Eric Abetz (Tasmania, Liberal Party, Minister for Fisheries, Forestry and Conservation) Share this | Link to this | Hansard source

I move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows—

TAX LAWS AMENDMENT (PERSONAL INCOME TAX REDUCTION) BILL 2007

The measures contained in this Bill will cut personal income tax for all Australian taxpayers from 1 July 2007.  The tax cuts are another step in this Government’s comprehensive tax reform that has seen income tax cut in the last four budgets. 

It is the Government’s policy to keep the tax burden as low as possible, once necessary Government services have been funded.  Lowering the tax burden will enhance work incentives, improve participation and increase the capacity of the Australian economy.

The tax cuts in this Bill will take effect in two stages:  from 1 July 2007 and 1 July 2008. 

From 1 July this year, the Government will increase the 30 per cent marginal tax rate threshold so that the 15 per cent marginal rate will apply up to $30,000 of income, an increase in the threshold of $5,000.

The low income tax offset will be increased from $600 to $750 from 1 July 2007.  It will begin to phase-out at the start of the new 30 per cent threshold, $30,000, compared to $25,000 currently.  This means that those eligible for the full low income tax offset will not pay tax until their annual income exceeds $11,000.

From 1 July next year the threshold for the 40 per cent rate will rise from $75,001 to $80,001 and the threshold for the 45 per cent rate will rise from $150,001 to $180,001.  

Senior Australians who are eligible for the senior Australians tax offset will not pay tax on their annual income up to $25,867 for singles and up to $43,360 for couples for 2007-08.

Overall, in percentage terms, the greatest tax cuts have once again 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 only 30 per cent or less over the next four years.  Taxpayers earning $30,000 paid $6,222 in income tax in 1999.  From 1 July 2007 they will only pay $2,850 —more than halving their tax. 

The increase in the 30 per cent threshold and the low income tax offset will provide more incentive for those outside the workforce to re-enter it and those in part-time work to take-on additional hours.

For 2007-08 taxpayers will not reach the highest marginal tax rate until they earn more than three and a half times average weekly earnings.

Increasing the top threshold will improve the competitiveness of Australia’s tax system compared with other OECD countries.  By next year, relative to an average wage, Australia’s top threshold will be the eighth highest in the OECD.  Three years ago we were 20th.

Seven years ago, the threshold for the top marginal tax rate was $50,000.  If this threshold had been indexed when this Government came to office in 1996, it would have stood at below $68,000 by 1 July next year.  Under the Government’s reforms and this Bill, by 1 July 2008 that threshold will be $180,001.

This package provides $31.5 billion of benefit to taxpayers over four years and reinforces Australia’s reputation as a low-tax country.  These tax cuts continue the reforms to the personal income tax system, to increase disposable income, to enhance incentives for participation and to improve Australia’s international competitiveness.

Full details of the measures in this Bill are contained in the explanatory memorandum.

TAX LAWS AMENDMENT (2007 BUDGET MEASURES) BILL 2007

This Bill increases the dependent spouse tax offset from $1,655 to $2,100 with effect from 1 July 2007. The full dependent spouse tax offset is available to a resident taxpayer who contributes to the maintenance of a resident spouse whose separate net income does not exceed $282. The rebate is reduced by $1 for every $4 by which the dependent spouse’s separate net income exceeds $282. This measure will increase the separate net income at which the tax offset is completely phased-out from $6,901 to $8,681.

In addition, the Bill increases the Medicare levy low-income thresholds for individuals and families in line with increases in the Consumer Price Index. The low-income threshold in the Medicare levy surcharge provisions will similarly be increased. These changes will ensure that low-income individuals and families will continue to be exempt from the Medicare levy or surcharge.

The Bill will also increase the Medicare levy low-income threshold for pensioners below age pension age to ensure that where these pensioners do not have a tax liability, they will also not have a Medicare levy liability.

The amendments to the Medicare levy low-income thresholds will apply to the 2006-07 income year and later income years.

