Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

I am continuing my speech on the Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Bill 2006, and I was at the question of whether effective marginal tax rates can be reduced to no more than the top income tax rate. The sustained high-powered campaign to lower the top tax rate of 47 per cent applying to our best-off Australians contrasted starkly with the lip-service given to addressing the much higher effective tax rates applying to our worst-off Australians. So I posed a challenge to the Treasurer: would he work to make sure that no Australian would suffer an effective marginal tax rate greater than the new top tax rate of 45 per cent? A challenge is easy, but what would it cost? Could it be done? These questions are very big ones that have no simple answers. They are also ones which have not received a great deal of attention.

Effective marginal tax rates of up to 70 per cent apply to low-income Australians when income tax and the removal of welfare are combined when moving from welfare to work. High effective marginal tax rates affect the willingness to work. Reducing EMTRs competes as a policy objective with other important objectives. Targeting of assistance to those most in need was the major objective of family assistance reform through the years of the last Labor government. Those reforms dramatically increased the adequacy of assistance to low-income families but also produced much of the EMTR problem facing us today.

The present government has both exacerbated and relieved the problem to some degree. Creating part B of the family tax benefit stacked another income test onto those already faced by women re-entering the workforce. Reducing taper rates reduced EMTRs for some and extended assistance further up the income range. However, it also increased EMTRs for middle-income families. Very high EMTRs have been reduced as the objective of unemployment assistance has changed. They had to come down to encourage part-time and casual work amongst recipients. At the same time, if they came down too far, unemployment assistance could become some sort of income supplement for low-income workers. That has not been the traditional role of unemployment assistance.

The problem to be addressed is how to produce lower EMTRs without compromising the other equally important objectives of family assistance and low-income support. EMTRs are produced by the overlapping of income tests on government payments, subsidies and income tax rates. The more payments, subsidies and rebates a family attracts, the higher the EMTRs. There are not only income tax rates but also a low-income rebate and a Medicare levy that both modify the tax rate and have phase-out ranges that can add to EMTRs. Family assistance is broken into two parts which overlap and inevitably produce higher EMTRs when combined with tax rates, levies and rebates. Families with youth allowance dependants face further stacking when the family income test for youth allowance is added. Other families may have further complications due to public housing subsidies.

Research on how many people are facing high EMTRs is surprisingly thin on the ground. A NATSEM report by Gillian Beer in 2002 gave an idea of the considerable scale of the problem. She found that high proportions of families with children, and especially sole parent families, faced high EMTRs. In 2000, David Ingles from the ANU mapped out three approaches to EMTR reduction: harmonisation, integration and separation. The harmonisation approach essentially tries to ameliorate the existing system by adjusting income tax and income tests to avoid the most serious conjunctions of withdrawal rates. In terms of fundamental reform, Ingles canvassed integration of tax and income tests. Separate means tests for welfare payments would be removed and replaced with special tax scales for those in receipt of payments. However, he warns that the differing definitions of income used for income tax and for welfare may be too far apart for integration to be feasible except as a very long term goal.

The opposite approach is to aim for full separation of the tax and welfare regimes. One suggested model involved adding family tax benefits, youth allowance and rent assistance to basic income support payments in a family and subjecting them to a single withdrawal rate. A tax credit would be provided to ensure that no tax was paid until all income support and additional payments were exhausted under the income test. This would ensure that the family was subject to only the taper on the income test for payments until they ceased and then taper on the tax credit plus the underlying tax rate.

All of these approaches involve quite radical restructuring of tax and welfare systems, but government action to date has just modified EMTRs to some degree through reduced tapers and tax rates. Without fairly fundamental recasting of tax and welfare interaction, any further adjustments to the existing system may tend to shift the EMTRs to another income or benefit group and, like squeezing a balloon, it will not get smaller but just bulge out in a different place.

