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

by leave—I move Democrat amendments (1) and (2) on sheet 4929:

(1)    Schedule 1, item 1, page 3 (table items 1 to 4), omit the table items, substitute:

(2)    Schedule 1, item 2, page 3 (table items 1 to 4), omit the table items, substitute:

We have before us sheet 4929, which is the first proposition I will be putting to the Senate. Later we may see sheet 4951, which is an alternative to sheet 4929. Obviously if the amendments on sheet 4929 pass, I will not move the amendments on sheet 4951, but I understand the numbers in the Senate, so I anticipate we will be moving onto sheet 4951 later on. I will speak to all the amendments.

I will briefly motivate these amendments. As is clear on the face of the amendments, the aim is to raise the tax-free threshold from its present $6,000 to $7,500. The reason the schedules are included is that part of the way of paying for that would be to keep the top tax rate where it is already legislated to be, which is at $125,000, and to keep the highest tax rate at 47 per cent rather than 45 per cent. The costings show that the total estimated cost of raising the tax-free threshold to $7,500 would be $8.5 billion over four years. By keeping the top rates where they are presently legislated to be we would save $5.05 billion. Therefore, the net cost would be $3.45 billion over four years, which is easily affordable in the context of the forward estimates. Those are the savings measures that are in there.

I would refer interested listeners and senators to my website where, under my tax section, there is an extensive paper comparing Australia’s tax-free threshold with OECD data, with suitable graphs and tables to excite those people who like that sort of thing. It is there in some detail. My website is www.andrewmurray.org.au

Linda Kirk (SA, Australian Labor Party) Share this | Link to this | Hansard source

Shameless advertising!

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

Shameless self-promotion! But, apart from the shameless self-promotion that my colleagues are teasing me with, I make those remarks because I have long had a detailed and professional interest in this matter. It is itemised there, and I am not going to reprise all that in this discussion. But I do want to say that Australia’s income tax free threshold is $6,000 and is unchanged since 2000, and because it has not been indexed it is therefore constantly losing real value. If it had been indexed since 2000 it would be well over $7,200, and had the 1980 personal threshold of $4,041 kept pace with earnings it would now be over $14,200. So it is a threshold which is withering away.

The point I make repeatedly is that you either have a meaningful tax-free threshold below which people do not have to pay tax or you do away with the tax-free threshold altogether and move to a system of tax credits or some form of compensation. I and my party oppose that because it creates a churning mechanism and is contrary to good tax policy. We should in fact seek to get as many people we can out of the income tax regime. It has been difficult for me to find the figures which would enable me to estimate the number of persons who would fall below the figure if you did raise the tax-free threshold. In 2003-04 there were 2.1 million taxpayers who were non-taxable—that is, they had net tax payable of zero—but they still filed a tax return to establish their non-taxable status. I remind the Senate that most of those who are low-income, part-time and casual people who would be affected by a policy of moving up the tax-free threshold, and affected beneficially, are women. It is women who populate that category quite heavily.

Unfortunately, with regard to the number of taxpayers that would not have to file a tax return if the tax-free threshold were raised, it is hard to say how many might be put in that situation, and those taxpayers may still need to put in a tax return because they need to show their work related expenses or dividends to which they are entitled a tax refund, or tax losses carried forward or rental losses, or other sources than wages and salaries of income to substantiate their taxable incomes. Those remarks draw our attention to the need for a holistic reform of our tax system to take people out of the tax system where they do not need to be paying tax, to simplify the system, to broaden the base. The Democrats have spoken many times about our belief as to how such a plan should be constructed.

The other point that I want to make is that working Australians do have a much lower tax-free threshold than 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 $12,500 a year. The government have recognised that with respect to senior Australians. They should be recognising that with respect to low-income working Australians. I must acknowledge the point made by the government that there is an effective tax-free threshold as a result of the low-income offset, which does produce an effective tax-free amount of $10,000 per year, excluding Medicare, for people whose incomes are below $25,000 per annum.

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, and revenue advantages would be matched by simplification of the tax act. This government reform has done nothing to simplify the tax act, in complete contrast to the government’s efforts on superannuation where they have made a virtue of their simplification measures. The government are still without a meaningful tax reform plan with respect to direct tax to make it simpler and more efficient, to reduce churning and to take people out of the system who should not be in there—and, I might say, to broaden the base.

I make a point with respect to the OECD. Australian governments regularly benchmark themselves against the 30 countries of the OECD. Australia’s tax-free threshold compares poorly with those of OECD members, with the caveat—and it is a meaningful caveat—that it is difficult to readily compare systems in other countries. But the data does indicate that Australia’s current $6,000 tax-free threshold is less than half the OECD average of $15,400. I do not think, given the fact that the government has many bright and capable people, that they would be blind to the arguments I put. What they are concerned about is the cost. If you raised the tax-free threshold to $12,500, the cost is estimated to be $35 billion over four years. The government simply says it cannot afford that. But it cannot afford that because it has not taken a holistic view as to how to broaden the base to accomplish such a measure. Our answer is that raising the tax-free threshold is a necessary equity and work motivating reform that should be phased in over a number of years and it can be funded from the surplus and from base broadening.

