Andrew Bragg (NSW, Liberal Party) Share this | Hansard source

I move:

That the Labor Government has delivered a Budget that does not have a plan to tackle inflation, fails to reduce cost of living for all Australians, increases spending that will add to inflationary pressures and risks forcing the Reserve Bank of Australia to keep interest rates higher for longer.

I appreciate the opportunity to make some remarks about the Labor Party's budget from just a couple of days ago. It is very important that this chamber is able to have a debate about the nature of fiscal management in Australia—the way that we tax and the way that we spend—because this goes to one of the central components of how we are governed as a people. The core point to make this afternoon is that, fundamentally, this is a budget which is based on increased expenditure and which will have two particular consequences. It will result in higher taxation—as it has already—and it will continue to fuel inflation. Those are the two direct consequences of the government's latest budget.

Much is made of the promises that politicians make before elections. Before the last general election, the now government made many statements about promising never to increase taxation. Of course, there was much laughter in many quarters when these statements were made because no-one believed that the now government—then the opposition—would be able to help itself and would be able to maintain a lower level of taxation, because, ultimately, when you have an addiction to spending and you can't seem to say no, you will necessarily have to look to raising taxes. Since the election, a couple of new taxes have emerged and you can read about them in Budget Paper No. 2 from the October budget last year, or you can look at them in Budget Paper No. 2 from this May's budget.

The first tax which was leaked out and briefed out in the course of the budget's preparation was this new tax on superannuation. It's a very interesting taxation policy for the Labor Party. It was not taken to the election and was in breach of a promise. It's quite curious for a few reasons. The first of which is that by putting in place a new tax on balances over $3 million, and not indexing it, it means over half a million people will be captured. The people that are most heavily impacted by this new taxation measure will be younger Australians because of the failure to index. Perhaps one of the most curious implications of this will be that superannuation will not be the preferred savings vehicle for many people in the future because it is so uncertain. When you are asking people to put money away for 20 or 30 years, or maybe longer, people will want confidence that the settings are going to be reasonable and won't be set aside by a future government. So for a party that is obsessed with talking about how fantastic superannuation is, it's a very curious initiative, because it will shake the confidence that many Austrians have in the scheme. This new taxation measure, which is going to hit over half a million people, is an unfair tax for younger people.

It also introduces this very novel concept of unrealised gains. Everyone from the National Farmers Federation through to the inner-city asset management groups have had major reservations about this idea of the introduction of taxing unrealised gains. The whole principle of the tax system is that you only tax on something when you sell it, earn it, or there is a particular moment where something happens which triggers taxation. The GST is levied on transactions. When you sell an asset you pay capital gains tax. These are natural points which occur, but an unrealised gain is very hard to define from an accounting and legal perspective, and, as I say, the farmers feel that they will be unfairly targeted. The head of the Farmers Federation has said: 'The Treasurer doesn't care.'

Another person who has been involved with some of these debates, Geoff Wilson, from Wilson Asset Management, has said, 'Taxing unrealised gains is like a gain on your house when you still own it.' This is going to be a major problem for the government when it seeks to legislate this particular tax policy. It is, ultimately, another attack on self-managed super funds. The Labor Party have never liked self-managed super funds because their savings vehicle of choice are the funds which are controlled by their friends and great benefactors at the union movement.

Perhaps, on one level it is true that it is a curious thing for a Labor Party to do, to try and damage the long-term confidence people have in the system. But perhaps it does suit the short-term tribal initiative which is evident in all the policies of this government—which I am regularly referring to as 'the government for vested interests'. Of course, they would like to damage the self-managed super funds, because these are funds which are run by individuals, not by the major union and bank funds. The first consequence is you have a tax like this, which was briefed-out for the budget, but appears now in Budget Paper No. 2.

The second taxation change, which appeared in the last budget, in October, was the changes to franking. The franking changes, which the now government canvassed widely in 2019, are, again, very curious because it was the Labor Party which introduced imputation. An idea that had been around for some time was that it was a bad thing that people were going to be taxed twice, so they introduced this measure to avoid double taxation. Unfortunately, on this occasion, the two measures that the government proposed in last October's budget to change imputation are going to result in a new tax, effectively, because they will remove people's ability to receive franked dividends and avoid double taxation. But it is perhaps a clever measure that, after you have taken to an election a policy which was designed to remove people's ability to receive franked dividends. This policy—which is a breach of another election commitment—aims to switch off the franked dividends from the companies themselves.

