Tim Storer (SA, Independent) Share this | Hansard source

There are numerous problems with the government's personal income tax package. There are questions about its fairness, its affordability and the political wisdom of making tax cut commitments so far into the future. All three issues go to the reasons behind my decision to propose amendments to the legislation that would simply deal with those elements of the package which would come into force at the beginning of next month.

The proposed low- and middle-income tax offset is fair, modest, affordable and provides immediate relief to low- and middle-income earners. These are the people who have suffered most from the wage stagnation which has plagued the Australian economy in recent years and shows no signs of improving. These are also the people who are struggling most to pay escalating bills for services they need and cannot avoid—electricity, for example. Although the offset would not be in their pockets until the financial year after next, it is budgeted through the forward estimates at around $4 billion a year through to 2022-23. The same goes for increasing the threshold for the 32½ per cent tax bracket from $80,000 to $90,000. Its price tag is relatively modest—no more than $550 million a year through the forward estimates—and it takes effect immediately. The same cannot be said for the rest of the government's package. For reasons of equity and fairness, I'm suggesting the low- and middle-income tax offset not be scrapped in 2022-23, as the government proposes.

In short, stages 2 and 3 of the package are bad policy and tricky politics. History tells us that it is imprudent, to say the least, to commit future parliaments and possible future governments to such massive cuts in revenue so far into the future. Stage 2 will not take effect until the years beyond the forward estimates, and it will be six budgets and at least two elections before stage 3 comes in.

Let's look briefly at the consequences of past governments tying the hands of future parliaments on tax. In 1993 Paul Keating promised two rounds of tax cuts if he was returned to office. He was asked shortly before the election how he could guarantee that they would take effect. His response was: 'Because they are l-a-w law. They are legislated.' The voters accepted his pledge in good faith and re-elected his government. Within four months, economic circumstances dictated that stage 2 of his promise be abandoned—and we all know the rest of the story.

It was a similar story in 2007 when Kevin Rudd accepted in large measure the last round of John Howard's promised tax cuts. They were offered at the height of the mining boom and could only be funded on the basis of the bloated revenues of the time. Come the global financial crisis, their introduction put massive stresses on the budget—stresses we are struggling with now and will be into the immediate future. Gross debt has risen to more than $500 billion and is still climbing. Interest rate payments are now running at $18 billion a year. We are paying the price to this day. This is money that cannot be spent on schools, hospitals and on much-needed roads and bridges in my home state of South Australia. This rash election pledge also had dire consequences not just for Julia Gillard and Kevin Rudd, as their repeated promises to return the budget to surplus failed to materialise, but for Tony Abbott and Joe Hockey, when the voters rejected their drastic cuts in the 2014 budget. It is a warning we ignore at our peril. In politics, as in life, there is little worse than making a promise that may not be kept.

The very structure of the tax package is revealing. The fact that stages 2 and 3 are years into the future is an acknowledgment of the budget's fragility. If they were affordable they would be in place immediately. Instead, they are a lure to voters of a pot of gold at the end of the rainbow but not for another seven years. In estimates, Treasury Secretary John Fraser acknowledged that the projections beyond the forward estimates on which the government's figuring depends are subject to increasingly significant error bands. If this is the case, the sensible, prudent, responsible thing to do is for the Senate to vote only for stage 1, which is fair, modest and immediate. Should there be the slightest slippage in what respected economists believe are optimistic projections, to say the least—especially on wages—the result would be even more debt and even fewer services. The likelihood is that this would mean lower growth, more wage stagnation, slower increases in employment and a bigger welfare bill. The only alternative would be to dump the tax cuts in stages 2 and 3. The consequences of that would be on the heads of those who are thinking of supporting them this week. Fiscal responsibility and fairness demand the Senate deal only with the tax cuts immediately in front of them. There is no reason to legislate tax cuts four and six years away except to hold future parliaments to ransom and hold out to voters what may well prove to be false hopes. (Time expired)