I made some extensive remarks in my second reading debate speech concerning the effective marginal tax rates. We are concerned that the nature of the complex and inefficient income tax system we have acts as a major barrier to Australians who are not working entering the workforce and, indeed, as a barrier to the proper participation of many people who would otherwise work. I do not think I need to put much more of a case here. I do expect these amendments to go down but I think the purpose motivating these amendments is to ask government, the Treasury and the opposition to think about these matters and to come to a view as to whether our tax-free thresholds are desirable, what level they should be and what means of reform should be adopted to deal with them.

Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Link to this | Hansard source

First of all, I acknowledge the continuing contribution that Senator Murray makes to the taxation debate and, despite his blatant self-promotion, I will go to his website and download this interesting paper, which compares personal tax rates around the world!

I have to say that Labor have some problems with this proposal. We find it problematic that we are presented with a proposal like this without much consultation at all. This is the first time we have seen this. Our concern is that this kind of a process would perhaps drive up tax rates. The proposal seems to take all the money that was allocated to the restructuring of the tax scales at the top and put it into increasing the tax-free threshold, which I know is dear to Senator Murray’s heart but we are unable to support it at this stage. This is tinkering at the edges. Labor believe this should be a part of a much larger package; so, on that basis, we will not be supporting these amendments.

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

Let me make the point that I do listen to Senator Murray’s contributions. I am always delighted when the Democrats purport to want to cut taxes. My general experience in this chamber has been that the Democrats are a high-spending party, and from that it follows that they are generally a high-taxing party. I commend Senator Murray for talking about cutting taxes. That is the government’s agenda. We like people to talk around the government’s agenda, so we commend Senator Murray on that point.

I have not had the opportunity to visit Senator Murray’s website in recent days, so I thank Senator Murray for reminding us that he has an extensive website. Of course all of us know Senator Murray’s longstanding interest in tax. Senator Murray drew our attention to a paper on his website on benchmarking and international comparisons. They are things that the government has done in recent months. Senator Murray, like many senators, would be very much aware of the landmark benchmarking paper done by Mr Warburton and Mr Hendy, which guided the government in its budget considerations. I think people would be very pleased with the way the government looked carefully at international benchmarking to ensure, quite appropriately, that the Australian tax system is very competitive. This government likes to compete to see what it can do to reduce the burden of taxes on taxpayers. That is one of the features of our party, as distinct from other parties in this chamber.

Senator Murray, we listened carefully to you. It will not come as a shock to you that we are not persuaded. I regret to say that we are not persuaded by the arguments that you put. We think that you have devised a somewhat blunt instrument in an attempt to deliver some further tax cuts at the expense of raising the top marginal tax rate, as you concede. The government do not believe that is appropriate. The Warburton and Hendy study drew our attention to international benchmarking and the fact that the government should look at the top tax rate, which was a bit high and cut in a little bit early. The government’s thinking was formed by looking at that important benchmarking study.

I have some figures that would be of interest to Senator Murray. The government’s tax cuts, on top of those delivered through the 2003, 2004 and 2005 budgets, have more than returned bracket creep since 1995-96. On the indexation issue, Senator Murray was worried that the benefits of the tax-free threshold could be seen to be eroded. To give Senator Murray some comfort, as I have indicated, we have more than returned the bracket creep since 1995-96. The tax cuts would have lowered tax by a greater amount than would have been achieved by indexing the 1995-96 tax thresholds to the consumer price index. I think that gives a broader perspective than some of the comparisons that have been raised in this debate. It is estimated that in 2006-07 someone on average weekly earnings will be $1,209 a year better off under the new tax scales than if the personal income tax thresholds had been indexed to CPI since 1995-96, which existed at the time this government came into office.

So what is the point I am making? It is that this government believes in tax reform; this government seeks to lower the burden of tax. In terms of marginal tax rates, I think it is a good thing, if we are talking about incentives for people to get back into the workforce or about incentives to keep people employed. We have to look at those tax rates, and I think the government has done well in its restructuring of the income tax system. Senator Murray, I listened carefully to your observations and my advisers listened carefully to your observations. We carefully weighed them up and decided that we are not able to support your amendments.

Question negatived.

Gavin Marshall (Victoria, Australian Labor Party) Share this | Link to this | Hansard source

The question is that items 6 to 11, 15 to 21 and 24 to 30 stand as printed.

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

by leave—I move amendments (1), (2), (4) and (5) on sheet 4951. In view of the fact that amendments (1) and (2) on sheet 4929 have been rejected, there is no point in moving amendment (3), so I have dropped it.

(1)    Schedule 1, item 1, page 3 (table items 1 to 4), omit the table items, substitute:

(2)    Schedule 1, item 2, page 3 (table items 1 to 4), omit the table items, substitute:

(4)    Schedule 1, after item 1, page 3 (before line 9), insert:

1A  Clause 1 of Part I of Schedule 7

Omit “clauses 2 and 3”, substitute “clauses 2, 3 and 4”.

