed four per cent as the economy recovers from the global financial crisis. There will be a reduction in tax collections of $700 million for the 2011-12 income year, which will be offset by a reduction in tax credits of $700 million in the 2012-13 income year

It is also important to mention that a small number of taxpayers whose 2011-12 income year commenced before 1 April 2011 have already started paying their instalments for 2011-12 based on a two per cent adjustment factor. They will continue to pay quarterly instalments for the 2011-12 income year on that basis. I am sure that most people would agree that it would be potentially disruptive and confusing if this small group had to change to the four per cent rate part way through the year. I will also speak about the second schedule of the bill, which refers to the low-income tax offset. In recent years the low-income tax offset has increased significantly as a means of providing targeted tax relief to low-income earners, helping those who need it most. The low-income tax offset has doubled from $750 to $1,500. These measures deliver a benefit to taxpayers earning up to $67,500. The low-income tax offset has been available to all taxpayers with incomes below the cut-off threshold, including minors. The support of successive Labor governments for the low-income tax offset has provided an essential means to help working Australians who earn less than the average wage.

This bill will implement the government's budget measure to remove the ability of minors to use the low-income tax offset to offset tax due on their unearned income, such as dividends, interest, rent, royalties and other income from property. It is important to note that the measure applies to unearned income rather than earned income. For children under the age of 18, the low-income tax offset will still be available to reduce tax payable on income earned from work, whether that be a paper round, part-time work in a shop, an apprenticeship or similar.

In recent years, increasingly, distributions from discretionary trusts have taken advantage of low-income tax offset concessions to direct an ever-larger amount of income from adults to minors as a means of minimising tax. There has been a significant spike in the movement of money from discretionary trusts around the exact point where the effective tax-free threshold for minors has applied in each recent tax year. This spike has moved broadly in accordance with increases in the effective tax-free threshold for minors, and I think the figures speak for themselves.

In 2006-07, when the effective tax-free threshold for non-work income for minors was $1,333, there were nearly 200,000 distributions very close to that level. In 2007-08 the effective tax-free threshold relating to non-work income for minors rose to $1,667. That is very close to where this number of 200,000 distributions landed that year. In 2008-09 the effective tax-free threshold for non-work income for minors rose to $2,667, and guess what? This group of nearly 200,000 distributions from trusts to minors neatly landed very close to that new level of $2,667.

Of course these distributions were merely maximising the tax benefit of the low-income tax offset for unearned income, and it is obvious that many people have taken the full advantage of that provision. However, the advantage has gone to those families that have had the financial resources to set up a trust, and it would be fair to say that many wage earners are either unaware of or cannot afford to follow that course of action.

I do not believe that the low-income tax offset was set up to be an opportunity for the well-off to minimise tax. Providing incentives for families that can afford it to split income with their children has created the effect of this use of the low-income tax offset. The low-income tax offset should be seen as what it really is: a helping hand from government for those workers in our society who for whatever reason are on lower incomes and need some assistance. This may be because they have a low-paying job or work part time or casually, or because they have not even been employed for a full year. There can be many reasons people's incomes are not as high as they had expected. Or maybe they never had the opportunity. As I said, the low-income tax offset provides benefit for those on lower incomes.

The effect of this amendment is to discourage families from splitting income with their children to avoid higher tax rates, effectively using their children to avoid paying tax. This is a common-sense amendment to the act and returns the intent of the low-income tax offset to that of helping those who need it most. It does not change the treatment of earned income through work by minors, such as by apprentices or those who have left school to enter the workforce. It also protects the unearned income of minors who are orphans or disabled.

As the government promised, the budget is set to return to surplus by 2012-13. It is savings such as these that the government has worked hard to find. This measure provides a budget savings amount of $740 million over the three years to 2014-15. This amendment does not set out to disadvantage but sets out to create more fairness in our tax system. It removes the opportunity for taking advantage of loopholes that the public constantly call on their representatives to take away. On that note, I commend the bill to the House.

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