Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

by leave—In just two weeks time the government will provide an important opportunity for a broad group of Australians to help chart the next steps forward in Australia’s tax reform journey.

I am personally looking forward to meeting with almost 200 representatives of community groups, business, super funds and other investors, academics and professional economists, and more who are drawn from right around the country. I want to hear everybody’s ideas, whether I agree with them or not. The nation will be better for the debate.

It will be the most important gathering of tax experts and advocates in the country since at least the mid-1980s. Each participant understands, as the government understands, the critical role our tax system plays in our modern economy—the role it plays in generating the revenue to fund the quality public services that the community needs, whether they be health, education, national security or the social safety net, and how it affects the millions of choices that Australians make every day about working, saving, investing and spending.

That is why our tax system is at the heart of public policy in Australia, and at the heart of our reform agenda. It is why we have gone to such lengths to lead and encourage a national conversation; and why I am pleased to update the House today on planning and thinking ahead of the forum.

The Tax System Today

Our tax system is already undergoing serious reform, at the same time as we honour our commitment to keep tax as a share of the economy below the level we inherited from those opposite.

Unfortunately the partisan and political debate obscures the fact that this year, tax is estimated to account for 21.8 per cent of GDP: easily below the 23.5 per cent we inherited from our predecessors in 2007-08. And much less than the 24.1 per cent all-time record set by those opposite in 2004-05 and 2005-06. We have kept the overall level of tax low at the same time as implementing great swathes of the tax review. We have announced 32 reforms that deliver on ideas in the tax review—a quiet revolution across all parts of our tax and payments systems.

In personal tax, we are rewarding work by trebling the tax-free threshold from $6,000 to $18,200, also making tax time simpler. We are phasing out the dependent spouse tax offset, which reduced work incentives for low-income secondary earners. And all this builds on $47 billion of personal tax cuts already delivered.

In superannuation, we are boosting retirement savings by taking the super guarantee to 12 per cent, and introducing fairer concessions for 3.5 million low-income earners and larger contributions caps for over-50s. In business tax, we are cutting company tax, delivering around $1 billion worth of new small business tax breaks, improving research and development tax incentives, and putting in place better resource tax arrangements. We are spurring investment in infrastructure by protecting the real value of tax deductions during the costly start-up phase for infrastructure. Business investment means higher productivity, more jobs and higher wages—working smarter, not harder.

In transfer payments, we have already delivered a historic increase in the age pension, a new pension work bonus, the 50 per cent childcare rebate and paid parental leave. And we are going to increase family tax benefit for families with teenagers, and cut effective marginal tax rates for single parents and youth allowees.

For the environment, we are improving the fringe benefits tax treatment of cars, making fuel tax more consistent, and putting a price on carbon pollution—described by the tax review as 'a cost-effective way to reduce Australia’s carbon emissions'. The list goes on and on. I could equally talk about disability support pension reforms, better reporting of superannuation payments, or establishing a new national not-for-profit regulator. All of these reforms are crucial steps to a better system and a stronger, more modern economy.

Patchwork Pressures

The job of tax reform is never complete. There is no final destination, only one building block after another. When I released the tax review, I said it would be a conversation for the next decade. The Tax Forum is the next part of that conversation.

Our next steps in tax reform need to recognise that our fundamentally strong economy is also a patchwork economy. We need to agree where we can build on the substantial reform agenda, geared towards helping businesses and workers who are not in the fast lane of the mining boom. We will meet at a time of immense change in the global economy, as economic weight shifts from West to East. Our natural advantages and geographic location mean Australia is uniquely placed to benefit from the strength of Asian economies—not just in terms of demand for Australia’s natural resources, though demand is at a record high.

Average prices for our resources exports have increased by around 200 per cent since the end of 2003, and on average mining employment grew 11 per cent per year over the same period. But beyond the mining boom, we stand to benefit from the immense opportunities for Australia in the growth of Asia’s middle class. Remember, for all the growth in mining, it only contributed around six per cent of the 1.8 million new jobs created between 2003 and 2010.

The mining boom is an overwhelming positive for Australia, but it represents a mixed blessing for specific sectors of our economy. We know that the high Australian dollar means cheaper imports for consumers, but it also makes life tough for industries competing with those imports. We know that when industries and regions grow strongly, skills shortages and capacity constraints can emerge. But we also know that over the longer term, the rise of the Asian middle class will improve prospects for many sectors, including many of those struggling with today’s pressures. This includes things like high-tech manufacturers, cultural and recreational services and advanced education.