(5)    Schedule 1, after item 2, page 4 (before line 2), insert:

2A  At the end of Part I of Schedule 7

Add:

Indexation of the ordinary taxable income of the taxpayer in item 1

          4.    The amount of the ordinary taxable income of the taxpayer in item 1 of the table in clause 1 is indexed for each year of tax after the year of tax commencing on 1 July 2006 in accordance with the CPI indexation method as follows.

                 The amounts specified in item 1 of the table in clause 1 are to be increased by the indexation factor worked out using the following formula:

where:

CPI quarter means a period of 3 months ending 31 March, 30 June, 30 September or 31 December.

index number means the All Groups Consumer Price Index number (being the weighted average of the 8 capital cities) published by the Australian Statistician.

The indexation factor is to be calculated to 3 decimal places, but increased by .001 if the 4^th decimal place is more than 4.

Calculations:

                (a)   are to be made using only the index numbers published in terms of the most recently published reference base for the Consumer Price Index; and

               (b)   are to disregard index numbers that are published in substitution for previously published index numbers (except where the substituted numbers are published to take account of changes in the reference base).

If an amount worked out under the formula is not a multiple of $5, the amount is to be rounded as follows:

                (c)   if the amount exceeds the nearest lower multiple of $5 by $2.50 or more—round the amount up to the nearest higher multiple of $5;

               (d)   in any other case—round the amount down to the nearest lower multiple of $5.

Indexed amounts for each year of tax must be notified in the Gazette before the commencement of that year.

I thank both the major parties for their responses. To Senator Stephens I will make the remark, through the chair, that you might not have been aware, because you were not the shadow minister at the time, that we have previously advanced that particular proposition, so it is not entirely new to the Labor Party. But I would urge the Labor Party to produce a comprehensive tax reform plan in its next election policy, because I think it is a weakness of the government’s situation at the moment that they are adjusting rates, both nominal rates and thresholds, as they go along, but they are not addressing the fundamental problems of the tax system. And they are the problems that have been clearly itemised by many academics, many professionals, many of the more serious members of the media, and many business and community people as well as, of course, professional tax observers like some in this chamber.

Moving to the government, Minister, I am going to deal with the indexation issue, but before I do I will make two remarks. Firstly, it is true that the Democrats believe that our revenue should be predicated on the needs of the nation. Once you have decided what essential needs need to be satisfied in terms of defence, security, education, health, infrastructure and so on, you then have to design a tax system which produces that revenue. As a party, we have not been as concerned with where tax rates and thresholds sit so much as with the necessity of ensuring the tax system produces sufficient revenue for Australia’s needs.

It is arguable, of course, that we are still not spending enough in areas of considerable need. One of my great concerns with the coalition is that they consistently argue that they are the best economic managers in this country, but I never hear them argue that they are the best social managers in this country. It is at the social level that we have great concerns about suicide, domestic abuse, drug abuse and alcohol abuse, the incidence of mental health problems and general disconnection in many parts of our society from the wealth or happiness that should be a person’s lot in an extremely progressive, wealthy First World country. In that respect, of course, you need money. To the government’s credit, they have produced $1½ billion to pour into the mental health problem. I suspect they need to put in a lot more. It is not as if they have not tried to address some of these areas, but it is the Democrats’ consistent criticism that insufficient expenditure is occurring in the areas where we have real social problems.

If I have any advice for the government with respect to the next election—and I not sure I am the one most qualified to give that advice—it is that the government pay a lot more attention to social management, because their entire attention to economic management has, I think, been at the expense of some areas of real social problems and concerns. In making these general remarks, I also acknowledge the commentary by Senator Milne, who, like Senator Allison, is to be regarded as a genuine person with respect to the energy issues in this country. We do need a great deal more expenditure in that area.

It is true that we are a high-revenue party, but it is also true that we have consistently supported tax reform measures, including tax cuts, where they have been to the advantage of Australia. I remind the chamber that it was the Democrats who supported the indirect tax reform and direct tax reform of 2000, which Labor at that time opposed. We also supported the business tax cuts measures. Of course, being a sneaky devil, I had done the sums and realised it would raise more money than businesses had realised. But, still, we supported that. We have supported tax consolidation measures and business tax measures in many respects.

But our greatest concern with income tax has been that low- and middle-income Australians have not had a fair enough share of the growing wealth of the country. I do not think you can contra giving back bracket creep with making people better off. Giving back bracket creep just restores them to where they were. Your tax system should essentially try to make people better off if you can afford to, and I think that the disposable incomes of middle-income and lower income Australians deserve more of a lift than they have had. We could have afforded that. I do not reject the notion that higher income Australians deserve nominal tax cuts or tax threshold movements. But I argue that they are the last priority. First you deal with the other issues. So hopefully your next budget, which you are going to design to try to win an election, will deliver much more to lower income and middle-income Australians than you have to date.

