Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Hansard source

I thank Senator Fifield for that very good question and pertinent observation. Last night’s budget does demonstrate the virtues of eliminating all government debt and managing public finances responsibly—as we have done for the last 10 years. By eliminating net debt we do not have to spend the $8 billion per annum on interest payments that the last Labor government did. And by running budget surpluses we actually add to national savings and we ensure that fiscal policy puts no pressure on interest rates. This budget forecasts surpluses of one per cent of GDP for each of the next four years—some $40 billion in total of surpluses over the forward estimates. So while this budget does provide for tax cuts and for increased spending in key areas, our bottom line is in the black. As Alan Wood said in today’s Australian:

... the question ... yesterday was: wouldn’t all this tax cutting and spending force the Reserve Bank to put up interest rates again? The answer is an unequivocal no.

Prudent budget management has allowed us to deliver substantial new investments in areas like defence, national savings, road and rail, and medical research. We have been able to deliver personal income tax cuts for the fourth year in a row as well as substantial business tax cuts and a radical new plan to remove the end tax on superannuation. The personal income tax cuts in this budget not only deliver $36.7 billion over four years directly to Australian families, they also involve significant reform of the income tax scales: the top two tax rates have been cut to 45 and 40 per cent respectively, and from 1 July the top tax rate will apply only to incomes over $150,000. Only six years ago the threshold for the top rate was just $50,000.

Low- and middle-income families will benefit from the rise in the 30c threshold from $21,600 to $25,000 and the expansion of the low income tax offset. Middle-income families with children will benefit from the extension of eligibility for the maximum rate of FTB. So a family with two children on $40,000 is going to be $48 a week better off as a result of this budget. The tax cuts are fair, and I welcome the Labor Party’s acceptance of that fairness in these tax cuts.

The biggest percentage reductions are actually focused on low-income earners. Even after these tax changes, a taxpayer on $150,000—who by definition earns five times as much as someone on $30,000—will pay 10 times as much tax as that person on $30,000. The top 15 per cent of income earners account for half of total income tax revenue—half from 15 per cent. On the other hand, the bottom 50 per cent of income earners pay just 14 per cent of total revenue. So the structure of our progressive tax system does still remain, despite these cuts. The reason why large dollar tax cuts go to higher income earners is obviously because they pay more tax to begin with. Even after these cuts, someone on $150,000 will still pay nearly $1,000 a week in tax.

Business taxation has had substantial reform with a $3.7 billion reduction and a $435 million reduction in tax for small business. These tax reforms bring economic benefits in themselves, in encouraging work incentives and participation. They deliver in the context of a budget that is clearly in surplus. They are affordable, they are sustainable and they will not put any upward pressure on interest rates.