I commend this Bill and present the explanatory memorandum.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

The Senate is now debating the Tax Laws Amendment (Personal Income Tax Reduction) Bill 2007 and the Tax Laws Amendment (2007 Budget Measures) Bill 2007 in cognate. On behalf of the Labor Party I rise to support these bills, which provide tax cuts to Australian taxpayers. I firstly want to deal with the personal income tax reduction bill. The bill amends the Income Tax Rates Act to increase the threshold at which the 30 per cent marginal tax rate begins to apply and increases the threshold for the top two marginal tax rates. For lower income earners, the bill provides that the 30 per cent threshold will be increased from $25,000 to $30,000, and that applies from the 2007-08 income year. The bill also amends the Income Tax Assessment Act 1936 to increase the maximum amount of low-income tax offset from $600 to $750 per annum and to raise the threshold at which the offset begins to phase out, from $25,000 to $30,000. The level of income at which the offset will begin to phase out is increased from $40,000 to $48,750.

Further, the bill also amends the Medicare Levy Act 1986 to increase the income threshold for taxpayers eligible for the senior Australians tax offset. The 40 per cent threshold will increase from $75,000 to $80,000 and is designed to reduce bracket creep for middle-income earners. The 45 per cent threshold will increase from $150,000 to $180,000 and is designed to better align our top personal tax rate threshold with international standards. The changes to the 40 per cent and the 45 per cent marginal tax rate thresholds will apply from the 2008-09 income year. The Labor Party supports these tax cuts because they reflect our calls for changes to the personal income tax system to deliver greater relief and incentive to middle- and lower income earners. However, it appears it takes an election year for lower income earners to get a tax cut under this government. We all know that Prime Minister Howard is a tricky politician; he is clever. There is an election coming up only a few months away—

Eric Abetz (Tasmania, Liberal Party, Minister for Fisheries, Forestry and Conservation) Share this | Link to this | Hansard source

We can give you a few ticks for mentioning those buzz words.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

As I say, Senator Abetz, there is an election coming up. We all know the Prime Minister and we know his track record. He is a clever and tricky politician and obviously, with that election coming up, sorely needed tax cuts for low- and middle-income earners are on the agenda. For many years now, Labor has been calling for greater attention to low- and middle-income earners. Labor has consistently called on the government to tackle disincentives for workforce participation. These changes heed Labor’s call to help boost workforce participation, and staging the tax cuts in two tranches will help alleviate inflationary pressures. Shifting the income threshold at which the 30 per cent rate cuts in, from $25,000 to $30,000, improves work incentives over a crucial income range so that the 15 per cent marginal rate will apply up to $30,000 of income. Lifting the low-income tax offset from $600 to $750 effectively raises the tax-free threshold for low-income earners from $10,000 to $11,000. This reduces the effective marginal tax rate over a small additional income range, which should encourage people to move from welfare to work. Again, Labor believes these changes are worthy and we support them.

The bill will provide a tax cut of $21.15 per week for people earning between $30,000 and $40,000. It will mean a cut of $14.42 per week for most middle-income earners. High-income earners will be receiving a tax cut of over $24.04 from the following year. These are modest weekly gains that will help take the pressure off families, who have had to endure four interest rate rises under this government. Remember the government promise at the last election: keeping interest rates low. This was a promise from the Prime Minister,

We hear a lot of history. I can recall the history of 1983 and the period up until then, when the current Prime Minister was Treasurer. Interest rates hit almost 22 per cent under the current Prime Minister, when he was Treasurer. So I hope the Australian people are a little more sceptical of the promises made by this very clever and tricky Prime Minister, Mr Howard, when it comes to interest rates and other matters.

Labor believes the tax cuts improve incentives for those earning the minimum wage, particularly the significant disincentives arising from the interaction between tax, social security and family benefits. Labor will commit to reducing the effective marginal tax rates to encourage greater participation in the workforce through its support of this legislation. The tax cut will present modest gains for low- and middle-income earners and their families, who have endured four interest rate rises under this government since the last election. We all know about higher petrol prices, which are nudging $1.50 per litre in many areas, and the various other pressures being faced by families—for example, on the weekly visit to the supermarket to buy food. Low- and middle-income families are under significant pressure, and these tax cuts are welcome.