Turning to the measures before us, on sheet 4951 is a measure that attempts to index the tax-free threshold. I do have a problem with that tax-free threshold. The measure is eminently affordable. The way we have costed it, indexing the $6,000 tax-free threshold is estimated to cost $2.4 billion over four years. You could achieve the saving to make that revenue neutral by keeping the top rate at $150,000 but knocking off the 45 per cent and restoring it to 47 per cent. That also delivers, miraculously enough, $2.4 billion, so the net cost is zero. I note that indexation has been strongly supported in many quarters, including by those great supporters of government—although they are also critical of you for not going far enough—the ACCI, which is led by a former government staffer. A proposition to index the tax-free threshold does, of course, benefit all taxpayers, but the benefit is far greater for low-income taxpayers.

I asked the library research branch statistics section to give me the various costs of indexing all the thresholds, and we thought that we would not be able to afford that at that time so we have only focused on the tax-free threshold as an indexation measure. If the $6,000 tax-free threshold were indexed then all taxpayers would receive up to $24.75 per annum. That does not even amount to—what was the famous saying?—a milkshake and sandwich tax cut. It is more like a freddo frog tax cut, but it does keep pace with inflation. Although small, this tax saving would be more equitable because it is a higher proportion of lower income earners’ taxable incomes. Of course, it would still leave it open to the government to deliver other tax cuts from a growing revenue base if it so decided. But it would take the uncertainty and the tax duplicity out of the tax system to some extent.

As a parliament, we support indexation in many areas. Welfare benefits are often indexed, including pensions, and excise and customs are indexed. Indexation is a very common feature of the tax system, and it is done for a very clear reason: to ensure that the revenue base is protected against inflation. In those circumstances, why shouldn’t taxpayers’ revenue bases be protected through indexation? The higher the income threshold the indexation is applied to, the more regressive would be the tax change and the smaller the tax numbers that would be affected.

We recognise that the numbers will mean that indexation is unlikely to be accepted in this chamber. But we argue that this is a policy measure that both the opposition and the government should think seriously about. If you support the general principle of indexation in the tax system, which I understand both parties do, then you have to decide at what stage you would seriously consider the issue of indexing tax rates. If you are averse to indexing all tax rates, the one tax rate that must be indexed—or should be indexed, in our view—is the lowest tax rate. As I have outlined, it is very affordable. We have attempted to put an indexation measure before the chamber; it has been rejected. But this is a more modest proposal, and in moving amendments (1), (2), (4) and (5) on sheet 4951 I commend this as a worthwhile policy measure for both parties to consider.

Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Link to this | Hansard source

I rise to make some comments about the Australian Democrats’ proposed amendments on sheet 4951. I listened very attentively to Senator Murray’s arguments. He made some important points, most particularly about the criticism of the budget and the fact that it did not contain the tax reform that industry and businesses expected, and that internationally we do not compare very favourably in terms of our personal tax regime. But Labor has some real concerns about the proposal. The idea of blocking the top tax cut and proposing new scales slightly different to the current bill are another effective measure that Senator Murray has used to argue his case for reducing the bottom tax scale, and the indexation of the bottom tax scale for inflation is a position that we acknowledge is interesting and one that we are interested in. We also acknowledge that the Australian Chamber of Commerce and Industry has been proposing that kind of an approach.

I query, though, why the Australian Democrats proposal, which maintains the top tax rate at its current level of 47 per cent rather than accepting a reduction to 45 per cent, did not include aligning the top rate with the fringe benefits tax rate. If this bill reduces the rate to 45 per cent, by having that difference it would deliver a distortion to the tax system that would not be of any benefit. Again in this instance, Labor cannot support these amendments. While appreciating the sentiment and certainly the extent of the work that Senator Murray and the Democrats have put into modelling the proposals, we will not be supporting the amendments.

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

I have a couple of comments to make on the substance of the issue. Of course, my remarks on the indexation matters I made previously also apply in this case. It is true that Senator Murray and his party at times play a very constructive role in tax reform. I well remember the debates on the GST, which Senator Murray and I locked horns over for a long period of time. It was not that Senator Murray agreed with everything the government did but, nonetheless, it would be churlish of me not to recognise that the Democrats did work constructively with the government on the introduction of the goods and services tax.

I remember—and Senator Murray will remember this—the amount of abuse that was directed at Senator Murray and his party by the Labor Party and the Greens in an attempt to intimidate the Democrats into changing their general in principle support for a goods and services tax. How times have changed, Senator Murray. The Labor Party, of course, now fully accept the tax changes we made in relation to the goods and services tax. This may not be the greatest backflip in Australian history, but it would be fairly close to it, I would have thought, given the amount of debate and time the Labor Party has spent on this issue. With Senator Milne in the chamber, I do not suggest to Senator Milne that she bears any responsibility for the attitude of the Greens on this issue, but my memory is that the Greens have not been particularly constructive in relation to major issues of tax reform.

The point I am making is that in areas of tax reform the Democrats are credible in the sense that they have always wanted to engage in tax reform and they have wanted to be players. The Labor Party were not players in the area of tax reform. In fact, they were dragged kicking and screaming to the area of tax reform and, of course, as history now shows, the Labor Party are now a strong supporter of the goods and services tax—

Kerry O'Brien (Tasmania, Australian Labor Party, Shadow Minister for Transport) Share this | Link to this | Hansard source

Senator O’Brien interjecting—

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

Senator O’Brien, with the six Labor state governments enjoying the revenues from the goods and services tax, it would be a bold Labor federal member of parliament to oppose changes in that area. History shows, Senator Murray, that you were broadly correct and that Senator O’Brien and his colleagues were dreadfully wrong. That is what history shows. I have given you a half tick there, Senator Murray. Let me now give you a half cross.