However, having said all that, we still remain with the impossible situation where the community, media, business and many members of parliament have squealed loudly about the high top tax rate, wanting to bring it down from 47 per cent, and yet that same squealing is not going on for low- and middle-income Australians who face high effective marginal tax rates of 70 per cent or more. Therefore, you have to ask the question: why won’t the Treasurer address that issue and ensure that no Australian pays a tax rate greater than the highest top tax rate, whether it is an effective marginal tax rate or the nominal rate?

The Democrats have argued that Australia’s tax-free threshold is too low. Australia’s income tax free threshold is $6,000, and it has remained unchanged since 2000. It is not indexed and is therefore constantly losing real value. If it had been indexed since 2000, it would now be well over $7,200. Had the 1980 personal threshold of $4,041 kept pace with earnings, it would now be over $14,200.

Working Australians have a much lower tax free threshold than the three million senior Australians who enjoy a tax-free threshold well over $20,000. People cannot live on $6,000 a year. Australia’s welfare floor is around $12,500, calculated as the minimum income required for basic subsistence. There is no justification for taxing the income of someone earning that amount. However, the budget papers indicate that, once the proposed low-income rebate has been taken into account, a person whose income is below $25,000 per annum has an effective tax-free amount of $10,000 per year, excluding Medicare. I am glad that the Treasurer has recognised the long and consistent campaign by the Democrats for the effective tax-free threshold to be lifted.

The tax-free threshold is supplemented by a numerous and distorting array of tax exemptions, concessions and deductions, plus a myriad of welfare measures. Raising the tax-free threshold significantly should be accompanied by base-broadening measures. Revenue advantages would be matched by a simplification of the tax act.

Australian governments regularly benchmark themselves against the 30 countries of the OECD. Australia’s tax-free threshold compares poorly with the OECD. With the caveat that it is difficult to readily compare tax systems in the OECD, the data indicates that Australia’s current $6,000 tax-free threshold is less than half the OECD sample average of $15,400.

There is support for the Democrats’ position from many sources. However, the Minister for Finance and Administration, Senator Minchin, in answer to questions in the Senate, recently said that the government will not raise the tax-free threshold because of the cost. Apparently it would cost over $35 billion over four years if the tax-free threshold were raised to $12,500, which is roughly the poverty line.

The Democrats’ answer has been that raising the tax-free threshold significantly is a necessary equity and work-motivating reform that should be phased in over a number of years and that it can be funded from the surplus and base broadening. You either have a meaningful tax-free threshold or you do not, and $6,000 is not meaningful. Those who argue that there should be no tax-free threshold but instead tax credits and benefits to low-income Australians probably have a stronger case than those who argue that the tax-free threshold should remain at $6,000. We do not take that point of view. We think that the tax-free threshold should continue to rise, and rise not only meaningfully but consistently with the CPI.

Unlike the superannuation proposals, there is no significant public or media interest in the income tax cut bills. Indeed, the Labor opposition did not even take up its full 20 minutes in speaking to this bill in yesterday’s second reading debate. The ACTU, whilst it has been strongly critical of the gross benefits accruing to high-income earners in comparison to low- and middle-income earners, is not getting a matching kind of response from the Labor Party, which accepts that these income tax cut bills will pass and should pass without much concern. Both the media and the public regard the bills as a done deal.

The problem with the tax cuts package is the excessive generosity to better-off Australians compared with the benefits—which do exist—that are accorded to lower-income Australians. However, we Democrats do not have the time, the opportunity or the resources to develop a comprehensive alternative package. You need extensive access to modelling and research capabilities. Given the Senate numbers, it would be a futile waste of time for us to put up a complete alternative package.

Given our long and consistent support for raising the real income of low-income Australians, despite the inordinate largesse to high-income Australians, it is difficult for the Democrats to oppose a tax cuts package that delivers an effective $10,000 tax-free threshold and raises the disposable income of persons earning $10,000 by 3.8 per cent and persons earning $25,000 by 4.6 per cent. The Democrats do not consider the income tax package as a whole to be worthy of outright condemnation, because there are sufficient equity and positive policy elements within it concerning low- and middle-income Australians, and certainly if the government had left the highest tax level at $125,000 and the rate at 47 per cent then there would be very little room for criticism.