Over the last few weeks, since the presentation that the Treasurer, Mr Costello, gave to the Press Club in the week after the budget, we have heard a great deal from the Treasurer, waffling on about how he thinks the Liberal Party is the party of tax reform. In that presentation at the Press Club, the Treasurer used comparative charts to compare the income tax that is payable now—after these changes pass the parliament—and the income tax that was payable 15 years ago. He made a great point of drawing attention to the allegedly reduced income tax burden. What I did note was that he forgot to mention the GST in that tax comparison. If you are going to make a valid comparison about the level of tax being paid by Australian families, you should not just be drawing attention to income tax rates as they are as a consequence of the passage of this legislation. Historically, you should at least draw attention to the fact that Australians are now paying a 10 per cent GST. But that was conveniently omitted from the tax comparison that the Treasurer presented on that occasion.

If we look at the major changes that Labor undertook when in government, we see that the tax policies were directed at making sure all Australians shared in the national economic growth. I want to talk a little bit about the history of that period. Labor delivered a fairer tax system—without a GST, I might say. The Labor reforms of the 1980s and 1990s mean that the tax burden now no longer falls unfairly on low- and middle-income earners. Labor broadened the base with the introduction of fringe benefits tax and capital gains tax. These were fairness measures which allowed consequential cuts to income tax rates.

Eric Abetz (Tasmania, Liberal Party, Minister for Fisheries, Forestry and Conservation) Share this | Link to this | Hansard source

Stalin would be embarrassed at this rewriting of history!

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Comparisons with Stalin! I was just about to get onto John Howard, the Prime Minister. I think it is a bit unfair of you to allege comparisons with Stalin, Senator Abetz. There is something Stalinist about the advertising campaigns we are seeing; they would put Joseph Stalin to shame. Hundreds of millions of taxpayers’ dollars are being spent on advertising propaganda campaigns that would put Joseph Stalin to shame.

Labor is the party that introduced the most profound tax reforms, when it was in government, and delivered the foundations of the modern tax system for which the current Treasurer, Mr Costello, takes credit. I have already referred to Mr Howard’s record on interest rates when he was Treasurer; they touched 22 per cent. But the marginal tax rate of 60 per cent which he presided over when he was Treasurer was reduced to 49 per cent by the Australian Labor Party.

This bill implements two measures announced in the 2007-08 budget, both of which have Labor’s support. Part 1 of schedule 1 to this bill amends the Income Tax Assessment Act 1936 to increase the dependent spouse tax offset from $1,655 to $2,100 from 1 July 2007. The separate net income at which the rebate is completely phased out will be increased from $6,901 to $8,681. The full dependent spouse tax offset is available to a resident taxpayer who contributes to the maintenance of a low-income spouse. Taxpayers are eligible to claim a dependent spouse tax offset if they maintain a spouse—married or de facto—and the taxpayer claiming the offset, or the spouse, is not entitled to family tax benefit part B. The full offset is only available where the taxpayer has a spouse who earns very little income or no income, as the tax offset is reduced by $1 for every $4 by which the dependent spouse’s separate net income exceeds $282. The income of the higher earner of income is not taken into account. The dependent spouse tax offset is currently indexed each year by reference to the consumer price index. Labor supports this proposal to provide a more significant tax offset to taxpayers supporting a low-income spouse. The dependent spouse rebate is one of a number of rebates provided to taxpayers who support a dependant. Others include the invalid relative rebate and a rebate for taxpayers who support a parent or parent-in-law. These and other offsets are increased by this bill in line with CPI increases and they are indexed each year.

Part 2 of schedule 1 to this bill amends the Medicare Levy Act to increase the Medicare low-income threshold for individuals and families. The dependent child student component of the family threshold will also be increased. The increases are in line with the consumer price index. They increase the Medicare levy low-income threshold for pensioners below age pension age so that they do not have a Medicare levy liability where they do not have an income tax liability, and they increase the Medicare levy surcharge low-income threshold in line with movements in the CPI.

These increases occur every year and they were announced in the budget. The Medicare Levy Act provides that no Medicare levy is payable by low-income individuals and families where taxable income or combined family taxable income does not exceed stated threshold amounts. The family income threshold increases by a set amount per child. The Medicare levy shades in at a rate of 10c in the dollar where the taxable income or combined family taxable income exceed the threshold amounts. This bill increases the low-income thresholds for individuals and families for the 2006-07 income year in line with movements in the consumer price index. The individual threshold is to be increased from $16,284 to $16,740. The level of the family income threshold is to be increased from $27,478 to $28,247. The family income threshold is to be increased by a further $2,594, instead of the previous figure of $2,523, for each dependent child or student.