It is not true that the government has not concentrated on areas of social reform. We do hold our chest out—and you are dead right to say that—as good managers of the economy. I think statistics demonstrate that amply in terms of the growth of the Australian economy compared with other industrialised economies around the world.

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

Senator Milne interjecting—

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

We can hold our chest out, Senator Milne. The real increases in wages and salaries which have been achieved by workers under this government are in contrast to what was achieved under the former Labor government. This government does not support economic reform for the sake of economic reform; we support economic reform for the benefits that it delivers to the Australian people, including the social benefits. It is easy to measure one major social benefit. We have brought unemployment down from the maximum rate of around 11 per cent that occurred under the previous Labor administration to around 4.9 per cent today, the lowest in a generation. That is what I call social reform with a vengeance. If you can reduce the levels of unemployment in this country and deliver real jobs to people, that to me is major social reform. Indeed, I think the Australian public recognise that.

The other area which you would know of, Senator Murray, is that, if you have a healthy economy and manage fiscal policy in a sensible fashion, it means that you are able to do far more in the social area than could have been achieved if the economy had been poorly managed. We are seeing a well-managed economy, which means revenues are rising. We have paid off debt, which means the enormous interest bill commitment has now been cut back dramatically. In fact, it is heading towards zero. The fact of the matter is that we have been able to transfer money from paying interest to paying for things like education and health.

So I do not really buy your distinction between being an economic manager and being a government of social reform. The economic achievements of this government have assisted us to deliver social reform in a wide variety of areas, which the Labor Party could not even contemplate while it was in government because the books were so grossly mismanaged. The final point is that, when you talk about the impact on families, you only have to remember the 17 per cent home mortgage rates that occurred under the Labor Party and contrast those with home mortgage rates today. Think of the benefits that that has delivered to families.

Senator Murray, we know that you thought hard on this. The government has been able to engage with you over a long period of time in areas of tax. Sometimes the engagement has been very productive and sometimes it has not succeeded. Today, I have to report to you, it has not succeeded.

Question negatived.

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

Mr Temporary Chairman, I withdraw amendment (3) on sheet 4951, as the substantive amendments have been rejected.

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

I rise to address the amendments I foreshadowed in my speech in the second reading debate, the effect of which is to restrict the application of the improved depreciation arrangements to those companies which implement the energy efficiency initiatives identified in the mandatory energy efficiency audits that went through the chamber earlier this year. I seek leave to move amendments (1) and (2) on sheet 4956 together.

Leave granted.

I move:

(1)    Page 2 (after line 11), after clause 3, insert:

4  Application of improved depreciation arrangements

The improved depreciation arrangements specified in Schedule 5 of this Act apply when findings of mandatory energy efficiency opportunities assessments required by Part 6 of the Energy Efficiency Opportunities Act 2006 are implemented as specified in item 3A of Schedule 5 of this Act.

(2)    Schedule 5, page 13 (after line 1), before item 3, insert:

2A  After section 40-70

Insert:

40-71  No entitlement to improved depreciation unless energy audit findings implemented

        (1)    The provisions providing for improved depreciation arrangements in Schedule 5 of the Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Act 2006 do not apply to a corporation required to register in accordance with Part 3 of the Energy Efficiency Opportunities Act 2006 unless that corporation has implemented the findings of an energy efficiency opportunity assessment required by Part 6 of the Energy Efficiency Opportunities Act 2006.

In speaking to these amendments, I would first like to comment on the statement that the Howard government have been good economic managers. Senator Kemp urged us to look at the statistics. By way of interjection, I was trying to draw his attention to the current account deficit in particular. When the Howard government came to power, it was around three per cent. It has now doubled in that time. When they first came to power, Treasurer Costello could not stop talking about the current account deficit. Now it is about as unmentionable as climate change for Treasurer Costello. So the statistic that I particularly see flashing up in front of me in terms of the government’s economic management is the current account deficit.

What I am proposing here is a measure of tax reform. Much of the debate that has constituted the notion of reform is not actually tax reform; it is merely giving tax cuts and handouts from a surplus. In fact, it reduces the revenue base from which we can have the capacity to deliver improved services into the future. The point of my earlier remarks was simply that, if we have an economy which is based solely on corporate profits generated from a minerals boom, and we narrow the tax base by giving tax cuts on the back of that, when the minerals boom ends and there is a collapse in our ability to sell coal overseas in particular, where are we going to generate the revenue at that time if we have permanently reduced our revenue base? I do not think that is a particularly clever way of managing an economy into the future. The issue is the narrowing of the revenue base through these permanent tax cuts on the basis of what, in my view, is a somewhat shaky idea that we are going to be able to continue in surplus for a long time, on the back of a minerals export boom.

