Lindsay Tanner (Melbourne, Australian Labor Party, Shadow Minister for Finance) Share this | Hansard source

The Tax Laws Amendment (Personal Income Tax Reduction) Bill 2007 that is before the parliament this morning will implement the tax changes that were brought down in the government’s 2007-08 budget, which the opposition supports. In contrast to some of the previous tax cuts that have been provided by the Howard government, these tax cuts, in our view, are broadly reasonable. They deliver back to Australian taxpayers money that is clawed away from them by bracket creep—the effect of the interaction between inflation and the gradual increase in both wages and prices, which pushes people, bit by bit, higher up the income tax scales and, therefore, by stealth, takes away more tax than notionally would be the case.

They do have a positive effect with respect to workforce participation. There is more work to be done on that front but we do acknowledge that, finally, the government has taken some steps to reduce the impact of high effective marginal tax rates, and we would expect that this positive effect will be beneficial for workforce participation in ensuing years.

On balance, we believe the tax cuts are unlikely to have an inflationary effect. They are unlikely to push interest rates higher. We believe the government has sailed rather close to the wind in this regard. It is interesting to note that one per cent of GDP or one per cent of the economy has become an unofficial measure of the desired budget surplus, which ensures that the fiscal settings are not putting pressure on inflation and interest rates. Time will tell whether that is an appropriate judgement, but if you look at the forward estimates for the scale of the surplus that is presented in this year’s budget, you will see that the figures all hover roughly around the one per cent mark, and it is clear that the tax cuts have been calibrated to fit with that particular framework.

That judgement, in our view, is a fine calculation. There have been a number of market economists who have suggested that the budget, including the tax cuts, may put undue pressure on interest rates and inflation. On balance, we do not believe that is the case, but certainly the government is sailing close to the wind, and time will tell whether it has sailed too close.

It is important to recall what the Liberal Party is actually about. The Liberal Party basically represents the interests of the better-off in our community—people who have higher incomes and are in better circumstances. Ultimately, it will always be on about increasing their share—the share of the better-off—of total national wealth and total national income. As a necessary consequence of that, it will reduce the rewards that flow to people on lower incomes, with less bargaining power, fewer skills, less marketability and less of a chance in life.

That is ultimately what their infamous Work Choices legislation is all about. It is all about removing the interventions in the marketplace that are there to protect people at the bottom, at the lower ends of the spectrum, in order to ensure that they have some basic minimum protections and that they get a half-decent living wage that enables them to live as ordinary members of our society. That is what Work Choices is all about—removing those interventions to increase the gap and the inequalities that exist in our society.

In previous tax cuts, we have seen this position, which is at the core of what the Liberal Party stands for, in a number of regards. We have seen over the last couple of years, for example, the heavy weighting of tax cuts in favour of higher income earners. The GST package ultimately was all about changing the tax mix, increasing the extent to which people paid tax through a consumption tax that was the same whether you were rich or poor. If you buy something—some clothes, for example—it does not matter whether you are the wealthiest person in Australia or the poorest; you are still paying the same tax. It was also about reducing the emphasis on income tax, which of course has a relatively modest progressive scale that is designed to ensure that, as you earn more, the proportion of your earnings that is taken in tax increases.

The whole purpose of the shift to the GST was to change the tax burden, to increase it on lower income earners and reduce it on higher income earners—and, of course, they succeeded in doing that. Indeed, when the former Deputy Prime Minister Tim Fischer was challenged about this point, his only response was to say, ‘We’re not communists.’ In his mind, the former Leader of the National Party and Deputy Prime Minister qualifies as communism any kind of tax redistribution, any kind of notion that well-off people pay higher amounts of tax in order to help keep lower income people with fewer advantages in life in a reasonable state of living. We, of course, do not regard that as communism.

Finally, it is worth noting the comments on budget night of the head of the Australian Chamber of Commerce and Industry, Mr Peter Hendy, in response to the budget and the tax cuts. He said that, in effect, the bulk of the tax cuts were merely handing back bracket creep, merely correcting for the inevitable continuing expansion of the tax take as a result of inflation pushing people up through the tax scales. If you want evidence to back up his point, all you need to do is to look at the budget papers’ projection for government revenue, which is overwhelmingly tax revenue, for the forthcoming years. What you will see is that, in the financial year that will complete on 30 June this year, the federal tax take—excluding the GST, which of course is artificially excluded but is in reality a federal tax—or the government revenue, will be 22.8 per cent of our economy, 22.8 per cent of GDP. It is projected, inevitably as a result of the tax cuts, that this will fall. The government revenue, which is overwhelmingly tax revenue, will fall to 22.5 per cent of GDP in the financial year we are about to start. But, in the financial year 2008-09, guess what? The revenue of the federal government and therefore, by definition, its tax take, will in effect be back to 22.8 per cent, which is the current level, and, in the following year, it will be up to 23.1 per cent. In other words, notwithstanding the apparent generosity of the tax cuts, in reality they predominantly consist of handing back bracket creep. They merely create a relatively small blip in the government’s overall share of the economy for one year and, within one financial year, that share will be back to where it was prior to the tax cuts, inevitably creating a need for further tax cuts in two or three years time.

So, reasonable as they appear on the surface—and as I have indicated we support the tax cuts because, for once, the relative distribution across the income scale is not outrageously weighted in favour of higher income earners—it is important to keep the tax cuts in perspective. Largely what they are doing is handing back the money that is clawed off people in addition to the ordinary taxation they would be paying as a result of inflation and bracket creep. It is good that that is occurring, but it is something that governments should do as a matter of course, not as some kind of extraordinary demonstration of generosity or concern for the living standards of ordinary working families.

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