The schedule also increases the threshold amount for pensioners below age pension age for the 2006-07 income year and subsequent income years. The increase ensures that such pensioners do not have a Medicare levy liability where they face no income tax liability. The threshold amount for pensioners who are the age pension age is to be increased from $19,583 to $21,637. The phase-in limits are also increased. The phase-in limit for individuals is increased from $17,604 to $19,694. The phase-in limit for pensioners who are below age pension age is increased from $21,170 to $25,455. References to the individual low-income threshold amount of $16,284 in the Medicare levy surcharge provisions, in respect of the surcharge payable on taxable income, are also being increased to $16,740. Labor supports this proposal to provide assistance to low-income earners by exempting them from paying the Medicare levy.

As a general comment, I reiterate that the Labor Party will be supporting the bills before the Senate. The tax changes before us, particularly those for low- to low-to-middle-income earners are particularly welcome. It is a real struggle for many low- to low-to-middle-income families, given higher petrol and food prices, and interest rate increases since the last election—some four interest rate increases. It is fit and proper and appropriate that their circumstances should be recognised through a reduction in income tax. Labor welcomes the somewhat belated recognition by the government, in the run-up to the election, of the need to ensure a reasonable level of tax cuts for low- to low-to-middle-income earners. Labor supports the legislation before the Senate.

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

The Tax Laws Amendment (Personal Income Tax Reduction) Bill 2007 introduces new personal income tax thresholds and low-income tax offsets as announced in the May federal budget. The bill amends the Income Tax Assessment Act 1936, the Income Tax Rates Act 1986 and the Medicare Levy Act 1986. Proposed changes to the Income Tax Assessment Act 1936 will increase the low-income tax offset and related thresholds. The offset value will increase from $600 to $750, with the phase-out threshold increasing from $25,000 to $30,000. The Income Tax Rates Act 1986 is to be amended to reflect the announced changes in tax thresholds. The tax bands that are affected include the 15 per cent tax band, with its upper threshold increased from $25,000 to $30,000. The 30 per cent tax band now only begins at $30,001, and from 1 July 2008 it will only phase out above $80,000, not $75,000. Most Australian wage earners fall into this tax band. These are both very good changes for lower and middle-income earners.

The final change that the government proposes also begins from 1 July 2008. It is an increase in the 40 per cent tax band thresholds. Individuals are currently affected by the 40 per cent tax rate if their income falls between $75,001 and $150,000. The government proposes changing these thresholds to $80,001 and $180,000 respectively, with the upper 45 per cent tax rate, which excludes the Medicare levy, only applying to income in excess of $180,001 from 1 July 2008.

The final policy change is a change to the Medicare threshold for single taxpayers who are eligible for the senior Australians tax offset as legislated in the Medicare Levy Act 1986. The government proposes increasing the threshold from $24,867 to $25,867 with a related phase-in limit of $29,255 increasing to $30,431. These changes to the Medicare levy threshold for single seniors represent an approximate four per cent increase on the old threshold values, so in real terms the threshold has remained nearly the same.

Sadly, this bill does not propose increasing the income-tax-free threshold of $6,000—a policy initiative strongly supported by the Australian Democrats. The tax-free threshold also continues to decline in real value. I have argued many times that the $6,000 tax-free threshold is way too low and should be increased on a phased basis to at least $20,000. As a starting point, you should not have income tax below the subsistence rate. Australia’s welfare floor is around $13,000, the minimum income required for basic subsistence. There is no justification for income taxing someone earning less than this value. By continuing to tax individuals at an absolute rather than indexed value, this social inequality is magnified each year.