However, the Democrats will attempt to amend this package. We do criticise the policy choices and priorities made by the government. Our greatest concern is that the Treasurer, despite his obvious intellect and abilities, and the Treasury, despite their obvious intellect and abilities, have failed to come up with a meaningful, long-term tax reform plan. That is a matter that has been the subject of great commentary by the business and academic community, who are quite damning, in many respects, of the failure of the Treasurer and the Treasury to match the sort of long-term planning they did with respect to indirect tax with an equivalent long-term view for direct tax.

The Democrats suggest that, with respect to this package, there are only two possibilities for amendments that we can have a look at. The first would be a small tax-free threshold rise or the second would be a partial indexation of the tax rate. If we raised the tax-free threshold to $7,500, it is estimated that it would cost $8½ billion over four years, less the saving from keeping the top rate at $125,000 and 47 per cent. That would save $5.05 billion. So the net cost would be $3.45 billion over four years, which we think is easily affordable in the context of the forward estimates. As an alternative, partial indexation can be revenue neutral and is perhaps easier to sell. Organisations like the ACCI strongly support indexation of tax scales. Indexing the present $6,000 tax-free threshold would cost only $2.4 billion over four years, less the saving from keeping the top rate at $150,000 and 47 per cent, which would also cost $2.4 billion. So the net cost would be zero. Both propositions benefit all taxpayers, although the benefit is greater for low-income taxpayers.

Christine Milne (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I rise today to comment specifically on the government’s Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Bill 2006. As I indicated on the night of the budget, the Greens do not support the tax cuts. We think that the surplus would have been much better spent on addressing the significant challenges facing the Australian economy. The Treasurer did not mention these challenges in the budget and even failed to recognise them in the small print in the budget papers. These challenges are the significant impact on the Australian economy that is going to occur, and is already occurring, because of climate change and the need to address energy security issues—in particular, oil proofing the country—in an age where we are going to see not only oil depletion but also much more expensive oil supplies coming into Australia as we shift to being a net importer of oil within the next 10 to 15 years.

The Greens have also said that we believe that this squandering of the surplus—which is how we would see what the government has chosen to do with these tax cuts—is basically taking away a future income stream from government which is going to be challenged by the costs of infrastructure and service delivery to an ageing population. All around the country, people complain of the inadequacy of health services, in particular. They complain about the ongoing costs of providing accessible, high-quality health care in rural and regional Australia—and that is certainly significant in my state of Tasmania—and yet we find the government feels that the surplus is such and the infrastructure is such that it can give away personal tax cuts.

I think it is interesting that the budget has virtually died without a trace. Within weeks of the budget, the ‘Manna from Heaven’ and the ‘Rivers of Gold’ headlines have disappeared. What has replaced that in the public debate is the energy crisis, which I talked about in my budget reply speech. Since the budget, the Prime Minister has discovered climate change in an attempt to legitimise his rush to embrace nuclear power, and we now have a global discussion occurring in relation to the new nuclear club. We have discussions every day about the ongoing cost of fuel. The issue that is the focus in the business pages is the government’s so-called reforms to the fuel taxes and how fuel is delivered around the country. So the issues that the Greens identified on budget night as being the main threats to the budget and as being the areas in which there needed to be forward planning are precisely the issues that are rushing onto the agenda. Meanwhile, the government’s tax cuts have been lost out there in the ether.

Whilst the government might consider that it will get some benefit from votes in next year’s election because of the tax cuts, I doubt that that will be the case—because, for all that it was dressed up to be about middle Australia, these tax cuts were for the rich. This has been a budget for rich Australians, and it has exacerbated the gap between the rich and the poor. Any improvement in the lower- to middle-income bracket is completely absorbed by the increased costs of trying to access services, whether they be health services, education services, public transport services or child care. You name it, everything has become increasingly more expensive, and the tax cuts will not offset the increased costs of trying to access those services.