Take tourism, a sector close to my heart. The strong dollar and global economic conditions are having an impact. But at the same time, tourist arrivals from China have more than trebled over the last decade, and continued growth in these emerging markets stands to deliver long-term benefits.

I do not believe any industry is destined for permanent decline or permanent growth. Rather, all are subject to ongoing change. That is why, like forward-thinking governments before us, our task is to sniff the winds of change and adjust our sails in a way that best secures the jobs and prosperity of Australians now and into the future.

Tax Reform in a Patchwork Economy

Last year this side of Australian politics picked up on these economic changes. Unfortunately those opposite put the politics of the day before the challenges of our time. Our tax reform package announced last year delivered on the core thrust of the tax review: getting a fairer return for Australia's non-renewable resources, and using it to help businesses across the economy by cutting business tax—an approach that is now broadly supported right across the community. We have singled out small business as a special priority. This side of the House is proud to stand for over a billion dollars of tax relief for Australian small businesses. The first thing every small business tells me is: get rid of needless complexity. We will deliver some simplicity with instant write-off of any asset worth up to $6,500 and the first $5,000 of cars, vans and utes. We are proud to stand for a research-and-development rebate that directs more support to genuine R&D, including a 45 per cent offset payable in cash for small and medium businesses: cashflow, when small businesses need it.

Many things drive productivity—our education, our skills, getting the incentives right so that resources go where they are best used. But world-class workers need world-class equipment, and business investment provides the tools. New investment is often the way that struggling businesses pay for their new lease on life. So I am also proud to stand for cutting company tax, to reward investment right across the economy. We are investing a fairer return for Australia's non-renewable resources in the best possible way—in economic growth across our whole economy.

Business tax and the tax forum

These measures are a start, and in two weeks time the threads of a patchwork economy and tax reform will be picked up again, at the tax forum. The Prime Minister and I want the tax forum to talk about how the tax system could work better for firms already under pressure to adapt to a changing economy. Ahead of the forum, participants have already begun to raise ideas for business tax reform, often drawing on ideas in the tax review. The forum needs to take a good look at some of these ideas, especially if they can help with patchwork pressures.

One thing people have raised is the tax treatment of losses. Tax losses are simply expenses that a business has not been able to use as a deduction, because they are not profitable enough. Or not big enough to transfer the deductions to other businesses in the same corporate group. Or there has been a change of ownership or business focus that means they fall foul of rules limiting how tax losses can be used. Not being able to use tax losses can hit the very types of businesses that we often see struggling in today's patchwork economy. Uncertainty about being unable to use legitimate tax deductions can discourage investment and sensible risk taking.

The government has already taken steps on losses. For example, in the budget we announced we will maintain the value of the initial losses incurred by infrastructure projects of national significance. People have raised different ideas for how to go further in this area. Some advocate uplifting losses more broadly than just infrastructure. Some advocate allowing businesses to deduct losses from previous taxes paid, allowing a cash refund like some other OECD countries do. Some focus on the rules that govern when losses can be used following a change in a firm's ownership or operational focus would be appropriate at the forum. I will be interested to hear this discussion taken further there.

Another thing that people have raised is deductions for corporate equity. This is simply a notional deduction for equity finance, similar to the interest deduction that already exists for debt finance. The tax review discussed this as a potential long-term reform direction. Advocates of this idea point out that it can target tax cuts towards less profitable businesses—those that may be under pressure or in emerging sectors. It might also improve macro-economic stability by reducing tax incentives to finance business investment through debt rather than equity. The tax review noted that this idea needs more investigation before it can be fully assessed. There are questions about its revenue cost, how it fits into the wider tax system, and how you would transition to it.

None of these things are easy, and the answers are not obvious. And any change needs to be funded. We will not jeopardise our strict fiscal strategy which has our budget position amongst the strongest in the developed world. I hope business comes to the forum in this spirit—recognising we cannot talk tax cuts without also talking about harder things like loopholes or unnecessary tax expenditures. I challenge the business community to nominate the business tax savings that could allow us to afford reforms like those I have just mentioned, because I have made it very clear that sending households the bill for the business tax cuts is not the answer.

