Craig Emerson (Rankin, Australian Labor Party) Share this | Hansard source

In analysing the 2006-07 budget, it is useful to look at what was forecast in the previous budget to see whether those forecasts have come true or not. As part of that exercise, I thought I would have a look at my own speech on the budget at around this time last year to see what the predictions were and whether or not they had come true. At that time, I warned of a $103 billion spending spree that had been initiated by the Howard government prior to the last election, escalated during the election campaign and compounded after the election.

I expressed concern at that time that this spending spree would fuel consumer demand to a point where ‘the Reserve Bank will have no choice but to increase interest rates’. That is what happened. The Reserve Bank judged that it had no choice but to increase interest rates. If it had not been for the very large increases in petrol prices, which dampened consumer demand not so long after the previous budget, then the interest rate rise that occurred fairly recently—just before this budget—would have been a second interest rate rise since that budget. If we were to count the interest rate rise in March 2005, after the election, it would perhaps have been a third one. I understand from discussions with people at the Reserve Bank that the increase in petrol prices had a similar dampening effect to an interest rate rise and therefore helped stave that off. The truth is that the forecast that I made in my speech on the appropriation bills did come true.

I went on to say, ‘Put all those pieces together and you see the preconditions for an interest rate rise.’ On that basis, I said that I did not support the budget on the grounds of macroeconomic management. That was because that budget contributed so much to consumer spending, which would exacerbate inflationary pressures and lead to that interest rate rise—all of which did happen. Having a look at this budget, I think that again the preconditions are there, not only on the basis of what it does but also on the basis of what it fails to do. There will, in all likelihood, be yet another interest rate rise towards the end of this year. I am happy to go on the record as not saying with certainty that that will happen, because no-one knows; but this budget again has laid the preconditions for a further interest rate rise.

This is all from a government that campaigned very strongly at the 2004 election, creating a very strong impression that, if re-elected, it would keep the lid on interest rates. It has failed to do that. It has failed to keep a lid on petrol prices, and it has certainly failed to keep a lid on child-care costs. So when it announced in the budget that middle-income earners were going to get tax relief of $10 a week, we could well understand why the budget has not been received all that favourably. People know that that $10 a week has effectively already been spent.

I do not need to dwell on that, because other members of the parliamentary Labor Party have set that out very well. I want to use part of the time I have available to talk about the impact that the changes to the tax system announced in this budget will have on bracket creep. I will not be churlish and say that there is no merit in the tax changes that were made, because in my pre-budget submission to the Treasury, on the invitation of the Treasurer, I did advocate a reduction of the 42c rate to 36c. In fact, it was reduced from 42c to 40c—a much more modest reduction than I thought could be achieved. Secondly, I did advocate an increase in the low-income tax offset from $235 to $625, and the government increased that offset from $235 to $600.

So there are some changes there that are favourable. Add to those an increase in the threshold at which the 30c rate comes in and you do get some modest reforms in the income tax system, but I could put them no higher than modest. Yet, in parliament after the budget, the Treasurer said that these tax cuts give back bracket creep. I am sorry to report to the parliament that that is not the case. If we take the year 2001 as the point of comparison, after these tax cuts a taxpayer earning $40,000 a year will still be $15.70 worse off as a result of bracket creep. A taxpayer on $50,000 is more than $25 worse off, one on $60,000 is $33 worse off and one on $70,000 is $23 worse off. If further changes are not made to the tax system, then that bracket creep will continue its insidious work in subsequent years. The only bracket for which I have done the calculations that has received all of the bracket creep back is people who are earning $30,000. They are now 86c ahead compared with the situation in 2001.

Why did I choose that year? The member for Melbourne Ports is here and he would remember, having come into parliament at the same time as me, in 1998, that when the GST was introduced the Treasurer said that the income tax cuts at the time were compensation for the GST—a $40-plus billion tax. It cannot be, at the same time, compensation for the GST and the return of bracket creep. You can have one or the other, but not both. That $1 cannot be used twice. The Treasurer has, in fact, made three claims: the biggest tax cuts in Australia’s history, compensation for the GST and the return of bracket creep. It cannot do all three, and that is why it is perfectly legitimate to look at 2001, the year after those tax cuts, as the base period. It is clear that bracket creep has done its work and these low- and middle-income earners are still well behind, with the exception of those on around $30,000 a year.

We are a long way from genuine tax reform. This government could have laid down a tax reform down payment and brought the Australian people into its confidence about what it saw as an ultimate tax system for this country. It could have set that out in the budget paper and said, ‘This is a down payment and we will move towards ultimate reform as and when financial circumstances permit.’ But it did not do that, for one reason—that is, this government believes in handing back some of the bracket creep, claiming it as a personal income tax reduction, holding back as much as it can until the election year and then saying: ‘What jolly good fellows we are. We’ve given back some of the money that we’ve taken from you.’ That is not tax reform; that is just the return of some bracket creep. Therefore, I urge the government to engage constructively in the tax reform debate and to not pretend that it has implemented tax reform but acknowledge that the changes that it has made are very minor indeed.

I am conscious of the time. I want to go on to other issues, such as wages, superannuation and the failure to invest in the future, but I do not want to interrupt my flow and move on to those matters here tonight. I seek leave to continue my remarks at a later date.

Leave granted; debate adjourned.

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