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

by leave—I move amendments (1), (2), (4) and (5) on sheet 4951. In view of the fact that amendments (1) and (2) on sheet 4929 have been rejected, there is no point in moving amendment (3), so I have dropped it.

(1)    Schedule 1, item 1, page 3 (table items 1 to 4), omit the table items, substitute:

(2)    Schedule 1, item 2, page 3 (table items 1 to 4), omit the table items, substitute:

(4)    Schedule 1, after item 1, page 3 (before line 9), insert:

1A  Clause 1 of Part I of Schedule 7

Omit “clauses 2 and 3”, substitute “clauses 2, 3 and 4”.

(5)    Schedule 1, after item 2, page 4 (before line 2), insert:

2A  At the end of Part I of Schedule 7

Add:

Indexation of the ordinary taxable income of the taxpayer in item 1

          4.    The amount of the ordinary taxable income of the taxpayer in item 1 of the table in clause 1 is indexed for each year of tax after the year of tax commencing on 1 July 2006 in accordance with the CPI indexation method as follows.

                 The amounts specified in item 1 of the table in clause 1 are to be increased by the indexation factor worked out using the following formula:

where:

CPI quarter means a period of 3 months ending 31 March, 30 June, 30 September or 31 December.

index number means the All Groups Consumer Price Index number (being the weighted average of the 8 capital cities) published by the Australian Statistician.

The indexation factor is to be calculated to 3 decimal places, but increased by .001 if the 4^th decimal place is more than 4.

Calculations:

                (a)   are to be made using only the index numbers published in terms of the most recently published reference base for the Consumer Price Index; and

               (b)   are to disregard index numbers that are published in substitution for previously published index numbers (except where the substituted numbers are published to take account of changes in the reference base).

If an amount worked out under the formula is not a multiple of $5, the amount is to be rounded as follows:

                (c)   if the amount exceeds the nearest lower multiple of $5 by $2.50 or more—round the amount up to the nearest higher multiple of $5;

               (d)   in any other case—round the amount down to the nearest lower multiple of $5.

Indexed amounts for each year of tax must be notified in the Gazette before the commencement of that year.

I thank both the major parties for their responses. To Senator Stephens I will make the remark, through the chair, that you might not have been aware, because you were not the shadow minister at the time, that we have previously advanced that particular proposition, so it is not entirely new to the Labor Party. But I would urge the Labor Party to produce a comprehensive tax reform plan in its next election policy, because I think it is a weakness of the government’s situation at the moment that they are adjusting rates, both nominal rates and thresholds, as they go along, but they are not addressing the fundamental problems of the tax system. And they are the problems that have been clearly itemised by many academics, many professionals, many of the more serious members of the media, and many business and community people as well as, of course, professional tax observers like some in this chamber.

Moving to the government, Minister, I am going to deal with the indexation issue, but before I do I will make two remarks. Firstly, it is true that the Democrats believe that our revenue should be predicated on the needs of the nation. Once you have decided what essential needs need to be satisfied in terms of defence, security, education, health, infrastructure and so on, you then have to design a tax system which produces that revenue. As a party, we have not been as concerned with where tax rates and thresholds sit so much as with the necessity of ensuring the tax system produces sufficient revenue for Australia’s needs.

It is arguable, of course, that we are still not spending enough in areas of considerable need. One of my great concerns with the coalition is that they consistently argue that they are the best economic managers in this country, but I never hear them argue that they are the best social managers in this country. It is at the social level that we have great concerns about suicide, domestic abuse, drug abuse and alcohol abuse, the incidence of mental health problems and general disconnection in many parts of our society from the wealth or happiness that should be a person’s lot in an extremely progressive, wealthy First World country. In that respect, of course, you need money. To the government’s credit, they have produced $1½ billion to pour into the mental health problem. I suspect they need to put in a lot more. It is not as if they have not tried to address some of these areas, but it is the Democrats’ consistent criticism that insufficient expenditure is occurring in the areas where we have real social problems.

