James Paterson (Victoria, Liberal Party) Share this | Hansard source

I begin my contribution tonight by wishing Senator Pratt's father a very speedy recovery and a safe return home from hospital. I have to say, though, that I found Senator Pratt's new-found concern for older Australians a little surprising, given that Senator Pratt is a member of a political party, the Labor Party, which only a few weeks ago unveiled a new policy to smash the household budgets of many older Australians, many self-funded retirees and, indeed, many pensioners. That was until they were forced into an embarrassing backflip a few weeks later, announcing that their changes to dividend imputation would in fact exempt pensioners—rather than their original plan, which was to smash the budgets of pensioners by preventing them from receiving the dividend imputation credits that they had been expecting in their retirement.

It's particularly galling for older Australians to hear this new-found concern for their welfare from the Labor Party when Labor were prepared to push through a change that would have decimated their household budgets and given them no way to respond. Older Australians—people who have retired—are not like the rest of us. They don't have as much time on their side, and if they have been out of the workforce for a long time they don't have many options to restructure their financial affairs to respond to changing government policy. So if someone is in their 70s, 80s or 90s and they planned for their retirement under the policy settings that were in place at the time that they retired—for example, knowing that they would be able to receive a credit in exchange for the tax that was pre-paid on shares that they own in Australian companies—and then someone pulls the rug out from underneath them, as the Labor Party proposes to do, there's very little that 70-year-old, 80-year-old or 90-year-old can do about that. They're not going to find it very easy to go back to work to earn replacement income for the income that they've lost. They're not going to be able to do anything all that creative with their finances, which they're reliant on for their income. They're just going to have to cop it. We heard horrific stories of reductions in household income of as much as 20 per cent to 30 per cent. Senator Pratt was talking about a possible $14 per week reduction in income for some pensioners. People affected by Labor's dividend policy would be affected by losses far, far greater than that.

The truth is that this budget, like all budgets delivered by coalition governments, is extremely generous to older Australians. It's extremely mindful of the contribution that they've made to their nation over their lifetime and extremely mindful of the fact that they, as older Australians, are less able to respond to changing policy settings that could affect them. That's why one of the features in this budget that I think is really worthy of support and I hope will receive support from this chamber is the change that allows pensioners to earn an extra $1,300 a year in private income before their ability to receive a pension or a part-pension is affected. That's a really good change, because a lot of older Australians might have quite good health but don't necessarily want to work full time and, of course, wouldn't want to jeopardise the pension they plan to rely on for their retirement. They might like to do a bit of part-time work here and there in their local community. They might like to do a part-time job to keep them engaged in the community, as much as anything, as well as providing themselves with a bit of extra income. Thanks to changes in this budget, they're now able to do so for more hours if they wish. It's a choice that we're giving them.

Another change in the budget which is going to make it easier for pensioners to live a more financially secure retirement is the pension loan scheme changes. They will allow pensioners, if they choose, to borrow against the value of their home and enjoy the proceeds of living against the value of their home, of living from an income from the value of their home—again, without affecting their eligibility for the pension. That would in many cases allow them to enhance their retirement income and standard of living, just by being able to access the value of the equity in their home. That's another change we've made to help older Australians better plan for their retirement and better structure their financial affairs in retirement.

Senator Pratt mentioned the aged-care system. As it happens, my wife, as some senators know, is a cofounder and director of a business in the aged-care industry that helps people who need places in residential aged-care homes to find places in such homes, so it's something I hear about often over the dinner table at home most nights. I'm acutely aware of the particularly strong demand there is in the community for home care. Like many Australians, older Australians become very attached to their home and to the community in which they live. They've chosen to live there, often because it's in close proximity to their family, children, grandchildren, friends and neighbours that they've grown to become very fond of. Many older Australians would like to remain in their home for as long as possible. They would prefer not to go into a residential aged-care facility if possible. There is great demand for the government's home-care services, and that's why in this budget they're being significantly expanded to cater for that unmet demand in the community. So for Senator Pratt or the Labor Party to characterise this budget as anything other than a very favourable budget for older Australians is very unfair and not consistent with the facts of the budget.

I'm very proud to be part of a government that's handing down a budget like this and I want to talk tonight about some of the really key features of this budget that I think are worthy of support. In particular I want to talk about two, and, depending how much time I have, I may get to some others. The two that I want to focus on tonight are the tax relief for working Australians, which is provided for in this budget, and the way in which the government has managed to get our finances better under control to live within our means by returning the budget to surplus earlier and delivering a larger surplus within the forward estimates.

