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

I welcome the opportunity to speak on the Tax Laws Amendment (Personal Income Tax Reduction) Bill 2007, which will deliver tax cuts that are long overdue for middle- and low-income working Australians. Labor welcome these tax cuts and we support them, but Australian taxpayers should be under no illusion as to why these tax cuts are finally being delivered to them, on the eve of an election, where the coalition will be saying anything, doing anything and spending any amount of public money to cling on to power.

Over successive budgets the Treasurer has largely ignored middle- and low-income taxpayers. He has made them wait while their mortgage repayments have spiralled upwards, petrol prices have gone through the roof, the cost of child care and education has gone up and up, and food prices have consistently outstripped the official CPI. It is true that the Treasurer has delivered tax cuts in five successive budgets, but middle- and low-income taxpayers have had to wait until this budget to finally get back their fair share of the extra tax that has ratcheted up on them in recent years.

Labor will also support these tax cuts because they reflect worthwhile progress on good policy. Last month Labor set two tests for any budget tax cuts. Firstly, we said they should tackle disincentives for workforce participation and skill formation. Secondly, we said they should be appropriately staged to minimise inflationary risks. On both these scores the tax cuts get a tick, but, as I will point out later in my remarks, there is still some way to go. It is important that we continue to improve the competitiveness of our personal and business tax systems. Capital, and increasingly labour, is mobile, so we need to make sure our tax settings promote investment and reward hard work and enterprise.

Before I come to the detail of the measures in this bill, I must say I have been a bit baffled by the Treasurer’s response to Labor’s approach to these tax cuts. His public comments reflect, I think, a certain desperation. I would have thought he would have welcomed Labor’s unqualified support for these tax cuts, but I think he has been a bit like an inebriated nightclub goer who is wandering the streets desperately wanting to pick a fight. Perhaps it is the fact that the public have not given him the credit he thinks he deserves for this budget, or perhaps it is more likely that the Treasurer is quite embarrassed that he has been forced to adopt tax changes that Labor has been calling for and Labor presented to this House only two years ago.

This bill comprises a number of relatively straightforward adjustments to our personal income tax system. From 1 July 2008 the thresholds for the top two marginal rates are lifted from $75,000 to $80,000 and from $150,000 to $180,000 respectively. Labor supports these changes as they will help prevent middle-income earners getting a bit of overtime being snared in the 40c tax net. The top threshold increase will better align our top rate with that of other international jurisdictions.

The most substantial and welcome element of the tax cuts is the measures targeted at middle- and low-income earners. As I said earlier, these groups have been waiting a very long time to get a fair go from our Treasurer. Prior to this year’s budget, a taxpayer on $50,000 a year received an average annual tax cut of just $3.30 a week each year over the last six years. Think about that—those on $50,000 a year received $3.30 a week each year over the last six years. So I think we can forget the sandwich and milkshake sized tax cut; we have really only had a milkshake sized tax cut each year for the last six years: $3.30 a week. Whilst people would have been grateful for that $3.30 and they will be much more grateful for the extra $14 a week in this year’s budget, it still has to make up a lot of lost ground.

Significantly, from 1 July this year the bill increases the threshold of the 30c marginal tax rate from $25,000 to $30,000. This follows the increase in the last budget in this threshold from $21,600 to $25,000. The bill also increases the low-income tax offset from $600 per year to $750 per year and aligns its 4c in the dollar phase-out with the new $30,000 threshold for the 30c marginal tax rate. These two measures combined account for approximately 85 per cent of the value of the tax cuts in this year’s budget. They are, if you like, the centrepiece of the budget’s tax measures. Indeed, since the 2005 budget, changes to the 30c threshold and increases in the low-income tax offset have comprised $8 out of every $10 of additional tax relief.

Labor welcomes these changes—after all, it was Labor that authored them. Let us go through the history here so we can cut through the rubbish the Treasurer has been presenting to this House day after day. I was bemused on Monday during question time when the Treasurer claimed:

So if we want to find out what the Labor policy is, we have to look at the coalition policy to work it out, which is why I say to the people of Australia: go to the originators and not the imitators. It was not the Labor Party that thought up moving those thresholds and increasing the LITO ...

He said this—that it was not the Labor Party that thought of these moves. Well, Treasurer, just who are the imitators here? These comments from the Treasurer got me thinking, and I decided to look back at some speeches I have made on tax over the years. In a speech to the Sustaining Prosperity conference on 1 April 2005 I made the following observations:

The other key problem with the marginal tax rate structure is where the 30 percent rate cuts in - just $21, 600.

For a single income couple this 30 percent rate may be combined with a 70 percent withdrawal of their spouse’s parenting payment, and a 4 percent reduction in the low income tax offset - giving rise to a marginal tax rate of 104 percent.

Lifting the threshold for the 30 percent rate would diminish this interaction by extending the coverage of the 17 percent rate - a 13 percentage point improvement. Reforms that further sought to align the withdrawal of the low income tax offset would reduce the marginal tax rate by a further 4 percentage points.

Lifting the 30 percent rate from $21,600 to $30,000 is also a costly proposition. It would be a cheaper option than an equivalent increase in the general tax free threshold.

So in April 2005 Labor was talking about lifting the 30c rate to $30,000. That is a Labor proposition. I would be happy to table that speech, but somehow I suspect the Treasurer has already got a copy of it and has read it—and I would assume he has read it on many occasions. The speech also canvassed the option for a significant increase in the effective tax-free threshold through a tax credit, otherwise known as the low-income tax offset. In May 2005, we put down the colour of our money in the budget where we had our first instalment of these reforms. The Treasurer would of course recall the 2005 budget. That is the budget where the Treasurer claimed Labor opposed tax cuts. Of course we did not; we actually proposed an alternative set of tax cuts. I will table those amendments, which every coalition member voted down. I seek leave to table those documents.

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