In terms of genuine tax reform, my view is that we should be recognising the major challenges threatening both the Australian community and the world in this century. They are, as I said, related to climate change, energy and natural resource use. We are finding that the planet is finite, in that the commodities that are traded around the world are finite. We have a population of six billion using those resources. We are getting to the point where it is completely unsustainable and we will have conflict generated as a result of that resource use. The conflict in Bougainville, the conflict in the Solomons and the conflict in West Papua—the conflicts all around us—are because of communities being brought to the brink of armed conflict as a result of excessive resource use. We have seen that with the logging companies in the Solomons. We have seen it with mining companies in Bougainville and West Papua. We are seeing it in New Caledonia with Inco’s Goro nickel mine.

What we are going to find is that all over the world, in African countries as well, when multinational corporations come in, take resources from local communities and leave them with ecological destruction without the means to provide themselves with the necessities for survival such as water and food, we will see resource conflicts. We are seeing it with water already. Genuine tax reform would recognise that scarcity of natural resources on a finite planet with an increasing population is what should generate the relationship between people, and between people and the environment.

Genuine tax reform would see us taking tax away from income altogether and shifting it to resource use. That is what some of the progressive economies in Europe are now doing. Over a period of a decade, they are shifting the taxation away from human capital and the capacity of a brains based, service based economy to generate wealth so that there is an incentive for people to use their brains and their capacity to generate wealth. They are taxed on the nature of their resource use. Whilst the tax is being taken off income, it is being put onto pollution, energy use and resource consumption use. That is driving the kinds of changes that we need in terms of people recycling, reducing pollution levels and lessening the ecological footprint of six billion people on the planet.

If you want to talk about genuine tax reform in Australia, that is what we should be looking at. We should be moving away from the taxation of incomes and towards taxing the bads—that is, the processes threatening ecological systems. You would be starting to look at the way that you deal with the threats to our economy that are coming in terms of, for example, water shortages, food capacity and energy use.

That is the sort of genuine tax reform that we are seeing in countries like Sweden. They have set themselves the task of being oil free by 2020. They have implemented a range of fiscal measures to make sure that happens. The Germans are also moving to ecological taxation and away from income taxation. So you have significant shifts. That is what I call genuine tax reform—looking at the long-term threats. If you consider what taxation is all about, it is essentially an economic tool that governs the relationship between people, and between people and their environment. I would argue that the current tools do not work because they encourage unsustainable consumption and resource use. They encourage large gaps between the rich and the poor. Both of those things destabilise communities and actually reduce the capacity of civil society to be sustainable in the longer term.

So, if you want genuine tax reform, that is where I think you should look for it, and that is the context of the amendments that I have moved. The amendments say that the idea of driving companies, businesses, to become more efficient in their use of energy, which is a scarce resource that has a substantial ecological imprint, is a good thing to do, and we should use tax measures to do that. To give business accelerated depreciation, with no responsibility on their behalf to do anything about what they do, just to get a windfall gain, to me is irresponsible.

In the debate on the Energy Efficiency Opportunities Bill 2006, Senator Ian Campbell argued that a mandatory audit of a company’s energy efficiency opportunities is all that is required because, by osmosis, the company will see the light and want to implement those changes. My argument was that, if there is a payback period of one or two years, that is a very short payback period. It is not onerous to ask those companies to implement the initiatives that have been identified in the mandatory audit. We should take the phase-in period of one or two years out to five years over a period of time so that it becomes an increasingly higher hurdle. We should do that at least in the short term.

I know that Senator Ian Campbell took this measure to cabinet himself—not only the idea to identify the energy efficiency measures but also the idea that companies would be required to implement them. The measures were rejected, and that is why I say that the government does not have a vision about tax reform driving particular outcomes, particularly on climate change or energy. I am here providing the government with another opportunity to link accelerated depreciation in business to an energy efficiency outcome, which is basically just saying that the provisions apply to everyone except the companies that are caught under the provisions of the Energy Efficiency Opportunities Bill. Around 200 companies in Australia use in excess of 0.5 petajoules of energy, and we should say to those companies: ‘You are already required to do your mandatory energy efficiency audit. Now let us see you implement those changes in order to qualify for accelerated depreciation.’ That would give them an opportunity to achieve both outcomes, and I have moved the amendments accordingly.

Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Link to this | Hansard source

I thank Senator Milne for that contribution. She articulated, as did Senator Murray from the Democrats, that the Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Bill 2006 falls very short in terms of tax reform. The issue raised by Senator Milne about our current account deficit—and it was raised in some of the interjections by Senator O’Brien—was really highlighted in the Senate Economic References Committee’s investigation into the relationship between the current account deficit and the growing levels of household debt in Australia.

Labor agree that there is certainly no vision in the budget for Australia’s productive future. Also, we acknowledge the challenges of climate change and energy demands in the future. Our problem is that this is a tax bill and Senator Milne’s amendments seek to amend the bill in a way that ties the energy efficiency commitments of industry to the depreciation measures in the bill. We are not convinced that that is an appropriate way in which to amend this tax bill. I am not actually sure that it can even constitutionally be done that way. We do not believe that it is good public policy to link the issue of energy audit findings to the depreciation arrangements within the bill, and therefore we will not be supporting the amendment.

