Wayne Swan (Lilley, Australian Labor Party, Shadow Treasurer) Share this | Hansard source

I welcome this opportunity to speak on the Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Bill 2006 and I move:

That all words after “That” be omitted with a view to substituting the following words: “whilst not declining to give the bill a second reading, the House is of the view that:

(1)

the Government’s failure to incorporate the enhanced Low Income Tax Offset into PAYG withholding schedules will significantly diminish its potential impact on workforce participation rates; and

(2)

in view of the declining rate of workforce participation associated with the ageing of the population the Government has, despite the improvements contained in the Bill,  failed to systematically address the punishing effective marginal tax rates faced by:

(a)

second earners, most particularly women;

(b)

individuals moving from welfare into work; and

(c)

middle and low income families with dependent children”.

This bill seeks to enact the key elements of the government’s budget related tax measures, including personal income tax reductions, fringe benefits tax reduction and adjustments to the capital depreciation arrangements for business. I wish to indicate at the outset that Labor will be supporting this bill. The measures contained in the bill will provide long-overdue relief to taxpayers and represent modest taxation reform. While these proposals are no doubt beneficial, it would be fair to say that the public have found these proposals underwhelming. Taxpayers recognise that every cent of their tax cuts have already been eaten up by rises in petrol prices and increases in interest rates. Then there is the deep level of unease about this government’s extreme industrial relations proposals that threaten their wages, conditions and penalty rates and even their jobs. No amount of tax cuts could possibly make up for what they could lose from these extreme industrial relations changes, a topic I intend to return to shortly.

There is also another reason for the relatively poor reaction to the budget and the tax reductions we are debating today. Put simply, the measures contained in the budget failed to invest adequately in future prosperity. The budget failed to use the once-in-a-generation opportunity provided by the commodity boom to invest in future drivers of growth. It was a budget that was more about spending the proceeds of prosperity rather than building on it. If we are to meet the economic challenges that are ahead—the reordering of global trade led by China and India, and the ageing of our population—we need visionary policies which go to the heart of lifting our flagging productivity and below standard levels of workforce participation. The way we invest in the skills and education of our people is central, along with our way of addressing the infrastructure bottlenecks that are holding the economy back and increasing the cost of doing business.

Taxation policy is an important component of all this. The operation of our tax and transfer payments system impacts heavily on levels of workforce participation. It also impacts on savings and investment decisions. Capital accumulation and skills acquisition are both affected by our taxation system. When it comes to these factors, there is no doubt that the measures in this bill represent an improvement, albeit an incremental improvement, of the situation. But before discussing the detailed impact of these measures, I believe it is worth while to see where we have been and to apply some scrutiny to the tax record of this government.

The coalition claim they are a party of lower taxes and enterprise. Nothing could be further from the truth. They are the highest taxing government in our history and the government’s record on effective marginal tax rates is completely at odds with their claim to be a party of enterprise. This is not a party of choice nor a party of enterprise; this is a party that runs a taxation system that discourages choice and enterprise. Before this budget this government held the mantle of the highest taxing government in our history. The origins of this government’s record tax take can be traced back to their first four years in office. For four years the government refused to cut taxes. For four long years, as nominal incomes rose, this government did not give a dollar of personal income tax relief. Taxes were ratcheted up on individuals prior to the introduction of the goods and services tax. Personal income taxes as a share of GDP increased from 11.9 to 12.9 per cent of GDP between 1995-96 and 1999-2000. For a single taxpayer on average earnings their average tax rate—that is, the share of their wages lost in tax—jumped from around 24 per cent to 26 per cent. Finally, when the government introduced the GST in 2000-01, it was accompanied by significant income tax cuts. However, they were eroded by the impact of the goods and services tax.

After taking into account the impact of the GST and the bracket creep netted between 1996 and 2000, you see this government has been continuing to chase its tail on the personal income tax burden. From 2000-01 to this financial year we have seen four rounds of tax cuts introduced—most incremental. The budget papers show that this year, 2005-06, personal income tax receipts will amount to 11.8 per cent of GDP. Remember that in 1995-96 the equivalent figure was 11.9 per cent of GDP. I would ask members to reflect on these two figures—10 years and virtually no change in the burden on personal taxpayers.

This is indeed a startling fact because in this period we had the GST introduced, so we had virtually no change in the personal tax burden plus a 10 per cent GST, which was supposed to have been accompanied by a sustained reduction in personal income taxation. We were told that the introduction of a broad based goods and services tax would reduce our reliance on direct taxation. It did not. So, despite the introduction of the GST, personal income tax in 2005-06 will be as large a share of GDP as it was when the Howard government entered office in 1995-96.

The Treasurer has recently accused the states of double taxation when it comes to the GST, yet these figures make it clear that he stands condemned on his own charge—a common feature of this Treasurer. Personal taxpayers are paying as much tax as they did in 1996 and they now face the additional burden of a GST. Indeed, we know some taxpayers have been paying higher income taxes as well as higher indirect taxes from the GST. That is the double taxation from Treasurer Costello. Higher personal income taxation and a GST—that is his record.