State t axes

Every one of the 32 reforms we have announced in the last 18 months demonstrates our commitment to tax reform at the federal level. This has been delivered despite our revenue base being hit by global economic conditions, and while we keep tax as a share of the economy below what it was under the Liberal Party. But another message has come through loud and clear from the Australian community: some state taxes are the most inefficient in the federation. We are doing our bit and the states should as well. Indeed, nothing makes the need to talk about state tax reform more clear than when some states announce increases in stamp duties and the like.

All levels of government benefit from a more efficient economy, and all governments have responsibility for the impacts their policies have. State tax reform cannot wait for the Commonwealth simply to stump up the cash. In the last couple of years, the Commonwealth has announced $16.4 billion in extra health reform funding over six years from 2014-15, plus $3.4 billion to improve waiting times. This all builds on the health funding increase we announced in 2008 that delivered an extra $22.4 billion for the states. Total schools funding has almost doubled, at $65 billion over four years compared to $33 billion provided by the previous government. And we have doubled National Disability Agreement funding to around $7.6 billion over six and a half years. And this year, state GST revenue is expected to be double what it was when it was introduced—from $24 billion in 2001-02 to $48 billion in 2011-12. The tax forum provides the perfect opportunity for state governments to take responsibility for the taxes they impose, engage with ideas for reform, and build momentum for their reform efforts.

Conclusion

I have raised some big issues today, and many of them cannot be delivered overnight. As the tax review said, 'it is neither possible nor desirable to make all of these changes too quickly.' I have always said that tax reform is a long-term project. Reform is hard. The adjustment is now, but the results take time. It is easy to support the spends, but a lot harder to fund them. Too many people talk reform without solutions, or they rely on simplistic solutions like jacking up the GST, shifting the burden from business to people on low and fixed incomes. We cannot build prosperity if everyone has their hand out. We cannot all give ourselves a tax cut and expect somebody else to pay it for us.

For our nation to get the most from the forum, everybody needs to put the national economic interest before self-interest—to think what is good for the country, not just what is good for their organisation’s bottom line. If we can do that, we will find some common ground on the next steps for tax reform, and we can develop these proposals further. In doing so we will lay the foundation of a better tax system for all Australians, as part of a stronger, broader, more modern economy.

I present a copy of my ministerial statement. I ask leave of the House to move a motion to enable the member for North Sydney to speak for 15½ minutes.

Leave granted.

I move:

That so much of the standing and sessional orders be suspended as would prevent the member for North Sydney (Mr Hockey) speaking in reply to the minister's statement for a period not exceeding 15 and a half minutes.

Question agreed to.

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

I have a strong sense of deja vu. I have just heard the Treasurer talk about a coming tax summit—in the Treasurer's opinion, 'the most important gathering of tax experts and advocates since at least the mid 1980s'. I recall we had a big tax review not that long ago—in fact, just two years ago: $10 million, 1,500 submissions and a panel consisting of five experts. The report was 1,332 pages, with 138 recommendations. Does this sound familiar? It is. It was the Henry tax review. At the time, the Treasurer said:

It is the most comprehensive inquiry into our tax system in over 50 years.

The more things change, the more they stay the same.

This new tax summit was originally to be held before 30 June this year to satisfy a written agreement with the Independents. It is now being held four months late. The Independents should be perturbed by the failure of the government to deliver its commitments on time. The Treasurer says he is personally looking forward to meeting with almost 200 representatives. No-one from the opposition has received an invitation. Perhaps the invite is still in the mail! However, the government does know how to look after its own kind. Thirteen official places have been set aside for the trade union movement. How can the Treasurer stand before the parliament and say that he wants to hear everybody's ideas? Truth be told, he does not want anyone to really notice that the summit is even going on.