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

I was interested in Senator Milne’s comments. Senator Milne covered a range of issues, and let me deal with those issues in roughly the sequence in which they were raised by her. Senator Milne was unpersuaded by the statistics I gave on the performance of the Australian economy. I would have to say that she would be one of the few people who hold themselves to be economic commentators that would not be impressed by the general performance of the Australian economy.

Senator Milne is one expert, but let me quote another expert: Rodrigo de Rato, who is the head of the International Monetary Fund. We will contrast Senator Milne’s comments with Mr de Rato’s comments. He said, among other things, that the Howard government’s success in paying off its own debt gave it a very big cushion in managing a world recession. Senator Milne talked about a possible downturn in mineral exports—I will return to that in a minute—but she also mentioned the current account deficit. This is what the IMF said about Australia’s current account deficit, in contrast to Senator Milne’s comments. Mr de Rato stressed that the IMF did not regard Australia’s deficit as a threat to its economic health. I will quote what Mr de Rato said:

Australia’s external deficit reflects high investment, rather than inadequate domestic saving, and investment is especially strong in the resources sector, which boosts prospects for future exports.

So one expert, Senator Milne, drew our attention to the current account deficit and another expert, who just happens to be the person who is the head of the IMF, has a completely different view to Senator Milne. This is an independent view; it is not a view that is written by the Australian government—

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

If you’re proud of the current account deficit, tell everyone about it. If you’re happy with a six per cent current account deficit, go for it.

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

Senator Milne, I was just quoting you as an expert, and now I am quoting the head of the IMF. The head of the IMF, who probably has slightly more experience in this area, does not share your view. Some listeners would say that it was a touch of irony that you were talking about a possible future collapse in mineral exports when, if the Greens had had their way, no new mines would be developed and we would not have mineral exports. So I think there could be seen to be a touch of hypocrisy there, Senator Milne—but I will not go further than that, because it would be breaching standing orders. I would have to say that, for the Greens to be weeping over what they forecast as a possible downturn in mineral exports, when Senator Milne and her colleagues devote much of their waking hours to stopping any major new developments, their tears would seem to be crocodile tears—to put it as nicely as possible.

Senator Milne has proposed some changes to this tax bill. The government will not be agreeing with them. The point I would also make, Senator Milne, is that we have vigorous debates with the Democrats on a variety of issues, but the Democrats, to their credit, engage. They engage across a wide range of issues. They talk to the government and seek to bring about change in government policy. I am happy to say that they do not often succeed but, on a number of major issues—and I mentioned tax reform—the Democrats must take some credit for bringing about very significant changes in our economy and in the way taxes are imposed. The Democrats were far more farsighted than the Labor Party—who have now hopped on the bus but were not to be seen when the hard yards were being done—and the Greens.

Senator Milne, you are still a comparatively new face in this chamber. When the history of this period is written, someone will ask: ‘What change did the Greens bring about? They held the balance of power for a number of years. What major reforms did the Greens engage the Howard government on?’ I would have to say that it would be the smallest history book in the world.

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

What about the Snowy Hydro? How did you go on the Snowy Hydro? It was the Greens who stopped you in your tracks.

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

I do not think most people would give you the credit for that, Bob Brown. Senator Brown always gets nervous when I speak like this. No person has squandered the balance of power in this chamber more than Senator Brown. Senator Brown, when the history of this period is written—

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Senator Bob Brown interjecting—

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

It is true that you got more fourth, fifth or sixth items on the ABC news than the Democrats. That is true. You won that one hands down. But, in terms of actually bringing about any significant change in Australia, the fact of the matter is that it is very hard to think of one thing that you were able to achieve over this long period of time. But I do not want to go on about that.

This bill is another area, Senator Milne, where you will not be achieving any changes. The government will not be supporting your amendments. We do not agree with them. We believe they would add further complexities to the tax system. There would be increased compliance costs for business and there would be greater uncertainty for business in terms of their application. The point I would make, Senator Milne, is that, if new technology is more energy efficient, the government’s new measures encourage investment in this new technology. So, Senator Milne, we will not be agreeing with you.

Senator Milne, as you are a comparatively new arrival in this chamber, I say to you that I encourage the Greens to dump the Senator Brown approach of not engaging with the government. It has not achieved anything over a long period of time. I would encourage a more constructive approach from Senator Milne and her colleagues. I am seeing a hint of that occasionally. Senator Milne and Senator Siewert do turn up to Senate committees, which is a big plus and a big change. They seek to engage more than perhaps Senator Brown and Senator Nettle—and I think that is a good thing. I am glad you have not adopted that particular policy whereby you ignore Senate committees. We cannot accept these amendments, but I do encourage you to continue to seek to engage with the government more constructively. If that is your approach, I for one would strongly support it.

