Penny Wong (SA, Australian Labor Party, Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

I rise in this second reading debate on the Tax Laws Amendment (Temporary Budget Repair Levy) Bill 2014 and related bills to indicate the Labor opposition's position. Labor will not be opposing these bills, but we want to place on record a number of issues. The first is our concern about the implementation risks inherent in the design of the levy. We also wish to discuss the double standards on tax from this Prime Minister. We also wish to talk about economic management and the lies which we have been told by many in the government about Labor's record of strong economic management.

This government has confected a budget emergency which I think Australians are increasingly understanding is a guise for a vicious attack on Middle Australia. This budget will hurt those who work hard, those who do it tough, those who are sick, those who seek a better life for their children and those who are studying to improve their skills and to strengthen the nation's future. This budget will hit Australians every time they get into their cars, when they take their kids to the doctor, when they need a prescription. It will hit local hospitals and local schools. I look forward to hearing from the senators from Tasmania, South Australia, the Territory and the other states and territories which will be so badly hit by this budget, not to mention the billions which will be taken out of the budgets for hospitals in the larger states.

As I said, this is a budget which will hit local schools and local hospitals. It will cost our children more to go to university and it will hit Australia's pensioners. Perhaps worst of all, these are all the things that this Prime Minister said he would not do prior to the election. Mr Abbott famously promised 'no new taxes, no cuts to hospitals and no cuts to schools' before the election, but this budget increases the cost of living, increases taxes, cuts funding to hospitals and cuts funding to schools. These very bills are the evidence that Mr Abbott says one thing before the election and does a very different thing thereafter.

This budget cuts pensions and family payments. It cuts $80 billion from Australia's hospitals and schools. It shows not only that Mr Abbott does not appear to know how to tell the truth before the election but also that he does not understand the cost of living pressures facing Australian families. But I tell you one thing he is pressing ahead with, one election promise he is determined to keep, and that is a paid parental leave scheme for millionaires. This is a budget which fatally undermines fairness in our nation.

I want to talk briefly about the distribution impact of the budget, because the Minister for Finance and the Treasurer tell us that one of the reasons they had to have this levy is that it is a means of sharing the burden of this budget. I can almost guarantee that what occurred is they went through all of their budget measures and suddenly Treasury said to them: 'Oh my goodness! Actually, people who are on high incomes are almost not contributing at all to this budget. We'd better do something so we look at least a bit fair.' So the ERC decided to have a temporary levy in order to try and avoid the argument that those who do the heaviest lifting in relation to this budget are those who can least afford it.

As Dr Leigh, the shadow Assistant Treasurer, told the other place when he spoke on this legislation and on other budget matters, the distributional effects of this budget are clear when one looks at the National Centre for Social and Economic Modelling's report—NATSEM's report—which shows who will be hit and who is paying. This is the modelling the government refuses to release. Treasury is quite capable and generally does produce the distributional impact of the budget, but magically they do not want to tell Australians who is being hit in this budget. All of a sudden the government somehow now wants to tell people: 'We just don't want to talk about who is actually paying. We don't want to show you which income groups, which family types, are going to bear the heaviest burden in this budget.'

This NATSEM research tells the story the government does not want Australians to hear—that the burden in this budget is not fairly shared. It confirms the fears that Australians already have about this government and about this budget. For example, this research shows that couples with children in the lowest income quintile will see a 6.6 per cent fall in their disposable income, while couples with children in the highest income quintile will see a 0.3 per cent increase in disposable income. To take out the economic jargon, it means poor people get poorer and rich people get richer. That is what it means. You get less disposable income if you are on a lower income and more if you are on a higher income.

Particularly worryingly, it shows that a single parent in the bottom income quintile will see a 10.8 per cent decrease in his or her disposable income. Right across the distribution, those in the bottom quintile are seeing a 2.2 per cent fall in their disposable income, while those in the top income quintile are seeing a small increase of 0.2 per cent. A single parent in the bottom income quintile—that is, the poorer single parents in Australia—will see a 10.8 per cent, nearly 11 per cent, decrease in their disposable income.

Of course, the backdrop to this budget is a global trend in advanced economies which has seen inequality rising. Notwithstanding the best efforts of Labor governments to look at the distributional impact, because when we were in government we actually looked at the distributional impact of our budget measures and sought to put in budget measures which benefited those who worked and those who were on lower incomes, we have seen a very substantial acceleration in the earnings of those in the higher earnings bracket, compared to those in the lower earnings bracket. Therefore, the measure before the chamber against that backdrop is atypical for this budget. It is an attempt to try to go some way to marginally redressing the balance that is contained at the heart of this budget.