I think the issue of the government’s loss of a revenue stream into the future is incredibly serious. The entire budget is predicated on the assumption that corporate profits will continue into the future without any kind of interruption. Those corporate profits rely particularly on the mineral boom continuing—not being cyclic, as has always been the case in the past—because of the insatiable demand for minerals from India and China. That assumes that those economies have the capacity to grow indefinitely. It is again a failure to recognise the ecological limits. If China and India continue to grow at the rate that they are currently growing—and as is predicted—their demand for raw materials will be such that there will be huge ecological devastation around the planet in trying to fuel this particular growth. What is more, the inequities in terms of trade between the United States and China will destabilise markets into the future.

My great concern here is that the whole Australian economy has been simplified under the Howard government. Rather than being strengthened, it has been weakened. We have gone back to being, as I said in my budget reply speech, and as Doug Cameron described, a quarry, a farm and a nice place to visit. The manufacturing sector has virtually been lost, and the tertiary sector is tiny and struggling as a result of having its research and development funding strangled. The opportunity was here with the surplus to invest heavily in the research and development that would build us a more sophisticated economy, particularly in the tertiary sector, but instead it is delivering tax cuts.

We have already seen some of the great technological breakthroughs in Australia going offshore to China. We have a situation where the Treasurer gave a $52 million subsidy to car manufacturers in Australia without tying it to fuel efficiency. We had a recent discussion about how well the free trade talks are going with China, and there was even some speculation in the estimates that Australia might be able to export cars to China, but there was no apparent recognition that the Chinese have set higher vehicle fuel efficiency standards than Australia. We will not be exporting cars to China, not just because they can produce theirs more cheaply but because they have set higher fuel efficiency standards than we have in our own country. We need to wake up to the fact that the Chinese are constantly building competitive advantage into the sophisticated environmental management technologies of the next century.

The same applies to renewable energy technologies. China have set a 15 per cent target for renewables. As a result, we have Dr Shi, Australia’s first solar billionaire, making his money in China, because it is in China that he can roll out the photovoltaic technology that he learned how to establish at the University of New South Wales. Meanwhile, Professor Martin Green’s program at the University of New South Wales is underfunded.

What does that say about this budget strategy, which is to rake in the dollars from digging things up and sending them offshore? Having got those dollars, instead of investing in research and development to address climate change—the big security threat of this decade—and building a more sophisticated economy through research and development, and rolling out those technologies and transferring those jobs—as the Germans have done, as the Japanese are doing and as the Chinese are doing—what do we then do? We say: ‘No, any money that we’ve got to invest in R&D we’re going to invest in more digging up. This time, we’re going to invest it more heavily in the coal industry because we hope that, by sending our research dollars to carbon capture and storage and pumping carbon dioxide back down holes in the ground, we can continue digging it up, with business as usual.’

In terms of the uranium debate, we have precisely the same thing. We have a strategy of digging it up. But this time it is even better, because not only are we digging it up but we are filling up the holes with the waste we get back. That is an incredibly sophisticated strategy: Australia becoming the nuclear waste dump of the world and generating income from the storage of high-level nuclear waste which will be sent back to us from any number of countries around the world! That includes America—and President Bush. At the moment, he cannot get domestic approval in the United States for the storage of high-level nuclear waste, so what could be better than turning to his good friend Prime Minister John Howard and asking if he can dig a hole in the ground and store the high-level nuclear waste here for a fee? Australia is continually building budgets on digging it up, sending it away and, in the case of nuclear, taking back the waste.

This budget was an opportunity to use the surplus to invest in the new economy, and it has failed to do so. There is nowhere near the investment that is needed in solar thermal technology, for example. For all the talk about nuclear being needed for energy security, nothing could be further from the truth. The CRC on coal technology in Australia released a report saying solar thermal could produce all of Australia’s base load power using 37 square kilometres of land and could be cost competitive with coal within seven years. Why aren’t we investing in that technology, which would then be taken up in a huge way by countries such as China, and in other parts of the world where they are desperate for base load energy to replace fossil fuels? It makes absolutely no sense that Australia’s greatest resources, our huge area and our sunshine, are not being recognised as being a competitive advantage.

