Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Hansard source

I thank all of the senators who have contributed to this debate on the Tax Laws Amendment (Temporary Budget Repair Levy) Bill 2014 and related bills. In closing the debate, let me make a number of observations as well as respond to some of the issues that have been raised during the debate.

Firstly, in response to Senator Milne's assertion that there is no budget emergency, let me remind Senator Milne and the Greens of the facts. After the previous government inherited a strong economy, a strong budget with no government net debt, a $20-billion surplus, more than $50 billion in a net positive asset position and the government collecting—I stress 'collecting'—more than $1 billion a year in interest payments on the back of a positive net asset position, the previous government turned that situation negatively around very quickly through massive unsustainable and unaffordable increases in spending to the point where the previous government delivered $191 billion of accumulated deficits in its first five budgets. It left the last budget with another $123 billion in projected deficits. It left behind a situation where government debt was heading for $667 billion, and that was assuming that there would be absolutely no correction or adjustment at all for 'bracket creep', which means that middle income earners, progressively, would have been expected to fall into the highest income tax brackets. Once you take into account potential corrections of income tax rises to take into account bracket creep, the debt trajectory that we were on—as a result of decisions of the previous government—actually was taking us to $748 billion of debt and rising within the decade.

At various times, various people—I have heard the Greens say it, and I have heard Mr Palmer and others say it—have said: 'Don't worry. The debt position in Australia is not really that bad when you compare it to other parts of the world, like in Europe and the US.' The only reason we are not yet in a worse position is because of the strength of the budget back in 2007. The trajectory we are on is one of the fastest-growing spending trajectories in the world. We are on one of the fastest debt growth trajectories in the world. If we stay on the trajectory that we are on, the destination where we end up will be the same destination that others have already reached before us.

It is an emergency. When you have government spending on track to increase from $409 billion this year to $690 billion in 2023-24, or to 26.5 per cent as a share of GDP, up from 23.1 percent as a share of GDP in the last year of the Howard government, then you are in a crisis situation. You are in a situation where you are forcing government spending onto an unsustainable spending growth trajectory. Even in this budget, with all of the hard decisions we have had to make, we are still looking at $60 billion of projected deficits over the forward estimates.

When we talk about deficits, what are we actually talking about? We are talking about borrowing from our children and grandchildren in order to fund our lifestyle today. We are not talking about investment in productivity-enhancing infrastructure or social infrastructure, where it is appropriate for future generations to share in the cost of infrastructure that they will be able to share the benefits of.

What the previous government did over their six years in government—and the trajectory that they put Australia on—was to force the government to borrow in order to fund consumption and in order to underwrite consumption, in order to underwrite our lifestyle today at the expense of our children and grandchildren, who would have to pay back the cost of our lifestyle today with interest. We do not think that is right. We do not think that is fair. We think that today's generation should live within its means. We believe that government should live within its means and not impose those burdens on our children and grandchildren.

Senator Dastyari and Senator Milne also both said that the temporary budget repair levy will have no impact on structural tax problems. Quite transparently and quite honestly, we have never suggested that it will. The temporary budget repair levy will not have impact on any structural issues with our tax system. The temporary budget repair levy is not designed to address the structural tax system. The temporary budget repair levy is designed to be in place for three years. It will raise $3.1 billion over the forward estimates period to assist with the task of repairing the budget.

I heard another Greens senator in the chamber assert that somehow I was not able to answer the question in Senate estimates about what repairing the budget means. Let me say it again very clearly. While some might not accept the answer and the explanation, our answer very clearly is that repairing the budget is getting us back into surplus. Over the forward estimates, repairing the budget is getting us back onto a believable path back to surplus, which is, of course, what we are doing.

The government has committed on the structural side to produce a comprehensive tax white paper to provide a longer term, considered approach to tax reform which is consistent with the government's core principles of fairness and simplicity. We have said very transparently that we would take any proposals for reform coming out of the tax white-paper process to the next election for approval by the Australian people.

Senator Siewert and Senator Stephens said that the temporary budget repair levy was inequitable and the levy should be permanent. The proposition was that all of the changes on the spending side are permanent, so why would we not make changes on the revenue-raising side permanent? The decisions that we have made are focused on ensuring that all Australians contribute to the task of repairing the budget.

An important point that I need to make here is that not all expenditure cuts are, in fact, permanent. There are a number of measures affecting transfer recipients for a limited time—for example, pausing indexation of income and assets test thresholds for three years. Non-pension payments and allowances will be paused from 1 July 2014. Pension thresholds and various other thresholds will be frozen from 1 July 2014. Indexation of family tax benefit A and family tax benefit B payment rates will be paused for two years from 1 July 2014. That is not permanent.

