Andrew Leigh (Fenner, Australian Labor Party, Shadow Assistant Treasurer) Share this | Hansard source

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 condemns the Government for giving a tax increase to low and middle income families, and giving a tax cut to millionaires".

In debating this bill, we are fundamentally debating progressive taxation versus flat taxation. Progressive taxes have a long legacy. In response to the early Napoleonic successes on the battlefield, Prime Minister William Pitt the Younger decided that Britain had to impose the world's first progressive income tax. That tax had rates increasing from one per cent to 10 per cent and put in place a basic principle that has been followed by many countries many times since—that, when you have a higher income, you should not just pay more money; you should actually pay a higher rate.

There are a few countries that levy flat income taxes. In Russia, for example, income taxes are a flat 13 per cent. But, if you look across the advanced world, progressive taxes are the norm. The higher the amount you earn, the higher the rate you pay. In times gone past, that rate has been very high indeed. When the Beatles sang 'Taxman' they were complaining about the fact that the marginal tax rate that they paid on their earnings was 95 per cent.

When we debate this issue of progressive and flat taxes in Australia, it is often surprising to see that those opposite just do not get it. We had Liberal Senator Scott Ryan thundering:

The top tax bracket—$180,000 and above—seven per cent of all income earners or just under, they’ll pay 27 per cent of the increase in the Medicare levy so it is highly progressive.

We had an editorial in the Australian claiming:

… Scott Morrison proposed lifting the Medicare levy from 2 per cent to 2.5 per cent from 2019 to meet the NDIS shortfall identified by the government. However unwelcome for taxpayers, that strategy at least affirmed “we are all in this together”. The levy is a progressive tax.

We even had commentator Mungo MacCallum, who is often sensible on many issues, saying:

… raising the Medicare levy, which in fact means an overall tax increase, is sensible policy, and, crucially it is fair. It is not a flat-rate, across-the-board, slug …

Unfortunately all three of them are wrong. When you ask a hairdresser and a surgeon to pay 0.5 per cent of their income, that is a flat tax. A progressive approach is something different. Helpfully, when he delivered his budget reply at this dispatch box, the opposition leader, Bill Shorten, outlined what a progressive approach would look like. Labor have said that we do not support increasing the flat Medicare levy across the board. We would confine that Medicare levy increase to taxpayers with incomes over $87,000, thereby shielding four out of five taxpayers—around 10 million people—from paying more income tax. To make up the revenue, Labor would maintain the deficit levy for those with incomes over $180,000. Those with incomes over $180,000 currently constitute just two per cent of adults. Nine-tenths of the revenue raised by maintaining the deficit levy would be paid by the top one per cent.

The top one per cent have not had a bad generation, it has to be said. Along with the late Sir Tony Atkinson, we looked at trends in the top one per cent share going back to World War I. The trend since then is a steady equalising from World War I through to 1970, but, since the late 1970s, the top one per cent have doubled their share of national income. That is research that has been confirmed by Professor Roger Wilkins at the University of Melbourne, who has continued crunching top one per cent series since then.

So that top one per cent group that has doubled their share of national income would pay nine-tenths of the income raised by maintaining the deficit levy. By maintaining the deficit levy and restricting the increase in the Medicare levy to those earning over $87,000, over the medium term, Labor would raise more money than the coalition. When we are debating progressive taxes versus flat tax, we should remember that there is nothing inherently left wing about progressive taxes. As I have mentioned before, it is a nominally Communist country—Russia—that has a flat tax, and there are many countries governed by right-wing parties that have progressive taxes. Prime Minister William Pitt the Younger was a Tory.

What progressive taxes do is simply reflect the fact that a billionaire has a greater capacity than a battler to pay for schools, roads and hospitals. When you ask a cleaner to pay more taxes, the result may be that they cannot afford to see the dentist or to pay for Christmas presents. When you ask someone on the rich list to pay a little more tax, it might mean they have to buy a 175-foot yacht rather than a 200-foot yacht. Inequality in Australia is now at a 75-year high. Earnings have risen three times as fast for the top tenth as for the bottom tenth. We have profits rising at record rates and wage growth in real terms going backwards.

And yet this government's strategy would see judges get a $3,800 tax cut and pharmacists pay $350 more tax. The government's strategy would see plastic surgeons get a $4,700 tax cut and aged care nurses cop a $220 tax rise. Those at the bottom are doing it tough in Australia. One in five Australians say they cannot afford a week's holiday away from home once a year. These are the people who Labor wants to shield from paying a higher Medicare levy. Low-income Australians need an approach which is progressive, not flat, and indeed, when inequality rises, our tax system should become more progressive, not less.

In the Hawke-Keating era, inequality was lower than it is today. So, as inequality rises, it is appropriate for us to look at the question as to whether our tax system should become more progressive, not yield to those who say that a less progressive tax system is the answer in Australia. If you are worried about taxes deterring work, as some of those in the right-wing commentariat sometimes claim, then you should be worried about effective marginal tax rates and the combined impact of tax rates and benefit withdrawals on work incentives.