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

Firstly, I am disappointed that the government’s argument against these amendments is that they would increase compliance costs for business and make it slightly more complex in terms of accelerated depreciation. Because the measure applies to a specific 200 companies across Australia, we are not talking about mega compliance costs; we are talking in terms of those companies that are caught by this act. The Minister for the Environment and Heritage, Senator Ian Campbell, when he gave the second reading speech on the Energy Efficiency Opportunities Bill 2006, outlined that it was approximately 200 companies. So I suggest that it would not be overly onerous for the government to implement this measure that would force energy efficiency measures.

It will be very interesting at the end of the 12 months to see whether those 200 companies have actually implemented any of the things in the audits, because all this bill does is allow them to accelerate depreciation on equipment of various kinds. I hope that they do it on energy efficiency, because of the increasing costs of energy and the need to reduce the costs of operating. I hope that is the case. These amendments would send a strong signal to the business community that the government is serious about energy efficiency and reducing demand. The next time we have the Prime Minister talking about energy scarcity and energy security or, for that matter, the Minister for the Environment and Heritage talking about climate change, perhaps they can explain to the Australian people why they did not find it necessary to implement measures that would have led to more fuel efficient vehicles, a more energy efficient budget and, on this measure in particular, more energy efficiency in business.

As to Senator Kemp’s challenge on engagement, I remind Senator Kemp that it was my motion for an inquiry into Australia’s future oil supplies and alternative energy that led to the Senate opting to have the Senate inquiry that is currently under way. Through that inquiry, we have had over 150 submissions from around the country. People have overwhelmingly said that this is something that the government ought to have been considering. There is also enormous relief in the business community about the fact that Australia is at last looking into what happens in the future with oil depletion and the development of alternative supplies.

It was with some amusement that I noted in the small print only a week ago that the government has announced that it is now going to have its own inquiry into Australia’s future oil supplies and transport fuels. I was very pleased about that, because it is apparent to me that, until the Greens brought it into this chamber, put it on the agenda and set up the inquiry, the government was reluctant to recognise it as a major issue. But the community is certainly saying that it is a major issue, and increased prices at the pumps are putting increasing pressure on the government to do something about it.

As to your challenge with regard to my colleague Senator Brown, it was the legal advice that Senator Brown got in relation to the sale of the Snowy Hydro that brought the issue to the point where the federal government was forced to change its mind. That was a critical role played in the initiatives that were taken to save the Snowy Hydro. I welcome Senator Kemp’s invitation for me to explain to the Senate the critical role that the Greens played in keeping the Snowy Hydro in public hands. The community is enormously appreciative of the role we played, both here in the Senate and in the upper house in New South Wales. The Greens led the running at the state and community levels in terms of organising people and assisting them to make their views heard in that regard.

Currently, the Greens are again taking a very strong role in engaging with the government on its misguided overruling of the ACT on its current laws in relation to partnerships. It is appalling to see the Howard government move in the middle of the night to try and overrule the ACT. The Greens engage very constructively here in this chamber, and I would argue that the oil inquiry for one is one of the most strategically important initiatives that has been taken by the Senate in the 12 months I have been here.

I hope, Senator Kemp, that you take on board the spirit of these amendments and not only ask companies to engage in energy audits but make them take some responsibility for meeting Australia’s challenge in terms of energy security and future energy supplies. Demand-side management is a lot cheaper and a lot easier than providing new energy sources. If we could influence the 200 companies that use the most energy between them then we would make a significant reduction in both energy use and greenhouse gas emissions, and that could easily be tied to this budget measure. What is the point of a windfall gain to business if we are not asking for some responsibility on their side? That is why I strongly recommend these amendments. I recognise that with the government’s opposition they are not going to pass, but I hope that you take them into account and quietly—as has happened with the oil inquiry—implement them in some other form in the next 12 months.

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

Let me make a general point to Senator Milne. Her comments about the Greens seeking to and wishing to engage are fine. That is exactly what I have been arguing. When the Greens once held the balance of power in this chamber, their astonishing approach squandered the use of that balance of power such that it will never be given back to the Greens again. That was a disappointment to many people, including many supporters of the Greens. So my substantive point remains.

If Senator Milne wants to claim credit for a variety of things, she is entitled to do that. Others will perhaps make other judgments about the impact that the Greens have had on a variety of issues. There would be many who would have barely heard the Greens’ voice, to be quite frank. Anyway, Senator Milne is entitled to make claims, and others will judge whether those claims have any merit or not. From my own point of view, they have little merit. I am not aware of the impact that the Greens have had in relation to the Snowy Hydro sale, but that is one thing that the Greens wish to claim, and we cannot stop them doing that.

I will say, Senator Milne, that I have been encouraged by the fact that you and your colleague Senator Siewert have been far more assiduous at attending Senate committee hearings than Senator Brown and Senator Nettle have been in the past. I think that is a good thing. That shows that a new philosophy is emerging in the Greens and that they are going to seek to constructively take part in debates rather than thinking of political stunts. That is a very good thing. I encourage you to pursue that general philosophy. Hopefully, in the years to come when you look back you will be able to say that the Greens actually achieved a few things, and that would be a good thing for your supporters—but the history book is a very small one at this stage.

Question negatived.

Bill agreed to.

Bill reported without amendment; report adopted.