Instead, we are predicating a budget surplus future on the basis of our ongoing capacity to dig up minerals and send them overseas on the assumption that the minerals boom will last forever. If that is not a high-risk strategy for a budget, I do not know what is. We also have the ageing population. We have to deal with the fact that fewer and fewer Australians will be paying the taxes to keep a larger number of people who are living longer and requiring not only health and transport services but all the community services that provide a reasonable quality of life for people in their old age.

From the Greens’ perspective, we are seeing a squandering of the surplus on the basis of a risk that we can continue to dig up minerals. It is a failed strategy for our future and one that does not benefit low- and middle-income earners, who overwhelmingly would rather have better access to health, education, public transport and child care today rather than a few dollars in their pockets which do not go towards meeting those needs. In the committee stages of this bill I intend to move an amendment to address the issue of building some sort of real energy security in Australia. We have had some discussion of it since the budget, but there has been no discussion of the practical measures that could be taken to reduce energy demand in Australia. That is the simplest and cheapest way of dealing with increasing energy challenges.

Earlier this year, the Minister for the Environment and Heritage moved the Energy Efficiency Opportunities Bill, which required companies using more than 0.5 petajoules of energy per annum to engage in a mandatory energy efficiency audit. I thoroughly support that. That is precisely the way we should be going in a whole range of areas. But the government has failed in that because all it requires is that those companies conduct the audit. It does not require companies to implement the findings of those audits. At the time that bill was being debated I moved an amendment saying that the companies should not only identify the energy efficiency measures but be required to implement them with a payback period of two years initially, phasing into a period of five years, so that we got an upgrade in Australia’s business community and so that we became much more energy efficient. If you are serious about energy efficiency and security, that is what you do.

When the government moved for accelerated depreciation in the budget it was a clear opportunity to tie that accelerated depreciation to energy efficiency. In the committee stage of this bill I will be moving an amendment which does what the government had an opportunity to do with the Energy Efficiency Opportunities Bill. Hopefully, they will rethink it. If we are going to give business a windfall for accelerated depreciation, why should those businesses which are the most energy thirsty, the energy guzzlers on the grid, get a windfall benefit without having to take some responsibility for upgrading plant and equipment? As a result, that is what I will be moving, to make sure that the accelerated depreciation provisions do not apply to these energy guzzlers unless they implement the findings of the mandatory audit that the government now requires them to conduct. That is a first step and a practical step. It will be a test of the government’s so-called new commitment to climate change and to reducing our energy footprint.

The whole issue of climate change is not seriously on the government’s agenda. In the estimates just recently we had a situation where I asked the Department of Foreign Affairs and Trade and Senator Coonan whether they were looking at the national security ramifications of climate change for Australia in the Asia-Pacific region, just as the Pentagon has done for the United States. Senator Coonan had difficulty understanding the question. She asked several times and she could not understand what an environmental matter might have to do with national security. Today the Lowy Institute released their report on the national security ramifications of climate change. Only a few months ago I moved a motion asking the government to recognise environmental refugees and to work to have it incorporated into the UN convention on refugees. The government once again rejected that. I am not prepared to accept that the government even have climate change on their radar, except to invoke the words when they want to use it to cover another agenda, like being part of President Bush’s nuclear club, which is the most recent invocation of the issue of climate change.

Whether the government likes it or not, climate change, energy security and oil depletion are the big challenges to Australia in this century. They are the challenges which will rock the budget and knock it right out of the water when we have major and extreme weather events occurring because of climate change. They are going to be the issues when the next generation of Australians look back and see that the government squandered a massive surplus, failed to recognise how the world had significantly changed and failed to take advantage of Australia’s competitive opportunity at this point of significant change to embrace renewable energy and solar technologies and to go out and create a sophisticated economy that helps Australia, is globally responsible and demonstrates global leadership.