Senator Stephens suggested that taxpayers will seek to reorganise their arrangements. I point here to some very good and clear evidence that was provided by Treasury on this point during the inquiry by the Senate Economics Legislation Committee. I quote:

As the income tax system, in large part, taxes individuals based on the amounts they receive and spend, individuals are able to affect the amount of tax they pay by altering their income or expenses for an income year. Similarly, as the tax system provides different treatment for certain types of payment or certain types of entity, individuals are able to choose to receive payments in a certain way or through a certain entity with the result that they receive different tax outcomes.

While such flexibility does provide individuals with some scope to reduce their tax liabilities, especially where the rates of tax change, it is a necessary feature of a tax in which liability is tied to individual's actual income for a year. … denying choices where they might result in tax benefits would be complex and impose considerable compliance burdens.

Senator Siewert also suggested that the budget repair levy is not progressive. We do not agree with that assertion at all. The temporary budget repair levy does apply to individual taxpayers earning above $180,000—individual taxpayers, I might add, who are already making a significant contribution through the tax system to the revenue raised by government. It is progressive, and it will apply at a rate of two per cent on individuals' annual personal taxable income. For example, an individual earning $200,000 will pay an additional $400 per annum; an individual with a taxable income of $300,000 will pay an additional $2,400 per annum on top of the tax that they are already paying.

Senator Wong suggested that there were tax arbitrage opportunities, given the misalignment between fringe benefits tax rates and top income tax rates due to different application years. Let me say here that, while the fringe benefits tax rate is aligned with the highest marginal income tax rate, plus the Medicare levy rate, income tax and fringe benefits tax have always applied over different periods. As these periods differ, to have any rate of play over the same period would require at least one tax to have a split period in which two different rates would apply. The compliance burden imposed on business by such an arrangement would be entirely disproportionate to the benefits of alignment. It has long been accepted by this parliament, with either side of parliament in government, that where the relevant rates are changed there will be a period or periods in which rates are not aligned. The small size and temporary nature of the levy will limit the likelihood of taxpayers taking action to avoid the levy. Converting salary and wages into fringe benefits comes at a cost to the taxpayer, and these costs often outweigh any benefit from differential tax rates. The flat levy design was based on a similar model; although not with the FBT rate change, because it only applied for one year.

My good friend and valued colleague Senator Macdonald made the point that he thought the bill did not go far enough and that the levy should be imposed not only on individuals but also on corporate taxpayers. He is of course right when he says that he has been consistent with that proposition all the way through. I well remember during the debate on the flood levy—I was the responsible shadow minister dealing with the legislation—Senator Macdonald made a similar point. Ultimately, we as a government have made a judgement. We want all Australians, all individuals, to contribute to the repair of the budget; and companies ultimately are made up of individuals, and individuals are liable for personal income tax on dividends from those companies. Raising the tax for corporate taxpayers would ultimately only lower the funds available for further corporate investment. So we have made a judgement that, in these circumstances, to increase company tax would not be appropriate. We want to continue to build a stronger, more prosperous and more resilient economy where more jobs can be created and where more Australians with well-paid jobs will pay more income tax to government.

There are of course a number of changes we put forward in the lead-up to the last election that are reflected in the budget—including: a company tax cut of 1.5 per cent, designed to help us build a stronger economy moving forward; and a 1.5 per cent temporary levy on a certain number of companies that are particularly profitable, to help introduce and pay for the fair dinkum Paid Parental Leave Scheme that we took to the last election. Again, that is an important part of our policy to build a stronger, more prosperous, economy and to create more jobs.

Specifically in relation to the Paid Parental Leave Scheme, one of the structural challenges we are facing as an economy with an ageing population is that we have falling levels of participation. In order to turn that situation around, we need to ensure two things. Firstly we need to ensure that older Australians stay in the workforce for longer. Secondly, we need to lift women's workforce participation. In order to do this, we need to ensure that we have a fair dinkum Paid Parental Leave Scheme in place, which helps keep women in touch with their employment while they are having babies. Secondly, we need to ensure that we have appropriate childcare arrangements in place—and that is being pursued through the Productivity Commission review as we speak.

I understand that different people will have different views about the Paid Parental Leave Scheme. However, we have taken it to two elections; we think it is an important economic and social reform, and we will be implementing it in the not-too-distant future. In relation to the budget repair levy, I understand the concerns of colleagues who say that we should not be increasing taxes. I do not like increasing taxes. I believe that lower taxes lead to stronger growth and create more opportunity. However, given the budget mess that we have inherited from our predecessors, the only alternative to not proceeding with this temporary budget repair levy would be to impose 100 per cent of the burden to repair the budget on those who receive payments from government, and that is not what we think would be right. We think it is important to spread that effort fairly and equitably. But I am happy to answer further questions from Senator Macdonald, if he has them, in the committee stage.

I might just deal with a few other issues that have come up now. Senator Whish-Wilson asked why we were not taking a structural approach to tax reform and the tax system. As I have previously said: we are. We are doing that through the tax white paper review process, not through this particular measure. With those few words, I commend the bill to the Senate.

Bills read a second time.