We now have legislation before the economics committee which will remove a company's ability to pay a franked dividend when it is raising capital. There is a very broad test in this bill which basically says, 'Unless you have an established practice of paying dividends, you can't pay a dividend in any period.' Companies, by definition, need to raise capital. That's how companies work. They raise capital, that becomes the company's equity and that can be used for running the actual operation. Having in the law a test that is very difficult to manage and navigate means that companies will be less likely to raise equity capital, they will be more likely to raise debt in order to fund their operations or they may in fact look to go offshore. So, ultimately, this particular measure, which is designed to improve the budget balance by $10 million per annum, could actually result in a significant loss of revenue because companies will be less likely or less able to pay company income tax because their profits will be lower, and that will mean that there's a lower level of franked dividends available to the shareholders and the owners of the companies.

It was curious to hear the evidence given by the Treasury department on this bill. The Treasury department made it very clear that there was no activity in Australia's capital markets today that was giving rise to a need to regulate or impose a test as has been proposed in this legislation. Again, the test is that, if you have raised equity capital, you cannot pay a franked dividend. It is a very, very ugly test, I would say. Treasury gave evidence that there is no activity in today's capital markets that would require that sort of intervention. Treasury, I think, have also been concerned over the long term about imputation. I'm not sure whether they think that imputation is a good idea. So this may have been an idea that was pushed through into the government's first budget. We know now it was based on modelling or data from 2016 and, as a result of the motion yesterday, we should now be able to see the assumptions and the methodology which underpin that particular tax measure.

The last tax measure I will refer to briefly is the new tax on gaspers—cigarettes. A new tax is required across the board as we chart up to a projected 26.4 per cent of GDP in the medium term. That's quite a high tax-to-GDP ratio. There is everything from complicated measures on imputation through to new taxes on super and new taxes on cigarettes. That is the net result of the government's expansionary fiscal policy: you need to have more taxes.

On the spending side of the budget, we're looking at an additional $185 billion of expenditure since the election—$44 billion of new money in this budget. We're looking at an expansionary fiscal policy at a time when the central bank is trying to pull back on monetary policy, and that means that the arms and legs are not working in sync. The Reserve Bank is trying to rein-in inflation by using interest rate policy—it's raising interest rates—and the government is fuelling inflation by the budget massively expanding expenditure. That is ultimately the decision that the government have made. They have put in the budget papers that they think that they can cut inflation by 50 per cent over the next 12 months. I think that is an ambitious and laudable objective, but it is a great test now for the government. Can they get inflation down to 3¼ per cent? It's going to be very difficult when they're running an expansionary fiscal policy. I would have thought it would have been in everyone's interests if they were able to take the difficult decisions now and look to consolidate their position and remove stimulus from the economy. Ultimately, unless we can rein in inflation, we are going to have a major problem, particularly for low-income Australians.

Ultimately governments decide how they want to tax and how they want to spend. This government has made a very clear judgement that it will be increasing taxation through a range of these measures. I pointed out how some of these are going to be problematic. That is the threshold they have. They want to have higher taxes, and that will be their record.

They've also decided that they will, frankly, work against the central bank. The government has decided that it wants to work against the Reserve Bank. It wants to send its backbenchers out to whinge about Philip Lowe and say what a terrible person he is. Philip Lowe is doing his job, whereas Jim Chalmers refuses to do his job and refuses to fight inflation. That is the reality of the situation. The Australian people will not be passing judgement on Philip Lowe; they will be passing judgement on Jim Chalmers and Mr Albanese. And they will be looking at whether or not that 3¼ per cent inflation figure will be achieved. That is in the budget papers. We will look to hold the government to account to ensure that that is achieved, as much as possible. We don't set the government budget, but we will hold the government to account through these processes in the Senate. That is the position that I would like to leave you with now.