Katy Gallagher (ACT, Australian Labor Party, Shadow Minister for Finance) Share this | Hansard source

The Treasury Laws Amendment (Tax Relief So Working Australians Keep More Of Their Money) Bill 2019 seeks to legislate the government's income tax cuts announced earlier this year as part of the 2019-20 budget. Labor's position on this bill has been informed by three key principles, as outlined by my colleague in the other place Dr Jim Chalmers: firstly, that the economy needs a boost right now; secondly, that every worker should get a tax cut this parliamentary term; and, thirdly, that it's irresponsible to sign up now to $95 billion worth of expenditure that's not due for another five years without knowing what the economy or the Commonwealth budget will look like in 2024-25.

Before going on and detailing Labor's position on this bill, it's worth looking at what's happening in the economy right now and why we believe that our position on this tax bill is in the national interest. There is no doubt that the economy is struggling on this government's watch. The latest national accounts reveal the slowest economic growth, in terms of annual growth, since the GFC that occurred a decade ago. Those same national accounts show that Australia is now in the longest per capita recession since the 1982 recession. The national economy has fallen from the eighth fastest growing in the OECD in 2013 to the 20th today. Wages, which we know have been growing at record levels for some time, are growing eight times more slowly than company profits. There is rising underemployment and youth unemployment. Overall, there are 1.8 million Australians looking for work or looking for more work—that's 1.8 million people. We've seen five years of weak productivity growth, and productivity as measured by GDP per hour worked has fallen for four consecutive quarters. The RBA has acknowledged that household consumption is weak and has had to respond with two interest rate cuts in two months. The cash rate, now at an unprecedented one per cent, when it was three per cent back in the heat of the GFC, was apparently, according to this government, already at emergency levels.

So there is no doubt that the economy is floundering, with the very real consequence that households across Australia are feeling it. Pensioners and superannuants, who rely on interest rates to help bolster their incomes, are feeling it, too. After six years this third-term government can't continue the facade that they are good economic managers against this backdrop of facts. On Tuesday night, the Reserve Bank governor, unusually and publicly, pleaded his case that monetary policy couldn't do all the hard work. This 'nothing to see here' government has to respond, because right now they are the only people in Australia who think this economy is performing well.

That is why Labor's position and the amendments we will move today are about providing a boost to the economy now. That's why Labor supports stages 1 and 2 of the government's plan. It's unfortunate that the government voted against our amendments to bring forward part of stage 2 in the other place, because it simply confirmed that the government thinks tax cuts in five years time are more important than tax cuts that could start right now. But in this chamber, where the government doesn't have majority control, the Senate can take a responsible and constructive approach and support the position Labor is outlining today.

Schedule 1 of the bill deals with stage 1 low- and middle-income tax offset changes, which supplement the changes announced by the government last year. For the 2018-19, 2019-20, 2020-21 and 2021-22 financial years, the bill seeks to increase the amount of low- and middle-income tax offset, or LMITO. The base amount would increase from $200 per year to $255 per year and the maximum amount from $530 to $1,080 per year. This increase will mean that taxpayers with taxable incomes of between $48,000 and $90,000 will be eligible for the maximum offset of $1,080. The Labor Party supports this increase to LMITO. This increase is very similar to Labor Party policy that was announced last year. The Treasury said on Tuesday that people would start seeing this increase from next week if this bill is passed today. Well, we'll hold the Treasurer and the government to that, especially as they have already broken their pre-election promise that these tax cuts would be paid by 1 July.

Labor completely understands the need for getting these tax cuts into the hands of those who need them the most as soon as possible. The national economy is floundering. Working people have had to endure an extended and ongoing period of low wages growth. Prices are going up, and many Australian families are hurting because of it. The increase to LMITO is needed. It should have been dealt with by 1 July, but the sooner that money gets into the hands of eligible taxpayers the better. So the Labor Party has no issue with this element of the bill. As I said previously, these tax cuts will be provided to those who need them most.

Stage 2 in this bill has two elements to it. Firstly, there is the increase to the low-income tax offset that is in schedule 1 of the bill, which increases the value of the LITO from 1 July 2022 from $645 to $700 and changes the associated taper rate for that offset. The LITO applies to taxable incomes of up to $66,667. This increase to the LITO, along with the increase to the top threshold of the 19 per cent income tax bracket—which I'll come to in a moment—is meant to continue the tax reduction provided by the LMITO once it expires at the end of 2021-22.

