Cory Bernardi (SA, Liberal Party) Share this | Hansard source

May I thank Senator Thorpe for providing the slot for me to speak in this debate. I would also like to thank Senator Whish-Wilson for outlining the Greens manifesto, which basically reduces us all to economic slaves, where everything will be going up in price and taxes will be levied upon anything that moves or prospers or provides any sort of incentive for the country. It is a dreadful state of affairs, the result of which can be seen right around the world, where people are rejecting big government and saying, 'We've had enough of toiling so that you can waste our money in an inappropriate manner.' That is what the Greens want to establish for all Australians.

It is probably pretty clear that I am coming to this debate from a different angle. Overall, the government has probably got the balance of the budget right. Let us remember that Labor's legacy was one of a dysfunctional and incompetent government. It was about debt and deficit, the likes of which we have never seen in this country before. Once again, it is up to the Conservative parties, the Liberal-National coalition, to pick up the pieces left behind by the Labor Party and its alliance partners, the Greens, on behalf of the Australian people.

There is nothing more pressing on my mind than to reduce the level of debt that the government has in this country. Debt cripples governments. It has been responsible for the fall of every empire in the history of the world. When they cannot pay their bills they start chasing the people for more money—and the people get sick of it, eventually. You can go through history and find it is this sort of economic collapse that is the problem with society.

Australia is nowhere near that, so I do not want to be alarmist, but massive debts begin somewhere. Let us remind ourselves that it was only six or seven years ago when Australia had no net debt. We had money in the bank. How quickly that was turned around with $50-billion annual deficits. The government was spending $50 billion more every year than it was taking in, in revenue.

The answer to that for the Labor Party—and for the Greens and others—is: 'Well, rather than cut our spending, let's put taxes up!' I have a fundamentally different view on that. I said at the outset the government has probably got the balance of this budget right, overall. However, there are elements of the budget and plan that has been put forward that I have a principled disagreement with. This new tax bill is one of those measures I find myself unable to support.

The result of the passage of this bill will see Australia's top marginal tax rate hit 49c in the dollar, when you incorporate other levies and responsibilities. It will kick in at around three times the average wage. The first part of that—the tax rate of 49c in the dollar—in my view, is simply too high. The second part of that equation, the fact that it kicks in at around three times the average wage, says to me it is too low. The end result will be that Australia will have a top marginal income-tax rate that is one of the highest in the developed world. It is a marginal income-tax rate that will kick in at a much lower level than many comparable nations.

I would like to reference a few of those tax rates. When you incorporate national and state taxes, in places like Toronto in Canada, for example, the top total tax rate is 38.2 per cent. It kicks in at an income level, in Australian-dollar equivalent, of $503,912. In New Zealand the top tax rate is 33 per cent. In the United Kingdom it is 45 per cent. In Los Angeles—the highest-taxing state, I understand, in the US when you look at federal taxes plus state taxes—it comes in at around 50 per cent. But that top marginal tax rate only kicks in at US$1 million, which is A$1,068,000. Texas is probably the most prosperous state in the union of the United States, at the moment, because it has a small government philosophy and a low-taxing philosophy. Texas, has a top tax rate of 39 per cent, which is entirely comprised of federal taxes. That takes places after $434,000 worth of Australian-dollar income. In Japan it is 40 per cent, kicking in at around $188,000. In Singapore it is 20 per cent of $273,000. In places like Switzerland, in Zurich, it is 24½ per cent once you earn over $900,000 per annum.

I am highlighting this because I want to demonstrate that Australia's tax regime is not keeping pace with the rest of the world. We should be looking to lower taxes in this country, particularly for personal-income taxes, so there is less incentive for people to get into tax-avoidance measures to engage in unprofitable or unproductive measures, some of which could be addressed in further speeches. But there is also a substantial body of academic literature which shows that high rates of taxation have a negative impact on economic growth and investment.

These studies use different data and sources, but they are quite compelling. In 2012 a review of the literature completed for the Tax Foundation by Mr William McBride looked at 26 peer reviewed studies going back to 1983. All but three of these studies confirmed that increased taxes have a negative impact on the economic growth, and none of those three dissenting reports had been completed in the last 15 years. The most recent an influential studies confirm this.