I want to briefly talk about the National Party and its hypocrisy in falling into line with this government's measures. I wonder how many of the National Party are going to speak on this debate. I remember being here when Senator Joyce was Leader of The Nationals in the Senate. I remember when he first came in, huffing and puffing about the sale of Telstra, saying that he was never going to agree to it. Of course, he went soft. In the end, he rolled over and had his tummy tickled. That is what the National Party do. They talk tough, but then they just roll over and have their tummy tickled by the Liberals. And you play them.

Credit where credit is due and respect where respect is due, the National Party in fact do represent many of Australia's lower paid families and lower income communities. A great many people who are on incomes lower than the average are located not just in metropolitan cities, particularly in outer suburbs, but in rural and regional areas. The measures in this budget will negatively affect and will hit low-income Australians in rural and regional areas. This is a budget which will hit many of the people whom the National Party purport to represent. Where are the icons of the bush, the defenders of people on the land, the defenders of our regional cities and towns? The silence in regional Australia has been deafening.

Senator Ian Macdonald interjecting—

I hear Senator Macdonald. One thing that I will say for Senator Macdonald—and welcome to the debate—is that at least he comes in here and talks about his constituents. I do respect that and I give credit where credit is due. Where is the National Party? Where is the National Party talking about rural and regional Australia and the people in rural and regional Australia who will be hit by this budget? They are very quiet. We get a few Liberals who are prepared to speak out, but I do not hear the National Party coming in here to talk about how this budget is hitting the people they purport to represent.

In many National Party electorates, constituents and families do not have access to public transport. We have geographically diverse communities, geographically distant communities and of course they will be hit by the fuel excise change. These families will also be hit by the GP tax and by the withdrawal of benefits that will occur through this budget. We will certainly have more to say about this in the days and weeks to come.

Even dyed-in-the-wool National Party voters must be wondering where their voice in Canberra has gone and why it is so silent. I am unsurprised that the end of the chamber, where the National Party sit, is empty when it comes to this budget. They cannot defend it and they should have done better in standing up for the people they represent.

I raised at the outset some implementation issues with the debt levy. We have raised some concerns, as have a number of experts, about the way in which this budget measure is being implemented. The rushed implementation of the measure appears to have exposed a number of significant flaws in its design and we are sceptical about the level of revenue the measure is forecast to raise. One of the most significant implementation issues relates to the interaction between FBT, fringe benefits tax, and this income tax increase. As was canvassed in Senate estimates, there is a mismatch between the introduction of the income tax increase and the commensurate increase in FBT. This mismatch creates a significant tax arbitrage and tax avoidance opportunity. In both the first and the third years of this measure, there are opportunities for taxpayers to shift income out of salary and into fringe benefits to avoid the tax. This is because, as the chamber would be aware, the income tax increase commences on 1 July 2014 but the FBT increase will not occur until April 2015, the following year. In the third year, the FBT increase will cease on 31 March 2017. In total, this provides around nine months in the first year of the measure and three months in the final year where the FBT rate is not aligned with the top marginal tax rate. This creates the risk that the revenue-raising measure may not raise the revenue it is designed to raise.

This was made clear at Senate estimates. In fact, I sought to explore what was the amount of revenue forgone as a result of the mismatch. Certainly, in the 2014-15 and 2015-16 years you are looking at revenue of $600 million in the first of those two years and $1.15 million in the second, so that is over half a billion dollars difference. Treasury officials made it clear that the vast bulk of that lower revenue in the first year was as a result of the fringe benefits tax rate being lower than the relevant income tax rate.

The concerns that the opposition have raised have been echoed in the submissions to the Senate Economics Legislation Committee inquiry into this bill. Prominent economist Saul Eslake stated that this levy will likely be avoided by:

… greater use of the myriad provisions in the income tax system which offer preferential or concessional treatment for particular types of income, forms of business organization or categories of investment vehicles.

Taxpayers Australia also raised concerns about how easily this tax will be avoided using the FBT loophole and other tax minimisation strategies. They said:

Treasury estimates are therefore likely to be overstated because considerable amounts of relatively straightforward tax planning is likely to take place which have the effect of reducing taxable income, often to beneath the $180,000 threshold.