From the perspective of a liveable wage, a viable tax-free threshold is $20,000, preferably indexed to retain its real value. The average income tax on all income for someone earning $20,000 a year is presently over $2,000. There are over two million Australians paid less than $20,000 a year. They could all be taken out of the tax system. Many of these are casual and part-time workers, particularly women, who need not pay income tax at all if the tax-free threshold were at a higher rate. That would be great for struggling families and mothers, amongst others. Taking millions of Australians out of the income tax system provides some revenue savings opportunities. Tax deductions cannot be claimed if your total income is below the threshold. Over 60 per cent of taxpayers earning less than $20,000 claim well over a billion dollars in work-related expenses. This is another example of churning within the Australian taxation system, an effect so beloved by this government. Raising the income-tax-free threshold to $20,000 would enable tax cuts to flow right up through every income level so all Australians would still get a tax cut. Apparently it would cost up to $20 billion a year, so it would best be funded through a phased introduction and by broadening the base to get rid of the numerous and distorting array of tax exemptions, concessions and deductions. Broadening the base would of course help considerably in funding it. That in itself would be a progressive reform. Combined with welfare reform, the aim should be to lower effective marginal tax rates for low- and middle-income earners. Significant equity and efficiency gains would result from a simplified system, particularly for lower income Australians.

I note remarks by the Treasurer attempting to dress up the low-income tax offset changes as reflecting an effective tax-free threshold of $11,000. In his budget speech, the Treasurer stated that the tax offset:

... means that low income earners eligible for the offset will not pay tax until their annual income exceeds $11,000.

He thereby attempted to say that this was a virtual increase in the tax-free threshold. This is misleading and technically incorrect. It ignores the effect of churning since individuals will still pay tax for annual incomes in excess of $6,000 through the PAYE system, which they can only get back a year to 18 months later when they put in their tax returns. Moreover the offset functions so that it can only reduce tax paid to zero as opposed to a rebate which holds greater value. The implication that the offset is equivalent to an $11,000 tax-free threshold is concocted by grossing up the offset value by the lowest income tax rate—that is, the present $600 offset is divided by 15 per cent and multiplied by 100 to give the current value of $4,000. The same method of calculation turns the new offset of $750 into $5,000. This is calculated by dividing $750 by 15 per cent. These values are added to the tax-free threshold of $6,000 to arrive at the imputed values of $10,000 and $11,000 for present and prospective post-offset tax-free thresholds respectively. Yet paying tax on incomes over $6,000 per annum does not change and the proposed offset implies that $750 in tax must be paid for this value to then be offset. Perhaps a more accurate description of the offset might be that low-income taxpayers will continue to pay tax on incomes over $6,000 per annum but for incomes up to $30,000 the first $750 of tax paid can then be offset.

The top two marginal taxation rates have, once again, received attention. Whilst threshold amendments to keep the number of individuals in the top tax brackets low is a good policy principle, on equity grounds the Democrats have argued that low-income taxation rates should receive attention first before those adjustments to top tax rates and thresholds. Although the community and business at large support these budget income tax proposals, charities, social justice groups and the ACTU, for instance, continue to comment unfavourably on the government’s largesse to higher income earners compared with a much lesser improvement in the lot of low- and middle-income earners. The Democrats’ focus on increasing the tax-free threshold as a priority before making changes to the top tax threshold has long been recorded. Indexing tax thresholds has also been a consistent campaign of ours and has strong support across business and the community. The Democrats propose a five-pillars agenda for income taxation reform: (1) to raise the tax-free threshold; (2) to index the taxation rates; (3) to broaden the taxation base; (4) to review and improve negative tax welfare interactions; and, (5) to lower tax rates and raise tax thresholds if sustainable over the longer term.

Today I will continue Democrat efforts to address reform of the tax-free threshold by moving an amendment to this bill which opposes moving the top tax threshold from $150,000 to $180,000 and proposes using the saving so generated to help afford indexation of the tax-free threshold. By not raising the $150,000 threshold to $180,000 we would save $1 billion over four years. With the money saved, plus $1.3 billion over four years from the very large current and forecast future budget surpluses, we propose indexing the $6,000 tax-free threshold from 1 July 2007. The Democrats are not opposed to the notion of reducing the top tax rate or increasing the top tax threshold. We have campaigned for a phased and prioritised reform of the Australian income taxation system, including measures to reduce high income tax for high-income earners. However, any attention to reform for high-income earners should be subsequent to reform for low-income earners. Their needs are more urgent. In the present budgetary context, some income tax reform for low-income earners can only be funded if raising the top tax threshold from $150,000 to $180,000 is opposed.