That is why the Greens are opposing the tax cuts. That is why I will be moving to require companies to do what is the right and responsible thing at this time. If they want the benefits of accelerated depreciation then they can take the responsibility for implementing the energy efficiency measures that will begin the process of focusing business on what needs to happen in Australia to address climate change.

John Watson (Tasmania, Liberal Party) Share this | Link to this | Hansard source

The Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Bill 2006 is a very important piece of legislation because it continues the government’s commitment to being the responsible manager of the Australian economy. This bill takes an excessive tax burden off people’s backs. The steady management of our economy by the government will be one of the most enduring legacies that we can leave to the Australian people, but it is important that we do not rest on our laurels and that we continue to improve and to reform aspects of legislation when appropriate. I believe that this bill does just that.

The Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Bill has several purposes. Obviously, the primary purpose is to reduce the personal income tax rates for 2006-07. I will note here that while Australia’s tax regime is quite competitive when compared to the OECD average, for example, our top marginal tax rates have for a long time been amongst the highest in the OECD. This bill reduces our top marginal tax rates towards the OECD average, which has to be a good thing in retaining workers here in Australia and attracting others back to our shores who have left because of excessive taxation. At the same time, the bill manages to reduce the margin and increase the thresholds of most of the other brackets, which is a good thing. I think this is a fantastic achievement and one that the Treasurer is to be commended on.

The bill also seeks to increase the low-income tax offset for 2006-07. It will decrease the amount of Medicare levy paid by low-income senior Australians in 2006-07. As more and more Australians retire, this measure will become more and more valued. It will also increase deductions of the decline in value of depreciating business assets under the diminishing value method from 10 May 2006. For me this is perhaps one of the most important measures contained in the bill, and I will deal with that later in my address. The bill amends the Income Tax Rates Act 1986, the Income Tax Assessment Act 1936, the Fringe Benefits Tax Act 1986 and the Medicare Levy Act 1986 to achieve all these grand results.

The bill is good legislation because it continues the trend of the Howard government towards the redistribution back to taxpayers of the proceeds of increased tax revenues. Taxes, I remind the Senate, have steadily come down under the Howard coalition government. Unfortunately, those on the other side of the chamber might disparage the size of the weekly reductions in tax, but I remind you that when Labor was in government taxes were rising, not falling. An extra $500 in the pocket at the end of the year might not seem much to my colleagues on the other side, but it is far better than being $500 out of pocket.

The effect of this bill will be to increase the disposable income of taxpayers. It will give taxpayers greater control over their own financial situation. I firmly believe that private citizens are far and away the best people to manage their money. We have seen that in the recent amendments to end benefits taxation on superannuation. People under a taxable superannuation arrangement will be able to walk away with their lump sums tax free, and if they invest that money in a pension that will be tax free. In other words, they will not have to have as much capital to enjoy the equivalent level of disposable income. This is another good measure introduced by this government. It will take away the increased complexity associated with calculating termination payments and the like, where you had eight different calculations because of the previous arrangements. As I said, I firmly believe that private citizens are far and away the best people to manage their money. The government has a role, and an important one, but I believe that the Australian public should be trusted with as much of their own money as the government can permit.

By reducing the marginal tax rates and increasing the thresholds, the bill will continue to make Australia’s tax regime one of the most competitive in the world. In our region, the South-East Asian region, this is important. It will help attract and retain the highly skilled workers and professionals that our economy needs. We cannot afford to have our best and brightest move overseas because of our tax laws. I have spoken in other places about some of Australia’s brightest people being leading players in the London financial markets and increasingly occupying such positions in America. We want them back here in Australia using their brains and expertise to advance Australia’s competitive position in the world global economy.