Taxpayers Australia went on to say:

We note that most of this planning is relatively straightforward and is already being actively marketed by many tax advisers. In short, it is clear that in practice only the wealthy but poorly advised will be paying the Debt Tax.

This loophole has already been picked up on by tax advisers, and media reports have quoted advisers asserting that this loophole will be exploited. For example, Prosperity Advisers tax director Mr Stephen Cribb said,

Taxpayers will take advantage of it simply because it is so easy to do.

In addition, there may be taxpayers who earn less than the $180,000 who will be impacted by the increase in fringe benefits tax. This concern was raised by the Tax Institute in their submission:

The increase in the FBT rate corresponding to the increase in the Levy, applies in respect of all employees, not only those employees earning taxable income over $180,000.

This may create the perverse circumstance whereby the wealthiest avoid this tax by using aggressive tax planning and those earning less than $180,000 end up making up some of the shortfall. It raises the question of just how serious the government really is about sharing the burden of this budget or resolving its so-called budget emergency. If the government was really serious it would have close loopholes in its new tax measure with the same zeal that it is showing as it cuts services, raise taxes on the poor, the sick and the young, and hits Australia's pensioners.

I now turn to the economic record of the previous government, something that this government seeks to denigrate. In fact, it so confected a budget emergency that what we did see was a real hit on consumer confidence in the wake of the Treasurer, the Prime Minister and the finance minister really trash talking the Australian economy. It seems to have eluded some of the senior economic ministers in this government that they are in government now, and markets actually listen to what they say. We certainly saw consumer confidence at one point in the post-budget period hitting levels that were not as bad but almost as bad, and certainly the worse, since the consumer confidence measures during the global financial crisis, which of course was a very different period in terms of where the economy was at.

What we know, though, is that the government is so focused on making the political case for a budget which hits middle-income Australia, which hits low-income Australians that they forget that they of course are in government, and their words are listened to by the market and by consumers. They are so focused on partisan politics that they forget the national interest. One thing you can say about a coalition led by Mr Tony Abbott is that they will always put their partisanship ahead of the national interest.

I want to put on record again some of the economic success that Australia has had, including over the last six years. Over the period Labor was in government, the Australian economy grew by some 14 per cent. Nearly a million jobs were created, and Australia came through the global recession in far better shape than most of our peers. This was a standout performance amongst our global peers. We took almost a million people out of the income tax system by tripling the tax-free threshold. We gave 3.6 million workers a tax break and boosted the retirement income savings of over eight million Australians. We took decisions to improve the structural position of the budget, many of which those opposite opposed, even though those decisions created room to fund important investments for the long-term health and economic prosperity of our nation. These included investments like the National Disability Insurance Scheme and the Better Schools Plan, otherwise known as the Gonski plan.

In terms of the global financial crisis, as I mentioned earlier, Australia under the Labor government came through the global recession in far better shape than virtually any other advanced economy. We did this while both preserving fairness and preserving jobs. As the Nobel prize-winning economist Joseph Stiglitz said, in Australia the stimulus helped avoid a recession and save up to 200,000 jobs. Without fiscal stimulus, which has been so denigrated by those opposite, Australia would have gone into recession. Hundreds of thousands of people would have lost their jobs. Tens of thousands of small businesses would have gone to the wall and Australia would have suffered a permanent hit to productivity, a permanent hit on our GDP.

Today Mr Abbott is happy to trash talk the Australian economy even on the world stage. By contrast, Labor used its time in office to protect jobs and to grow our economy. Perhaps there are many measures to which you could look as to the strong economic management of the previous government, but perhaps one which is particularly useful is the GDP rankings. Under the Labor government Australia's GDP rose from 15th to 12th in the world, and we also increased on a GDP per person basis.

Labor will not walk away from our record in government that saw Australia through the global financial crisis, that staved off a recession and saved hundreds of thousands of jobs in small business. We will not walk away from our strong commitment to economic growth with fairness. We see, through the loophole in the design of this levy, legitimate questions raised about how serious the government is when it pays lip-service to sharing the burden or solving its budget challenges. I say again that if the government were serious about these challenges it would have closed loopholes in the new tax measure with the same zeal that it is cutting services and raising taxes which are hitting on the poor, the sick, the young and the elderly.