The Treasurer has run through what he sees as his important reforms in tax. Let us look at some of these. The Treasurer claims that he is rewarding work by trebling the tax-free threshold for personal income from $6,000 to $18,200. The Treasurer should check his facts before making such bold claims. The Treasurer is not trebling the tax-free threshold at all. The current effective tax-free threshold is $16,000 due to the impact of the low-income tax offset. So, when you combine this with the other changes being made as part of the compensation package for the carbon tax, the government claws back much of this benefit. There are changes to the marginal tax brackets and marginal tax rates, along with a reduction in the low-income tax offset from $1,500 to $445 in 2012-13 and then $300 in 2015-16. The real reason the Treasurer is distorting this particular issue is because, by the government's own admission, they have left themselves a tiny 20c per week margin of error for the price impact of their carbon tax on average households. The carbon tax will cost households $9.90 a week and compensation will be barely enough at $10.10 a week. They know it sounds better to tell voters that they have tripled the tax-free threshold rather than to answer questions on the real impact on their standard of living as a result of the carbon tax. Today the Treasurer has also claimed credit for $47 billion of personal tax cuts. These tax cuts were previously announced by the coalition—they were funded by us and handed out by them. The coalition delivered these income tax cuts to the Australian people as a result of rigorous fiscal discipline and budget restraint, not through introducing new taxes.

The Treasurer also claimed today to be boosting retirement savings by taking the superannuation guarantee levy to 12 per cent. Can I say that the coalition strongly supports superannuation. It is a key pillar of a system which, along with the aged pension and incentives for voluntary saving, is helping all Australians prepare for a more comfortable life after work. In fact, we were the ones that implemented an increase in the compulsory superannuation contribution from six per cent to nine per cent in our earliest years of government. However, we do not support the proposed increase in compulsory super from nine per cent to 12 per cent. There are several reasons. First, this increase in the superannuation guarantee will be funded by the mining tax. The coalition is opposed to the mining tax. We cannot make promises that cannot be paid for. We will rescind this tax in government and we will unwind the expenditure linked to it. This is fiscally prudent. It would be irresponsible to keep the expenditure without the supporting revenue. Second, I note that the then Secretary of Treasury, Dr Ken Henry, concluded in his review of taxation that the current compulsory super contribution rate should remain at nine per cent. He made the point that increasing the superannuation guarantee beyond nine per cent would most heavily impact on low- and middle-income earners. The additional burden of the payment would not be borne by business but rather would be funded by reducing the growth in take-home pay. More of a worker's income would be put aside rather than paid today. The result of Labor's policy would be to cut take-home pay by three per cent. This is an awfully big ask at a time when families are struggling under higher costs of living, what could be higher interest rates, and new and increased Labor taxes. The Treasurer has emphasised that he has implemented 32 reforms that deliver on ideas in the tax review. It is odd that he has ignored the recommendations—indeed, he has explicitly gone against them—in relation to superannuation. And finally, today the Treasurer has also claimed credit for a policy that belonged to his alliance partners, the Greens—that is, changes to the fringe benefits tax treatment of cars. There is a telling slip of the tongue, or slip of the pen, in the Treasurer's statement. He admits:

Average prices for our resources exports have increased by around 200 per cent since the end of 2003—

and—

The mining boom is an overwhelming positive for Australia.

Well, it is the truth; but what is strange is that, to this point, the Treasurer has argued that the current mining boom is not a patch on that experienced under the coalition. In his speech on a tale of two booms the Treasury said:

During mining boom mark I, revenues were boosted by a sharply rising terms of trade—

and—

Mining boom mark II will have all the pressures of the first boom, without the surge in revenues.

I think it is time for the Treasurer to end the excuses. Mining boom mark II is alive and well and is the biggest for several generations. It does not get any bigger than this, perhaps. If the Treasurer cannot deliver a budget surplus in this environment he never will.

The government's idea of tax reform is to introduce new taxes. To date, Labor has introduced or increased 19 taxes, including the prospect of significant new taxes on mining and carbon. Not one tax has been abolished. The government has used these taxes to give the appearance that it is being generous with tax cuts and other assistance for households. The carbon tax is a classic case of the government's sleight of hand. The new carbon tax will raise $7.7 billion in the first year at $23 per tonne, escalating to $9.2 billion by 2014-15. This burden will fall on all households, as Professor Garnaut has said in his report, as will the additional burden of cost increases above and beyond the amount of tax raised—that is from shifting to higher cost forms of power generation and transport. To quote the final Garnaut report:

Australian households will ultimately bear the full cost of the carbon price.

Only part of the tax will be paid back to households in compensation and the rest will be paid in industry assistance and to meet our international obligations. So households in aggregate will be substantially worse off, and this heat will rise and year after year as the tax goes up. And yet the government wants households to believe they will be generously compensated through tax cuts and direct assistance. The carbon tax is a Labor con.