Secondly, stage 2 of the government's bill seeks to increase the top threshold of the 19 per cent income tax bracket from $41,000, which was legislated last year, to $45,000, from 1 July 2022—in three years time. The Senate may recall that, in last year's changes, the top threshold for the 32½ per cent tax bracket was lifted from $90,000 to $120,000, taking effect on 1 July 2022.

Labor wants to ensure that all Australian workers get a tax cut this term of parliament, which is why we will be moving amendments, later in the debate, which seek to bring forward the lifting of the tax bracket from $90,000 to $120,000 this financial year. Our amendment, if supported today, would mean that every Australian worker would receive a tax cut in this term of parliament, instead of having to wait three years until 2022-23 to see any benefit from this proposed tax package being put forward by the government today.

Let me turn now to stage 3. The Labor Party does not think it's responsible to sign up to stage 3 tax cuts in this bill now. These tax cuts will cost $95 billion over the medium term and are not intended to come into effect until 1 July 2024—five whole years away.

Two weeks ago, we respectfully asked the government to consider separating the tax package so that the parliament could pass the elements where there is agreement—namely, stages 1 and 2—and bring back stage 3 of the tax cuts at another time of their choosing for the parliament to debate. An approach like this would've allowed the tax cuts due this parliamentary term, and every tax cut that is due this parliamentary term, to pass quickly and with near unanimous support—a good outcome for the government, the parliament and, most importantly, the people we are elected to serve.

Unfortunately, the government rejected this constructive approach outright, and instead will have to make arrangements—or deals, or whatever you want to call them—with the Centre Alliance and others to get the entire tax package through. I should also point out at this stage that the government promised not to do any of those arrangements or deals, which is exactly what they are doing now—all because they refused to work with Labor to get these tax cuts through.

So why does Labor have significant and serious concerns about locking in stage 3 now? Primarily, it's because we think it's irresponsible to sign up to $95 billion worth of expenditure from the budget now, five years before it's due. It appears that the stage 3 tax cuts are the government's highest priority, as they're prepared to sacrifice badly-needed tax cuts right now in order to protect tax cuts that occur outside the forward estimates.

I don't need to tell senators that $95 billion is a lot of money. That's $95 billion over six years, starting at a cost of $12½ billion in 2024-25 and growing to $18.9 billion by 2029-30. For comparison, that $12.5 billion in 2024-25 is more than the government will spend this financial year on government schooling, which is $8.3 billion; universities, at $9.9 billion; or the childcare subsidy, at $8.3 billion. That's just to give you an indication of how much that expenditure actually is.

And, most importantly, we simply don't know whether this $95 billion tax cut is actually affordable. How is the government paying for it? The government hasn't explained how they will pay for it. They've avoided answering the question. And I don't think, and Labor doesn't think, that this parliament should blindly accept that it will be able to without locking in substantial reductions in other areas of government activity.

What little information we do know about the government's future budget management approach can be found in the budget papers. We know that the government has an arbitrary tax cap of 23.9 per cent. We know that the government is projecting growing surpluses as a percentage of GDP over the medium term. We also know that the government is projecting reduced spending, dropping from 24.6 per cent of GDP this financial year to 23.6 per cent of GDP by the medium term. So, while the government is asking us in this place to lock in $95 billion in extra expenditure, it is also saying, 'We are going to cap revenue increases, reduce spending and increase our surplus.' It just doesn't add up without an explanation of what services this government is going to cut.

Senators are well within their rights to ask how the government intends to pull this off—bigger surpluses, reduced spending and a cap on tax revenue. If the government is asking us to support $95 billion in extra spending, what and how much government spending needs to be reduced to pay for this to reach the government's other fiscal goals? How realistic is reducing government spending from 24.6 per cent of GDP this year to 23.6 per cent by the end of the medium term? Whilst spending as a percentage of GDP has averaged 25 per cent over the last five years, what the government is talking about is that it intends to spend far less than recent historical trends, and it is seeking the parliament's support for that approach.