As I have mentioned, there is widespread support amongst professionals, business and the community for the indexation of tax rates to maintain the present value of tax thresholds and to minimise the effects of bracket creep. Bracket creep is the impact of inflation related salary increases on the static progressive marginal tax rates. The Democrats have long supported the indexing of all income tax thresholds, but, in the absence of sufficient funding to support that reform, the priority is where the impact is greatest—that is to say, low-income earners must be supported first. This means starting indexation with the tax-free threshold of $6,000, which of course then flows through all tax bands. Australia’s income-tax-free threshold of $6,000 is unchanged since 2000. If it had been indexed since 2000, it would now be well over $7½ thousand. Had the 1980 personal threshold of $4,041 kept pace with earnings, the tax-free threshold would now be well over $15,000.

With the caveat that it is difficult to readily compare systems, the data indicates that, in general, Australia’s current $6,000 tax-free threshold is less than half the OECD average. With a CPI increase of 2½ per cent, the effect of indexing the tax-free threshold in year 1 is that an additional annual income of $165 would be tax free. That is a modest but important amount to low-income earners. A tax-free threshold that, as a minimum, maintains its present value has at least four advantages—practical, psychological, immediacy and administrative. The practical point is that excluding low-income earners from the income tax system makes sense for that sector from a personal, equity and efficiency point of view. The psychology of knowing what proportion of your income is entirely yours to keep has high utility. It is an intrinsic good. That utility is not satisfied or is ineffective when a tax-free threshold is too low. This view is well expressed in a 2005 paper by P Saunders and B Maley entitled Tax reform to make work pay: perspectives on tax reform (3)—CIS policy monograph 62. In that paper, they state:

Since the value of the personal tax-free threshold has slipped to less than half what a single unemployed person gets in income support and rent assistance, the government now takes money away from us long before we have secured our own basic subsistence.

…            …            …

It makes no sense to tax low income earners into poverty, and then to pull them out of it by giving them welfare benefits and/or tax credits. It makes a lot more sense to allow people to keep more of what they earn so that they are not enmeshed in the welfare transfer system.

Immediacy has great attractions. Money earned and received within a week or two of work done is better regarded than any time lag in receiving compensating rebates, credits or welfare adjustments. There are high inefficiencies associated with so-called churning, whereby low incomes are taxed and then rebated back to the same individuals often a year to 18 months later.

Administration has two components—private and public. A high percentage of low-income earners have poor administrative skills and the self-assessed income tax return is a chore that has its own cost, anxiety and lost opportunities. It frequently requires the aid of a tax agent. At the public level is the cost of being part of the tax system, calculated as tax system complexity and compliance costs. Tax rebates and offsets and concessions complicate the tax system and are administratively costly. In real terms, there is no cost to government revenue by indexing the tax-free threshold, since its value only increases relative to inflation. In nominal terms, the cost to government revenue of indexing the tax-free threshold is paid for in total by the annual benefit accrued by government from bracket creep across thresholds. As I have already noted, the notional net cost to revenue of $1.32 billion resulting from the Democrats amendment can easily be funded from the large, current and projected future budget surpluses. The proposed Democrat amendment is a very simple and widely supported concept—that of maintaining, not raising, the value of the tax-free threshold.

To summarise my arguments, indexation is a widely accepted policy principle which is widely applied by this government, and has been by previous governments, to taxes and benefits. The tax-free threshold has not been increased since 2000. In that time, its value, due to the effects of inflation, has depreciated by approximately 22 per cent. All wage earners benefit from indexing the tax-free threshold at an equal rate. Preserving the value of the tax-free threshold has a far greater proportional benefit to a low-income earner than to a high-income earner. Indexing the tax-free threshold to inflation maintains its present value in real terms. A higher tax-free threshold has the additional benefit of removing the number of low-income earners from the taxation system. Australia’s current $6,000 tax-free threshold is less than half the OECD average.