In 2009 Alesina and Ardagna completed a study looking at episodes of fiscal consolidation from 1970 to 2006. They found that fiscal stimuli based upon tax cuts are more likely to increase growth than those based on spending increases. They also found that fiscal consolidations based upon spending cuts and no tax increases are more likely to succeed at reducing deficits and debt, and less likely to create recessions, compared to fiscal consolidations based upon tax increases. The evidence is overwhelming; the studies support it, even in places like the UK. British Chancellor George Osborne recently commissioned the Treasury to publish a series of papers that indicate that lower taxes would, at least in part, pay for themselves through higher revenue. In December of last year Mr Osborne published analysis that showed that his decision to cut corporation tax from 28 per cent in 2010 to 20 per cent by 2015 would increase gross domestic product by 0.8 per cent.

These ideas—the notion that if you cut taxes, the government will receive more in revenue—are a product of the work of economist Arthur Laffer, who developed the Laffer curve. It was a theory that was pivotal in inspiring the tax cuts instituted by Ronald Reagan. In the 1981 Economic Recovery Tax Act, President Reagan slashed marginal income tax rates by 25 per cent across the board over a three-year period. Prior to those cuts the American economy was choking on high inflation, high interest rates and high unemployment. Between 1978 and 1982 the economy grew at an 0.9 per cent annual rate in real terms. Following the tax cuts, between 1983 and 1986, annual growth increased to 4.8 per cent. In 1996, the Kemp commission in America produced a report. I want to quote from it:

America has experienced three periods of very strong economic growth in this century: the 1920s, the 1960s, and the 1980s. Each of these growth spurts coincided with a period of reductions in marginal tax rates. In the eight years following the Harding-Coolidge tax cuts, the American economy grew by more than five per cent per year. Following the Kennedy tax cuts in the early 1960s, the economy grew by nearly 5 per cent per year.

And, as I have mentioned, in the seven years following the 1981 Reagan tax cuts the economy grew substantially as well.

The evidence is absolutely clear: tax cuts stimulate the economy. I believe—it is my considered view—that we should be looking to cut taxes in this country. I salute Senator Cormann and the government if their intention is to cut taxes in the years to come, but I do not believe the economy can afford a tax increase now. I may stand corrected on that: they have more access to much better data than I do; they have the departmental heads. There is a principled approach to this that we would be wise to be mindful of: the Australian people are not just economic slaves to government. They are entitled to keep the vast majority of what they earn. If people are earning $180,000 in this country, I want to see more of them earning $180,000. I want to see more of them earning top rates of income because that means we have a prosperous, a successful and an aspirational society. When we put taxes up to nearly 50c in the dollar—49c in the dollar—it means the government thinks it is entitled to half of what you earn over that amount. I think the empirical evidence shows that is absolutely wrong.

I would like to point out that, when it comes to tax is paid in this country, higher-earning people pay a substantial amount of the current tax. Individuals who earn over $80,000 per annum account for nearly 63½ per cent of total income tax take so two-thirds of tax is paid by those who earn over $80,000 per annum. When you ask about the top marginal tax rate of $180,000, those individuals who earn over $180,000 pay 26.2 per cent of the tax in this country—they are paying over a quarter of personal income tax in this country. That says to me that those people who are working hard—who are in good jobs in good professions and who are earning substantial amounts of money—are already doing their bit. They are the people who are paying the bills that, I regret, have been necessary to support previous governments that have squandered the strong financial legacy we had from the Howard-Costello years.

It is always difficult when you are at odds with your own party. I regret that this is my first opportunity to have a conversation about these tax rates with members of my own party. But, on principle, I am simply unable to support this bill. Like Senator Macdonald, I know the numbers are there. I know that the Labor Party and the coalition will be supporting this bill. I do not intend to cross the floor on it but I do want my objection to higher taxes in this country to be registered. The country cannot afford them. It is in the interest of every politician—whether in the Senate or the lower house—just as it is in the interest of every Australian to reduce taxes because that is the thing that will kick-start our economy. It will grow our economy and allow us to manage our debt and deficit in this country. I hope we never have to go through another period like the six or seven years when we had such a spendthrift government that we racked up what is effectively a debt that will mortgage our children's future. To get out of that debt we have to grow our economy; the best way we can do that is to cut taxes.