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

by leave—I move Democrat amendments (1) to (20) on sheet 5442 together:

(1)    Schedule 1, item 3, page 3 (table item 2), omit “$80,000”, substitute “$75,000”.

(2)    Schedule 1, item 3, page 3 (table item 3), omit “$80,000”, substitute “$75,000”.

(3)    Schedule 1, item 3, page 3 (table item 3), omit “$180,000”, substitute “$150,000”.

(4)    Schedule 1, item 3, page 3 (table item 4), omit “$180,000”, substitute “$150,000”.

(5)    Schedule 1, item 4, page 3 (table item 2), omit “$80,000”, substitute “$75,000”.

(6)    Schedule 1, item 4, page 3 (table item 3), omit “$80,000”, substitute “$75,000”.

(7)    Schedule 1, item 4, page 3 (table item 3), omit “$180,000”, substitute “150,000”.

(8)    Schedule 1, item 4, page 4 (table item 4), omit “$180,000”, substitute “$150,000”.

(9)    Schedule 1, item 13, page 5 (table item 3), omit “$180,000”, substitute “$150,000”.

(10)  Schedule 1, item 13, page 5 (table item 3), omit “38%”, substitute “40%”.

(11)  Schedule 1, item 13, page 5 (table item 4), omit “$180,000”, substitute “$150,000”.

(12)  Schedule 1, item 14, page 5 (table item 3), omit “$180,000”, substitute “$150,000”.

(13)  Schedule 1, item 14, page 5 (table item 3), omit “38%”, substitute “40%”.

(14)  Schedule 1, item 14, page 5 (table item 4), omit “$180,000”, substitute “$150,000”.

(15)  Schedule 1, item 23, page 7 (table item 3), omit “$180,000”, substitute “$150,000”.

(16)  Schedule 1, item 23, page 7 (table item 3), omit “37%”, substitute “40%”.

(17)  Schedule 1, item 23, page 7 (table item 4), omit “$180,000”, substitute “$150,000”.

(18)  Schedule 1, item 24, page 7 (table item 3), omit “$180,000”, substitute “$150,000”.

(19)  Schedule 1, item 24, page 7 (table item 3), omit “37%”, substitute “40%”.

(20)  Schedule 1, item 24, page 7 (table item 4), omit “$180,000”, substitute “$150,000”.

I want to recap briefly the position with respect to these amendments. The coalition’s election promise tax cuts, adopted by Labor, were proposed when the Reserve Bank, Treasury and others were forecasting lower inflationary prospects and more stable economic times than now. In the evidence to the Senate Standing Committee on Economics inquiry that examined this bill, the top Treasury officials confirmed two points with respect to fiscal policy and inflation: having no tax cuts would represent significant fiscal tightening, and any negative effects of tax cuts by stimulating aggregate demand would need to be balanced out by reductions elsewhere in government spending, meaning that the promised tax cuts that will contribute to inflation will likely lead to cuts to government spending on services. If such services are essential, that would hardly seem in the national interest.

The minister has made two good points. One is that the government did indeed have a different view to the coalition at the top end and had a different tax package at that end. The second is that their budget overall has attempted to balance out the effect of this fiscal stimulus. The question, of course, is whether they will succeed in that prospect. Through the chair: as the minister well knows and the members of the chamber debating this well know, these things are matters of judgement, and you will only find out later on if your judgement has been right.

I want to say particularly on this matter that, although the figure of $31 billion worth of tax cuts is the one that is commonly run out, we should remember that the tax cuts that will increase aggregate demand and will increase Australians’ disposable income for the years 2008-09 to 2010-11 actually total $57 billion. That is what is going into the marketplace—$26.2 billion is already locked in from the 2007 coalition budget, and there is a whole whack of tax cuts coming in on 1 July 2008 which are in fact a consequence of the coalition’s 2007 budget. That should not be forgotten. Labor intend to add $30.8 billion more in tax cuts.

We have heard, both from me and from the minister, that large tax cuts will go to low- and middle-income earners, and both of us have indicated that we think they do need tax cut relief and do merit an increase in their disposable income. But this should not be overstated. Of the $30.8 billion worth of Labor’s new tax cuts, approximately $11.3 billion, or 37 per cent of the cost, is accounted for by low-income offset changes, so that goes to low-income people. Of the $57 billion total cost—that is, the coalition tax cuts legislated in 2007 and the Labor tax cuts which we are now debating—those earning less than $34,000, which I think is a reasonable measure of low income, will only get approximately 26 per cent of the tax cuts, so about a quarter. In contrast, at the top end, wealthy Australians will do very well. The reputable journalist—probably you would describe her as eminent—Michelle Grattan recently wrote, on 6 May, in the Age:

An analysis by Treasury shows that families with an earner in the top 3% of taxpayers have enjoyed an 85% increase in their disposable incomes since 1996 —about 1.7 times the rise for families with an average income earner.

The point of that, of course, is that better off Australians have been doing very well.

So we think there is merit in accepting the low-income tax offset changes and lower income tax cuts. They will provide income relief. They will assist workforce participation. There does remain the danger of increasing aggregate demand with tax cuts to such an extent that it increases inflationary pressure and results in higher interest rates. The government are aware of that. They believe their budget package adjusts for that. We think that maybe that is a little hopeful, and we think the tax cuts quantum needs to be cut or the tax cuts timing needs to be changed to be sure—or, as the Irish would say, to be sure, to be sure.

The set of amendments on sheet 5442 that I propose now as an alternative to the set of amendments I proposed on sheet 5438 would do the following things. With respect to the 30 per cent band, it would defer the changes so that the upper threshold does not lift from $75,000 to $80,000 in 2008-09 but from $75,000 to $80,000 in 2009-10. For the 40 per cent band, it would cancel the upper threshold lifting from $150,000 to $180,000 in 2008-09, so it is a tougher amendment than the one previously put, and, for the 45 per cent band, it would cancel the threshold lifting to $180,000 plus in 2008-09. In other words, wealthy, wealthier and better-off Australians—and, of course, the rich and very rich—would not get the benefit of those changes, but the vast majority of Australians would get the benefit of the proposals before us. Accordingly, we also move in these amendments to cancel the 40 per cent rate dropping to 38 per cent in 2009-10, and we cancel the 38 per cent rate, which would come in later on, dropping to 37 per cent in 2010-11. So it is a much more modest and a more conservative approach than has been taken in the bill.