The Treasurer identifies some areas for attention at the tax summit. One is state taxes—he is always happy to have a review of someone else's taxes. He has a bit of a crack at the states, suggesting they are not doing their bit, and that the summit provides a forum for the states to take responsibility for their taxes. I would expect that they would do that every day. I think a history lesson for the Treasurer on state-federal relations might be in order.

State governments do not raise sufficient revenue to fund their expenditure. Even after the introduction of the GST, the states have not been fully self-sufficient in funding. This imbalance is addressed through revenue transfers from the Commonwealth to the states. This imbalance goes back to Federation, when the six colonies handed over their powers to collect customs and excise to the Commonwealth. As these taxes had been the states' major source of revenue, this transfer of powers created an immediate need for the states to be adequately resourced by the Commonwealth to meet their spending commitments. The introduction of the GST in July 2000 was intended to provide the states with greater self-sufficiency in revenue.

The issue of self-sufficiency has boiled up again recently, with the Commonwealth government reaping much of the benefit of the mining boom through increased company taxes, and perhaps soon a new mining tax, but with the states left with the spending and infrastructure demands associated with the boom. This poses the rather obvious question, which is: why would the state governments take the political pain of negotiating environmental and other political issues associated with new mines when they won't receive the revenue?

Two of the states, Western Australia and New South Wales, have recently attempted to become more self-sufficient by raising their mining royalties. Unfortunately, all they have received from the Treasurer in response is threats to dock their federal transfers. So he has in fact penalised the states for increasing their royalty from the mining boom in the same way that he want to do with his own mining tax. So much for him encouraging the states to get their affairs in order!

When it comes to tax reform, the coalition does have runs on the board. Our experience with the introduction of the GST provides a useful lesson in implementing tax reform. The coalition campaigned long and hard for the introduction of the GST before the October 1998 election—and, boy, I remember that! It was a tough campaign and the coalition lost some bark, but we believed the introduction of a broad based consumption tax was a necessary reform, and we took it to the people. The coalition had the courage to take the GST to an election. Labor is refusing to do the same with the carbon tax.

The GST reforms provided the basis for a more efficient taxation system by eliminating a whole host of small and inefficient state taxes, such as financial institutions duty, bank account debits tax, stamp duty on marketable securities, conveyancing duties on business property, bed taxes and so on. Many of these were taxes paid by individuals, so removing them simplified the overall tax burden on everyday Australians. Most importantly, the GST was introduced at a time when a half decade of fiscal prudence by the coalition had provided sufficient room for reductions in personal income taxes and generous compensation to low-income groups. The overall financial standing of households was improved. After these changes were completed, 80 per cent of Australian taxpayers paid a top marginal tax rate of no more than 30c in the dollar.

Some key lessons emerged from this experience. The first was that reform is meaningless unless it leads to a simplification of the system. The number of taxes should be reduced. The second is that taxpayers have to be better off from the reforms. It is not enough for the changes to be fiscally neutral. The revenue raised from a new tax has to be fully offset, and more, by cutting other taxes, and there needs to be additional compensation from the budget so that the financial standing of taxpayers is clearly improved—that is, that they are properly compensated for the pain of significant change.

As the Leader of the Opposition has already announced, the coalition remains committed to real tax reform while restoring the integrity of our nation's finances. The first step in achieving this is to do everything we can to stop the carbon tax and the mining tax. The second step is to continue to press for cuts in government spending, which is why we continue to highlight the waste and mismanagement of this government. In government the coalition will pursue lower taxes for households and businesses which will be funded through targeted reductions in government spending. This will reduce cost of living pressures and the cost burden of business. It will help ease upward pressure on interest rates because we will not be stimulating the economy with deficit fuelled expenditure. These measures together will help to restore growth in productivity, which has stalled under the dead hand of Labor. There are, however, two comments by the Treasurer with which I heartily agree: any change to the tax system needs to be funded and we cannot all give ourselves a tax cut and expect somebody else to pay for it. It is a shame his actions in funding personal and business tax cuts from the carbon and mining tax revenues do not match his rhetoric. There is only one sustainable way of delivering real tax reform and that is to cut spending and return the budget to surplus. There is one more thing on which I agree with the Treasurer, and that is that there is much to be discussed at the forthcoming tax summit. I urge the government not to let the opportunity go to waste. I fear that it will be just a taxpayer funded talkfest seeking third-party endorsement of Labor's carbon and mining tax proposals and their big-taxing, big-spending ways.