How realistic is this when our ageing population is going to place more and more pressure on the budget, rather than less? The Grattan Institute states that, in order to get these projected spending levels, real spending growth would need to average about 1.3 per cent per annum over the decade or 1.8 per cent if the economy performs as strongly as the Treasury projects. Either way, this is substantially lower than any previous government has achieved. So does the government expect growth in health spending to fall? Maybe it's defence spending. Maybe it's spending on veterans' health. Maybe it's spending on education. Is the government really serious when it projects that health expenditure will grow at only 0.7 per cent per annum? Is 0.7 per cent for health growth really realistic, despite historical growth being much higher than that? Do the states agree with this approach? I bet you they will all have a view when they realise what this actually means for state and federal relations in the medium term.

Whilst it's easy for some, it seems, to push these spending reductions off into the distance by saying, 'Don't worry, it is five years away; everything will be okay,' Labor can't take that view. To do so would be irresponsible and let down millions of Australians who rely on government services. We think the government should be up-front at a minimum about how it intends to pay for these tax cuts, and it should up-front about what its projected spending reductions will actually mean. These are all spending reductions that are assumed in the budget in order to pay for these tax cuts, but we don't know what they are and we don't know what effect they will have on essential services. The government wants the parliament to sign up to tax cuts that commence half a decade away, when we simply don't know what the state of the budget will be, we don't know what the state of the economy will be and we certainly don't know how these tax cuts—$19 billion of them when they are fully implemented—are actually going to be paid for. As the leader of the Labor Party has pointed out, it's a 'triumph of hope over economic reality'.

In coming to our position on this bill, the Labor Party has tried to play a constructive role to help fix the Liberals' economic mess and provide tax cuts to all Australian workers at a time when that fiscal stimulus is so badly needed. We compromised on the tax package by changing our position and coming towards the government. But this arrogant government refuses to put the national economic interest ahead of its political one. Australians want their parliamentary representatives to stop the pointscoring and political difference and, where possible, carve out common ground, to come together where we can and put the national interest—and, in this case, our economic and budgetary interests—ahead of anything else. Labor has done just that. We have compromised and we ask that the government do so too.

Our amendments to the tax bill, which will be moved later in the debate, would fast-track planned tax cuts now and also seek a discussion over increased infrastructure investment to boost the floundering economy, which is growing at its slowest rate in 10 years. We want to expedite investment in already planned infrastructure projects and bring forward a part of the stage 2 income tax cuts, as I flagged earlier, so that up to $1,350 a year in tax cuts could be provided for workers earning above $90,000, three years ahead of schedule. Our proposal is the only one before the parliament that gives every Australian worker a tax cut in this parliamentary term. The government's plan does not.

In the committee stage, I'll be moving amendments on behalf of the Labor Party that do a couple of things: bring forward to 2019-20 the $90,000-to-$120,000 threshold change and carve out the stage 3 changes from the bill, with a consequential fix to a table in the tax act. I now move the second reading amendment that has been circulated in my name and that also addresses these issues:

At the end of the motion, add:

", but the Senate is of the opinion that:

(a) measures that begin in the 2024-25 financial year should be removed from the bill because it is not responsible to sign up to $95 billion of tax cuts that do not come into effect for five years; and

(b) the Opposition's plan would support the economy now, providing income tax relief to every Australian worker from the 2019-20 financial year and bringing forward infrastructure investment".

The Senate today has an important job before it. We acknowledge that tax cuts are needed for workers in the economy. We want the tax cuts in stage 1 to flow as soon as possible. The government has already broken the one promise it made, by not having them in place by 1 July. We don't want to hold them up. We want to see that cash flow. But we do think the Senate has a role in putting pressure on the government and putting on the record—which I've done today—our concern about what locking in stage 3 means for the years ahead. It is the job of the Senate to scrutinise this.

The job of the government is to say where that money is coming from, how those tax cuts will be paid for and whether there's a commitment from the government not to slash essential services to the Australian community in order to pay for them. A cynical person would say that the reason these tax cuts are timed so that they sit outside the forward estimates is so that we can't actually see how the government is booking this expenditure and what it is doing to pay for it. Let's put aside that cynicism. The government should be able to inform the Senate today how this will be paid for and whether there is a commitment from the government not to cut services. The Senate should be asking these questions.

Later in the day we will be moving the amendments I have foreshadowed, to bring forward what we think is the most constructive and responsible approach that this parliament could show based on the performance of the economy right now. I hope that other senators will support Labor's position.