The bill contains increased incentives to undertake additional work or start new businesses, thereby increasing productivity and employment opportunities. Unemployment is already at the lowest rate it has been in 30 years, and this bill will help ensure that unemployment rates stay as low as possible for as long as possible. I worry that if the Labor Party got power at the next election there would be massive unemployment in this country as employers take fright at the consequences for their workplace relations.

The bill also slightly decreases the tax advantages from the negative gearing aspects of property, thereby putting less upward pressure on residential property prices. This is important right across Australia, including in my own state, which has seen property prices skyrocket since 2000 without a comparable increase in the average wage.

I mention again that the bill features a 200 per cent uplift factor on the prime cost basis where people use the reducing balance method of calculating their depreciation or reduction in value. To my mind this is one of the most important aspects of the bill, as it will strongly encourage business investment. It will help farmers and small business. It will help start-up businesses and it will help established industry. In fact, this bill will dramatically help anyone who uses the diminishing value accounting method. It is an option the taxpayers have. Finally, this bill reduces the reliance on personal income tax as a source of tax revenue, and this can be a good thing. I commend the bill to the Senate.

Rod Kemp (Victoria, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

I would like to acknowledge the speeches of my colleagues on the Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Bill 2006. I am always particularly interested in the contributions of Senator John Watson, who has a reputation for giving very thoughtful speeches in this chamber.

As part of the budget, the government announced personal income tax cuts for all Australian taxpayers. As is well known, from 1 July 2006 the government will reduce the marginal tax rates of 47 and 42 per cent to 45 and 40 per cent respectively. This builds on reductions to lower income rates in earlier years. In addition, the bill will increase the thresholds so that the 15 per cent tax rate will apply up to $25,000, the 30 per cent rate will apply up to $75,000, the 40 per cent rate will apply up to $150,000 and the 45 per cent rate will apply to income above that. The low-income tax offset will be enhanced by increasing it from $235 to $600. It will begin to phase out at $25,000 from 1 July 2006, compared to $21,600 currently. This means that those eligible for the full low-income tax offset will not pay tax until their annual income exceeds $10,000.

Overall, in percentage terms, the greatest tax cuts have been provided to low-income earners. These tax changes will ensure that more than 80 per cent of taxpayers face a top marginal tax rate of 30 per cent or less over the forward estimates period. Let me repeat that: the tax changes will ensure that more than 80 per cent of taxpayers face a top marginal tax rate of 30 per cent or less over the forward estimates period. That is a measure of the achievement of this government and its ability to reduce taxes.

The Medicare levy low-income phase-in rate will be cut from 20 per cent to 10 per cent, ensuring more low-income taxpayers pay a reduced rate of Medicare levy. Further, the bill ensures that senior Australians who are eligible for the senior Australians tax offset will now pay no tax on their annual income of up to $24,867 for singles and up to $41,360 for couples. The fringe benefits tax rate will also be cut to 46.5 per cent by this bill, and this will ensure that the FBT rate aligns with the top marginal tax rate, including the Medicare levy. This package provides $36.7 billion of benefits to taxpayers over four years and reinforces Australia’s reputation as a low-tax country. These tax cuts significantly restructure the personal income tax system to increase disposable incomes, to enhance incentives for participation and to improve Australia’s international competitiveness.

The bill also includes measures that substantially improve Australia’s depreciation arrangements by increasing the diminishing value rate for determining depreciation deductions from 150 per cent to 200 per cent. This change aligns depreciation deductions for tax purposes more closely with the actual decline in the economic value of an asset, which is consistent with the government’s tax policy strategy of ensuring that the tax system has minimal effect on the allocation of resources within the economy. The new depreciation arrangements provide increased incentives for Australian business to invest in new plant and equipment. This will mean that businesses will be better able to keep pace with new technology and remain competitive. Taxpayers will get the benefit of the improved depreciation arrangements for assets acquired on or after 10 May 2006. For the reasons I have outlined above, I commend this bill to the Senate and hope that it can enjoy the support of all senators, because we know that taxpayers are waiting.

Question agreed to.

Bill read a second time.