If I have any advice for the government with respect to the next election—and I not sure I am the one most qualified to give that advice—it is that the government pay a lot more attention to social management, because their entire attention to economic management has, I think, been at the expense of some areas of real social problems and concerns. In making these general remarks, I also acknowledge the commentary by Senator Milne, who, like Senator Allison, is to be regarded as a genuine person with respect to the energy issues in this country. We do need a great deal more expenditure in that area.

It is true that we are a high-revenue party, but it is also true that we have consistently supported tax reform measures, including tax cuts, where they have been to the advantage of Australia. I remind the chamber that it was the Democrats who supported the indirect tax reform and direct tax reform of 2000, which Labor at that time opposed. We also supported the business tax cuts measures. Of course, being a sneaky devil, I had done the sums and realised it would raise more money than businesses had realised. But, still, we supported that. We have supported tax consolidation measures and business tax measures in many respects.

But our greatest concern with income tax has been that low- and middle-income Australians have not had a fair enough share of the growing wealth of the country. I do not think you can contra giving back bracket creep with making people better off. Giving back bracket creep just restores them to where they were. Your tax system should essentially try to make people better off if you can afford to, and I think that the disposable incomes of middle-income and lower income Australians deserve more of a lift than they have had. We could have afforded that. I do not reject the notion that higher income Australians deserve nominal tax cuts or tax threshold movements. But I argue that they are the last priority. First you deal with the other issues. So hopefully your next budget, which you are going to design to try to win an election, will deliver much more to lower income and middle-income Australians than you have to date.

Turning to the measures before us, on sheet 4951 is a measure that attempts to index the tax-free threshold. I do have a problem with that tax-free threshold. The measure is eminently affordable. The way we have costed it, indexing the $6,000 tax-free threshold is estimated to cost $2.4 billion over four years. You could achieve the saving to make that revenue neutral by keeping the top rate at $150,000 but knocking off the 45 per cent and restoring it to 47 per cent. That also delivers, miraculously enough, $2.4 billion, so the net cost is zero. I note that indexation has been strongly supported in many quarters, including by those great supporters of government—although they are also critical of you for not going far enough—the ACCI, which is led by a former government staffer. A proposition to index the tax-free threshold does, of course, benefit all taxpayers, but the benefit is far greater for low-income taxpayers.

I asked the library research branch statistics section to give me the various costs of indexing all the thresholds, and we thought that we would not be able to afford that at that time so we have only focused on the tax-free threshold as an indexation measure. If the $6,000 tax-free threshold were indexed then all taxpayers would receive up to $24.75 per annum. That does not even amount to—what was the famous saying?—a milkshake and sandwich tax cut. It is more like a freddo frog tax cut, but it does keep pace with inflation. Although small, this tax saving would be more equitable because it is a higher proportion of lower income earners’ taxable incomes. Of course, it would still leave it open to the government to deliver other tax cuts from a growing revenue base if it so decided. But it would take the uncertainty and the tax duplicity out of the tax system to some extent.

As a parliament, we support indexation in many areas. Welfare benefits are often indexed, including pensions, and excise and customs are indexed. Indexation is a very common feature of the tax system, and it is done for a very clear reason: to ensure that the revenue base is protected against inflation. In those circumstances, why shouldn’t taxpayers’ revenue bases be protected through indexation? The higher the income threshold the indexation is applied to, the more regressive would be the tax change and the smaller the tax numbers that would be affected.

We recognise that the numbers will mean that indexation is unlikely to be accepted in this chamber. But we argue that this is a policy measure that both the opposition and the government should think seriously about. If you support the general principle of indexation in the tax system, which I understand both parties do, then you have to decide at what stage you would seriously consider the issue of indexing tax rates. If you are averse to indexing all tax rates, the one tax rate that must be indexed—or should be indexed, in our view—is the lowest tax rate. As I have outlined, it is very affordable. We have attempted to put an indexation measure before the chamber; it has been rejected. But this is a more modest proposal, and in moving amendments (1), (2), (4) and (5) on sheet 4951 I commend this as a worthwhile policy measure for both parties to consider.