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

I move:

That the Senate take note of the answer given by the Minister for Finance and Administration (Senator Minchin) to a question without notice asked by Senator Murray today relating to taxation.

In my question I specifically referred to the OECD Economic Survey on Australia, which was published in July 2006. It is a most interesting document. OECD surveys always have in them a little for everybody. Whether you are a critic or a supporter of the government, there is always something of interest. They do attempt to approach things from a rational and broad economic and social perspective. They are not necessarily, as is commonly thought, automatically inclined towards a conservative or capitalist mantra. They are extremely concerned with producing better outcomes at both the social and the economic level.

I noted two things that the OECD survey said. The first is that labour force participation, particularly for women, would be lifted by reducing low wage traps, which are high when compared internationally. That is an important point to note. Labour force participation would be lifted by reducing the lowest income tax rate or raising the threshold at which income tax is first paid—in other words, by applying lower tax rates to low-income people or raising the tax-free threshold. The second thing the survey said is that the focus of any future tax cuts in Australia should switch to reducing high effective marginal tax rates faced by many households in the lower income deciles.

I do not have time, in this short period of taking note, to spell out my views and the views of my party in full, but you will find an article by me on the On Line Opinion e-journal website which is about weaning off welfare and whether effective marginal tax rates can be reduced to no more than the top income tax rate. The top income tax rate is now 46½ per cent, if you include the Medicare component, and yet low-income workers are still experiencing high effective marginal tax rates of 70 per cent and in excess of that. That is an absolute problem for work participation, for the movement of people from welfare to work, and for bettering the income and social and economic possibilities of low-income workers. So it is an area which deserves far more attention from the government.

One of my concerns is that, following the raising of interest rates by the Reserve Bank and the concerns about inflation being at the upper band, I am starting to pick up an undertone from government ministers and, indeed, from the Prime Minister, about this being the end of the tax reform process because of concerns about inflation. However, you can deliver real tax reform and real benefits to lower income people through tax reform if you compensate for that tax reform economically by broadening the base. You can pay for your tax reforms by, in effect, raising taxes in other areas—which is what ‘broadening the base’ means. ‘Broadening the base’ means you take out tax concessions which are not warranted, you take out distortionary tax elements and you attempt to ensure that greater tax equity is delivered across the system whilst lifting the real disposable income of lower income people.

That is why I wish to draw the attention of the government to these recommendations of the OECD. I feel that they are genuine and thoughtful and that they look to the future from both a social and an economic perspective. Obviously, these could only be attended to in next year’s budget, but equally obviously it will take many months to work out the complicated fiscal and policy consequences of reducing effective marginal tax rates, which I think should come down to an equivalent to the top marginal tax rate which applies for high-income earners at present—which is 46½ per cent. They should not be running at an effective 70 per cent, which is a gross disadvantage for lower income Australians. (Time expired)

John Hogg (Queensland, Deputy-President) Share this | Link to this | Hansard source

Order! The time for the debate has expired.

Question agreed to.