I'll begin on tax relief because there's a very important principle at stake here. Every single dollar that the government raises, every single dollar that the government spends, has first been earned by someone else. It has been earned by someone because of their hard work, their entrepreneurship, their ingenuity and their effort, and government should only take as many dollars as it needs from the Australian people who have earned it in the first place, as many as it absolutely requires to run the services that only governments can run and provide the services that no other organisation in society can. We should, as a principle, allow people to keep as much of the money they earn for themselves, because it's right that they keep what they earn as the fruits of their own labour and because, frankly, they know how to spend it better than could any politician or bureaucrat, however well motivated, plan to spend someone else's money on their behalf. So, in the first stage of the tax relief plan over seven years that the Turnbull government has revealed in the budget this week, we'll focus particularly on lower- and middle-income earners.

One of the key features of this package is a new, non-refundable low- and middle-income tax offset. This will provide up to $530 a year to low- and middle-income earners every single year, starting in 2018-19. This reform will assist 10 million Australians, with around 4.4 million Australians receiving the full $530 benefit as soon as the 2018-19 financial year.

The second phase of the budget is to raise the threshold for the 32½ per cent tax bracket from $87,000 to $90,000 from 1 July 2018. This will deliver a tax cut of $135 a year to around three million Australians. Really importantly, it will prevent more middle-income earners being pushed from the 32½ per cent tax bracket into the second-highest bracket of 37 per cent, countering potential disincentives to earning higher incomes, which they face through jumping into a higher tax bracket, and, of course, countering the dreaded effects of bracket creep.

In 2022-23, the government will increase the top threshold of the 19 per cent tax bracket from $37,000 to $41,000 and increase the low-income tax offset, which I mentioned earlier, from $445 to $645. From 1 July 2022, tax relief of up to $1,350 per year will be provided by further increasing the top threshold of the 32½ per cent bracket, which I mentioned earlier, from $90,000 to $120,000. This is the bracket that was increased in the last budget from $80,000 to $87,000, so in just a few short years under the Turnbull government this middle-income tax bracket will increase from $80,000 to $120,000, helping millions of Australians avoid going into a higher tax bracket. In fact, 1.8 million will be prevented from facing the 37 per cent tax rate in 2022-23, keeping them in that lower 32½ per cent tax bracket.

The third and final phase of the government's income tax plan is to ensure that our tax system becomes much simpler and flatter, because we all know that a simpler and flatter tax system is a more efficient tax system and is a tax system which better rewards people's efforts. From 1 July 2024, the government will increase the top threshold of the 32½ per cent tax bracket from $120,000 to $200,000. Effectively, that abolishes the 37 per cent tax bracket completely. That means the second-highest tax bracket, which a number of Australians pay now and will pay in the future, will be abolished entirely. A result of this plan is that 94 per cent of taxpayers are projected to face a tax rate of just 32½ per cent, or even less, by 2024-25.

I think one of the great features of this plan is the flat nature of the tax system that will be introduced. People earning from $41,000 upwards, up to $200,000, will face no disincentives to working longer hours or going for a higher-paying job because they will remain in the same tax bracket. No matter how much extra they earn, up to $200,000, they'll still pay 32½ per cent tax. If we don't make these changes, only 63 per cent of taxpayers will have that protection. The coalition want to allow people to keep more of their own money because, unlike the Labor Party and the Greens, we believe in reward for effort.

I think this is a good tax plan. I think it's an ambitious tax plan. I think it delivers welcome tax relief for millions of working Australians. But, to be truthful, it is not the most ambitious tax plan I've read about recently. In fact, I have here in front of me a much more ambitious tax plan that proposes much more significant cuts to not just the thresholds of tax but the rate of tax. I admit it is from August 2005. I'm reading from an article by Jason Koutsoukis and Josh Gordon, since retired from the Fairfax bureau, in The Sunday Age entitled 'Union chief joins call for big tax cuts':

One of Australia's most influential union leaders has called for the top income tax rate to be slashed to 30 cents in the dollar as the push for widespread tax reform gathers pace.

Australian Workers' Union national secretary Bill Shorten, who is widely tipped to enter Parliament at the next election, said all rates needed to be simplified as part of a radical overhaul of the tax system.

Mr Koutsoukis and Mr Gordon were spot on. They could see the future. Mr Shorten did indeed enter the parliament. The article continued:

He urged Labor to embrace genuine reform to try to wrong-foot the Howard Government.

Mr Shorten's call came as Labor's finance spokesman Lindsay Tanner also backed calls to slash the top marginal tax rate, now 47 cents in the dollar.

Mr Shorten said tax reform was the best way to boost sagging productivity levels …

"There is no question that we have to offer fair dinkum tax reform," Mr Shorten told The Age. "All this tinkering about, offering people $6-a-week tax cuts, is just putting lipstick on the tax system."

Mr Shorten has proposed a radical simplification of the tax scales with a top rate of 30 cents in the dollar, a medium rate of 20 cents and a lower rate of 10 cents.