The government proposes to lift the low-income tax offset from $600 to $750. The Democrats support this. The government also proposes to lift the first tax band by $5,000, from $6,000-$25,000 to $6,000-$30,000. The Democrats support this. From 1 July 2008, the government proposes to lift the $75,000 threshold to $80,000. The Democrats also support this. What the Democrats oppose is lifting the top $150,000 threshold to $180,000 from 1 July 2008, not because we oppose lifting the rate per se but because it is a matter of priority. Subject to affordability and sustainability, any attention to reform for high-income earners by reducing the top tax rate and/or increasing the top tax threshold should be subsequent to reform for low-income earners. The needs of low-income earners are more urgent and remain more urgent.

Indexing tax thresholds has been a consistent campaign of the Democrats and it has strong support across business and the community. By opposing raising the $150,000 threshold to a $180,000 threshold, we would save $1 billion over four years. With the money so saved, plus money from the surplus—that is, taking $1.3 billion from it over four years—we would propose indexing the $6,000 tax-free threshold from 1 July 2007. Knowing how the coalition works and knowing Labor’s views on this matter, I expect that our amendment to oppose the higher tax threshold and to index the lowest threshold will be lost. I do not consider that a permanent situation, because any government of the future that has its policy mind in gear rather than its political mind in gear would know that raising the tax-free threshold is a desirable thing to do. Having decided to oppose the higher tax threshold increases, if we lose our amendment then the Democrats will have to decide whether we oppose the bill as a whole or support it as a whole. We will not oppose it as a whole.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

Firstly, I would like to thank all senators for taking part in the debate on the Tax Laws Amendment (Personal Income Tax Reduction) Bill 2007 and the Tax Laws Amendment (2007 Budget Measures) Bill 2007. The measures contained in the first of these bills provide personal income tax cuts of $31.5 billion over four years. These tax cuts were announced by the Treasurer in the 2007-08 budget. These tax cuts build on the substantial reforms delivered in previous budgets and further enhance Australia’s international tax competitiveness. These changes increase the disposable incomes for all Australian taxpayers and provide further incentives for individuals, including part-time workers, to participate in the workforce.

From 1 July 2007, the 30 per cent marginal tax rate threshold will be increased from $25,001 to $30,001. From 1 July 2007, the low-income tax offset will be increased from $600 to $750, and it will begin to phase out at the start of the new 30 per cent threshold of $30,001. Those eligible for the full low-income tax offset will not pay tax until their annual income exceeds $11,000. From 1 July 2007, senior Australians eligible for the senior Australians tax offset will not pay tax on their annual income up to $25,867 for singles and up to $43,360 for couples, depending on their income split. The increase in the 30 per cent threshold and the low-income tax offset will provide more incentive for those outside the workforce to re-enter it and those in part-time work to take on additional hours.

From 1 July 2008, the threshold for the 40 per cent rate will rise from $75,001 to $80,001. The threshold for the 45 per cent rate will rise from $150,001 to $180,001. In 2008-09, taxpayers will not reach the highest marginal tax rate until they earn more than 3½ times average weekly earnings. Increasing the top threshold will improve the competitiveness of Australia’s tax system. In percentage terms, the greatest cuts have once again been provided to low-income earners. More than 80 per cent of taxpayers face a top marginal tax rate of only 30 per cent or less over the next four years.

I now turn to the Tax Laws Amendment (2007 Budget Measures) Bill 2007 tax. The first part of this bill will increase the dependent spouse tax offset from $1,655 to $2,100 with effect from 1 July 2007. This increase also allows a dependent spouse to earn more income before the offset phases out, increasing the separate net income at which the tax offset completely phases out from $6,901 to $8,681. The second part of this bill increases the Medicare levy low-income threshold for individuals and families in line with increases in the consumer price index. The low-income threshold in the Medicare levy surcharge provisions is similarly increased. These changes ensure that low-income individuals and families will continue to be exempt from the Medicare levy or the surcharge.

The Medicare levy low-income threshold for pensioners who are below age pension age is also increased to ensure that, where these pensioners do not have a tax liability, they will not have a Medicare levy liability. The amendments to the Medicare levy low-income thresholds apply to the 2006-07 income year and later income years.

I again thank those senators who have participated in the debate. I commend the bills to the Senate.

Question agreed to.

Bills read a second time.