An analysis of the government’s tax cuts to date shows reductions in average tax rates only for those earning somewhat more than average weekly earnings. If we take someone on the average wage, we know that in 1996 their average tax rate was 24 per cent. This year, 2005-06, their average tax rate will be 24.8 per cent, including the Medicare levy. The difference adds up to about $470 a year. So this is not a government that stands up for the battlers when it comes to personal income taxation. When it comes to personal income taxation, they do not defend them; they create them, and that is what these figures show. Is it little wonder then that average wage earners in Australia are underwhelmed by their $9.80 weekly tax cuts announced in this year’s budget? They are not fools.

In contrast to the coalition’s approach to personal income tax, Labor can claim credit for significant, real personal income tax reductions. When in office Labor delivered seven rounds of tax cuts: on 1 November 1984, 1 December 1986, 1 July 1987, 1 July 1989, 1 January 1990, 1 January 1991, and 15 November 1993. Having inherited a top marginal rate of 60c in the dollar from Treasurer Howard, Labor reduced that to 47c, along with broadening the tax base through the introduction of the fringe benefits tax. A key failing of the Howard government has been its failure to properly integrate personal income tax reform and transfer payment reform. The failure to do this has resulted in the persistence of high effective marginal tax rates and in some cases the worsening of effective marginal tax rates.

The OECD has been talking about this for a long time, condemning on many occasions the government’s record. According to the OECD annual report Taxing wages, a single-income family with children, on average earnings, faced an effective marginal tax rate of 35.7 per cent in 1995. This year the same family will face an effective marginal tax rate of 51.5 per cent. That is far higher than the top marginal tax rate experienced by higher income earners. Such a family keeps less than half of their additional earnings, whether it comes from overtime, investment earnings or promotion. So much for the Treasurer’s free enterprise! These families do not give up their weekends or their family time to have Peter Costello’s hand so deeply in their pockets that they are losing in excess of half of their additional earnings. That is this Treasurer’s record.

So how do the budget tax cuts stack up? Given the background that I have outlined, we are now in a very good position to assess the context and merits of the measures we are debating today. Labor’s considered view is that they are a welcome improvement but they fall far short of addressing many of the problems created by our complex and unfair tax system. There is no doubt that the tax cuts we are debating today will deliver some long overdue relief to taxpayers. However, for the most part, taxes on middle-income earners are too high. An analysis of the tax cuts reveals particular improvements for those earning between $25,000 and $35,000 per annum. However, significant relief generally does not flow until an annual income of over $75,000.

That said, the distribution of the tax cuts in this budget is fairer than those announced last year. This year, half of the value of the tax cuts are delivered to taxpayers who earn below $50,000 and half to taxpayers who earn above $50,000. In last year’s budget, only one-third of the tax cuts went to those earning under $50,000; two-thirds went to those earning over $50,000. This time, taxpayers who earn up to $80,000 a year will gain two-thirds of the tax cuts on offer. A taxpayer on $30,000 gained $17.50 per week from this budget compared with $6 per week in last year’s budget. So at least we shamed the government into introducing some greater fairness into the system, although it still has a way to go.

Most taxpayers will certainly need every cent that they have received in these tax cuts, if not more, to pay for the recent increases in petrol prices and interest rates, and that is before they get to the government’s obscene and extreme industrial relations laws. Increases in petrol prices and interest rates could have added more than $20 a week to the expenses of typical households in recent months, and on top of that is the impact of the government’s extreme industrial relations changes. I will table our analysis of the tax cuts, which provides all the detail required.

That brings us to industrial relations. What is more worrying to households are the government’s extreme workplace laws. It is of course impossible to divorce the changes in personal taxation from its recent changes to wage-setting arrangements. The government’s intention with its so-called Work Choices policy is to drive down wages and conditions. We have seen that amply demonstrated in this House during question time in recent times. For an example of this, we need only look at the Spotlight situation highlighted yesterday. This parliament has heard that the AWAs offered to workers have stripped them of just about every award condition and offered them just 2c per hour extra for the loss of a large number of conditions.

Under the award, an employee working 38 hours a week could earn up to $33,000 a year with penalties. Yet, under the AWA, the same work would result in an annual wage of $28,256. That is a loss of up to $91 a week, an amount that dwarfs the tax cut of just under $20 a week for someone on that income. So average taxpayers out there, and punters working at places such as Spotlight, still have a very high tax burden compared with when this government was first elected. They are facing rising interest rates, they are facing rising petrol prices and now they have this threat to their take-home pay. And this is not an isolated case.

Evidence given at the Senate estimates hearings by the Office of the Employment Advocate suggests that what has occurred with Spotlight is widespread. Something like 6,263 AWAs have been lodged with the OEA since Work Choices commenced on 27 March. Of those AWAs sampled, these are the outcomes: 100 per cent excluded at least one protected award condition; 64 per cent removed leave loadings; 63 per cent removed penalty rates; 52 per cent removed shiftwork loadings; 40 per cent lost gazetted public holidays; and 16 per cent excluded all award conditions and replaced them with the government’s legislated minimum standards. With outcomes such as these under the government’s new workplace laws it is little wonder that middle- and low-income earners are—

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