He said the top rate would cut in above $100,000, with income between $50,000 and $100,000 taxed at 20 cents in the dollar, and income below $50,000 taxed at 10 cents—all to be funded by "cutting out all the business tax rorts and business welfare".

I have to confess, it doesn't sound like too bad a plan to me. In fact, it's in many ways much more ambitious than the plan that the government's proposed. It would involve massive tax cuts for many Australians, including those on higher incomes. It compares to the government's tax plan in the same way, I guess, as the Liberal Democrats' tax plan compares to our current tax plan. It's a very radical tax plan proposing very significant tax cuts.

I aspire to one day ensure that Bill Shorten's vision for Australia's personal income tax system is achieved. Sadly, we now know that it won't be achieved under Bill Shorten, because Bill Shorten has said that the government's much more modest proposals to reduce taxes go far too far and are unfair. If the government's proposals are unfair, I wonder what 2018 Bill Shorten thinks of 2005 Bill Shorten. I wonder what 2018 Bill Shorten thinks of the ambitious, young Australian Workers' Union leader aspiring to enter the parliament and his ambitious plan for cutting taxes.

This is a little bit of a pattern, colleagues. This is not the first time that Bill Shorten has proposed quite pro-market, pro-reform, low-tax policies. In fact, as we all know, and have heard umpteen times in this chamber, he's proposed quite significant cuts to the company tax system as well. But we know that Bill Shorten's position has changed. I wonder why that is. I wonder why, as opposition leader, he's now walking away from principles that he's held throughout his career. He's walking away from his commitment to lower personal income taxes and to lower company taxes. It might just be that Mr Shorten is an ambitious person who wants to be Prime Minister and is willing to say or do anything in order to achieve that and is willing to walk away from principles he has espoused well within living memory.

Some of the criticism of the government's tax plan has been that the benefits in the tax reduction will in some way be distributed unfairly. Even the Grattan Institute today has acknowledged that the progressivity of the income tax system in Australia will be altered in no significant way by our tax plan, and the Grattan Institute is not a exactly a renowned friend of coalition governments. It was famously founded by the Rudd and Brumby governments with an injection of $15 million each of taxpayers' money. It sits upon a $30-plus million taxpayer funded endowment, courtesy of the Rudd government and the Brumby government. It is not renowned for being a close ally or friend of coalition governments or free markets, but nonetheless it has acknowledged that there would be no significant change to the progressive nature of the Australian tax system as a result of the changes in this budget.

I think it's worth putting some real facts, figures and numbers on the table here in this debate, because the truth is that, as a result of this tax plan, Australians on an income of $30,000 a year will receive an 8.3 per cent reduction in their tax bill over the course of the seven-year plan. That is a good and significant reduction. Australians on $50,000 a year will receive a little bit less. They will receive a 6.3 per cent reduction. Australians on $120,000 a year will receive a little bit less still. They will receive a 2.9 per cent reduction. Those on $160,000 a year will receive a 2.4 per cent reduction. Those on $200,000 a year will receive a reduction of 2.5 per cent. So the greatest proportional reduction in tax bills will go to those on the lowest incomes—8.3 per cent for those on $30,000 compared to 2.5 per cent for those on $200,000.

There are of course tax cuts in this budget for Australians with higher incomes, and I think that is a very necessary and worthwhile change in this budget. The truth is that, when you cut taxes, in dollar terms many of those benefits accrue to people on higher incomes because they pay more taxes. The top one per cent of income earners in Australia pay 17 per cent of all income tax. The top 10 per cent of income earners in Australia pay 45 per cent of all income tax. To put that in stark dollar terms, someone on $200,000 who, as we heard earlier, is getting a 2.5 per cent reduction in their tax bill pays $67,000 in tax. Someone on $100,000 pays $26,000 in tax. Someone earning $50,000 pays $8,000 in tax. Someone earning $30,000 pays only $2,700 in tax. Our tax system is highly progressive. People on higher incomes pay a much greater amount of tax both in real dollar terms and as a proportion of their income and, under this tax cut plan, although they will get tax reductions proportional to the tax they pay, it will be very modest compared to the very significant reductions at the lower end of the scale.

I realise that, in my enthusiasm for talking about Bill Shorten's exciting, ambitious 2005 personal income tax reform plan, I've run out of time to talk about some of the other great features of the budget. I was going to talk about how excited I am about bringing forward the return to surplus by a year. I was going to talk about how excited I am about the increase in the size of the surplus and the wonderful infrastructure package of which my home state of Victoria is the recipient. But, sadly, there is so much good news that I've run out of time, even in 20 minutes, to address it all. I'm sure there will be an opportunity to return to the Senate to share more good news with my colleagues.