Andrew Murray (WA, Australian Democrats) Share this | Hansard source

Shameless self-promotion! But, apart from the shameless self-promotion that my colleagues are teasing me with, I make those remarks because I have long had a detailed and professional interest in this matter. It is itemised there, and I am not going to reprise all that in this discussion. But I do want to say that Australia’s income tax free threshold is $6,000 and is unchanged since 2000, and because it has not been indexed it is therefore constantly losing real value. If it had been indexed since 2000 it would be well over $7,200, and had the 1980 personal threshold of $4,041 kept pace with earnings it would now be over $14,200. So it is a threshold which is withering away.

The point I make repeatedly is that you either have a meaningful tax-free threshold below which people do not have to pay tax or you do away with the tax-free threshold altogether and move to a system of tax credits or some form of compensation. I and my party oppose that because it creates a churning mechanism and is contrary to good tax policy. We should in fact seek to get as many people we can out of the income tax regime. It has been difficult for me to find the figures which would enable me to estimate the number of persons who would fall below the figure if you did raise the tax-free threshold. In 2003-04 there were 2.1 million taxpayers who were non-taxable—that is, they had net tax payable of zero—but they still filed a tax return to establish their non-taxable status. I remind the Senate that most of those who are low-income, part-time and casual people who would be affected by a policy of moving up the tax-free threshold, and affected beneficially, are women. It is women who populate that category quite heavily.

Unfortunately, with regard to the number of taxpayers that would not have to file a tax return if the tax-free threshold were raised, it is hard to say how many might be put in that situation, and those taxpayers may still need to put in a tax return because they need to show their work related expenses or dividends to which they are entitled a tax refund, or tax losses carried forward or rental losses, or other sources than wages and salaries of income to substantiate their taxable incomes. Those remarks draw our attention to the need for a holistic reform of our tax system to take people out of the tax system where they do not need to be paying tax, to simplify the system, to broaden the base. The Democrats have spoken many times about our belief as to how such a plan should be constructed.

The other point that I want to make is that working Australians do have a much lower tax-free threshold than three million senior Australians who enjoy a tax-free threshold well over $20,000. People cannot live on $6,000 a year. Australia’s welfare floor is $12,500 a year. The government have recognised that with respect to senior Australians. They should be recognising that with respect to low-income working Australians. I must acknowledge the point made by the government that there is an effective tax-free threshold as a result of the low-income offset, which does produce an effective tax-free amount of $10,000 per year, excluding Medicare, for people whose incomes are below $25,000 per annum.

The tax-free threshold is supplemented by a numerous and distorting array of tax exemptions, concessions and deductions plus a myriad of welfare measures. Raising the tax-free threshold significantly should be accompanied by base-broadening measures, and revenue advantages would be matched by simplification of the tax act. This government reform has done nothing to simplify the tax act, in complete contrast to the government’s efforts on superannuation where they have made a virtue of their simplification measures. The government are still without a meaningful tax reform plan with respect to direct tax to make it simpler and more efficient, to reduce churning and to take people out of the system who should not be in there—and, I might say, to broaden the base.

I make a point with respect to the OECD. Australian governments regularly benchmark themselves against the 30 countries of the OECD. Australia’s tax-free threshold compares poorly with those of OECD members, with the caveat—and it is a meaningful caveat—that it is difficult to readily compare systems in other countries. But the data does indicate that Australia’s current $6,000 tax-free threshold is less than half the OECD average of $15,400. I do not think, given the fact that the government has many bright and capable people, that they would be blind to the arguments I put. What they are concerned about is the cost. If you raised the tax-free threshold to $12,500, the cost is estimated to be $35 billion over four years. The government simply says it cannot afford that. But it cannot afford that because it has not taken a holistic view as to how to broaden the base to accomplish such a measure. Our answer is that raising the tax-free threshold is a necessary equity and work motivating reform that should be phased in over a number of years and it can be funded from the surplus and from base broadening.

I made some extensive remarks in my second reading debate speech concerning the effective marginal tax rates. We are concerned that the nature of the complex and inefficient income tax system we have acts as a major barrier to Australians who are not working entering the workforce and, indeed, as a barrier to the proper participation of many people who would otherwise work. I do not think I need to put much more of a case here. I do expect these amendments to go down but I think the purpose motivating these amendments is to ask government, the Treasury and the opposition to think about these matters and to come to a view as to whether our tax-free thresholds are desirable, what level they should be and what means of reform should be adopted to deal with them.