How bad is that problem? A recent report that was compiled by the Australian National University's Tax and Transfer Policy Institute, titled Effective marginal tax rates, authored by David Ingles and David Plunkett, set out the effective marginal tax rates for a range of groups in Australia. Someone on a single disability support pension earning between $20,000 and $50,000 pays an effective marginal tax rate that ranges from 70 per cent to 85 per cent—well above the effective marginal tax rates paid by a millionaire in Australia. When they looked at a couple with children aged eight and 10 and no child care earning between $10,000 to $50,000, their effective marginal tax rate starts at 60 per cent and spikes at certain points to 120 per cent. They are deterred from work to a far greater extent than a millionaire is deterred from work by the top marginal tax rate. If you look at an age pension couple earning between $25,000 and $75,000, their effective marginal tax rate is in the range of 80 to 90 per cent. Again, the work disincentive faced by age pension couples in Australia is greater than for millionaires in Australia. If you look at a single person receiving Newstart allowance, their effective marginal tax rate for earnings between $10,000 and $25,000 starts at 60 per cent and goes to 100 per cent. That is a significant deterrent from moving from income support into work. It is important that we tackle those effective marginal tax rates, but the evidence that high-income earners, and particularly high-income earning men, will be deterred from work if the tax rate for people with million-dollar incomes stays at the rate that it has been for the last two years, is, frankly, farcical. High-earning blokes are not deterred from work on the extensive margin as a result of income taxes. To say otherwise is to misread the evidence on effective marginal tax rates and on the elasticities of labour supply.

We on this side of the House worry too about the gender impact of this. The gender impact ought to have been outlined in the government's Women's Budget Statement—a document produced first under the Hawke government, then under the Keating government, then under the Howard government and then under the Rudd and Gillard governments, but it was scrapped after 30 years. After being produced from 1983 to 2013 without fail every year, the Women's Budget Statement was scrapped. So it fell to Labor to continue producing the Women's Budget Statement and it reveals that the beneficiaries of maintaining the deficit levy will overwhelmingly be men, and yet those who suffer the cost of cuts to income support are overwhelmingly women. There is a gender lens through which we are debating today and, in standing against the increase in the Medicare levy for those earning under $87,000, Labor is keenly aware of the gender impact of this tax change.

If we are worried about what the Liberal Party likes to refer to as 'the forgotten people', then, frankly, we should look back at the words of their mentor, Robert Menzies, who said in that speech 'the rich can look after themselves'. He said that instead his party should be concerned with 'salary-earners, shopkeepers, skilled artisans, professional men and women, farmers and so on'. But the Liberal Party of today has forgotten 'The Forgotten People' speech. They have forgotten that they are raising tax rates on salary earners, shopkeepers, skilled artisans, professional men and women, and farmers. They are focusing on the needs of the rich rather than listening to their founder's words that the rich can look after themselves. If it was true at a time when inequality was significantly lower than it is today, surely it must be doubly true now.

Why do the top end of town, who have enjoyed a disproportionate share of the economic gains in Australia over the course of the last generation, need a tax cut when minimum wage workers are copping a tax increase? It is not just a tax increase: minimum wage workers and average wage workers in Australia have it tough on so many dimensions under this government. We have seen a fall in home ownership. Home ownership rates are now at a 60-year low. We have got penalty rates about to be cut, costing up to $77 a week, ironically on Sunday, 2 July—the day after millionaires get their tax cut. We have got $22 billion of cuts to schools and to universities, which will affect the ability of low-income Australians to attend university.

At the same time, the government is ignoring the opportunity to do something about good tax reform. Labor has proposed cracking down on tax havens. We have recently seen work from Gabriel Zucman and co-authors that has analysed who benefits from tax havens. That has shown very clearly, using evidence from leaked data from the HSBC leaks and the Panama papers, that those who benefit are disproportionately not just the top one per cent, but the top 0.1 per cent. It is the very wealthy who benefit from tax havens. That is why Labor has pledged country-by-country reporting. We are acquiring the public reporting of tax paid in every country by firms turning over more than $1 billion a year. Our big mining companies BHP and Rio Tinto already do this on a voluntary basis. But, for tax integrity purposes, it is vital that all billion-dollar companies comply in the same way.

We have called on the government to put in place whistleblower incentives, providing something akin to the US False Claims Act and the British laws, that create stronger protections for whistleblowers and incentives for whistleblowers to do the right thing and speak out on tax fraud. We have said that a Shorten Labor government, if elected, would require firms to disclose to shareholders as a material tax risk their dealings in tax havens, using as a list of tax havens something akin to the EU tax haven blacklist, which 32 countries are currently on.

We have called for AUSTRAC data to be publicly available—not controversial, given that it was released under freedom of information laws. We believe that if you are a firm that is tendering for government work of over $200,000, you should be required to disclose your country of tax domicile. We are not arguing that you ought to be ruled out based on that country of tax domicile, but simply that where you are domiciled ought to be public information if you want to win government work.

Under a Labor government, we would consult with superannuation funds to develop appropriate guidelines around tax havens. We have committed to a beneficial ownership register—a policy that we believed the coalition was committed to, but which they have steadily backed down on since they first spoke about a beneficial ownership register. We have called on the Australian Taxation Office to disclose settlements over $50 million in order to provide greater transparency. This sits on top of Labor's announced policies in the multinational tax space. Our worldwide gearing ratio, as costed at the last election, would raise nearly $6 billion over the medium term.

Our measures on ATO compliance and on tax transparency are important as well. We would put a community member on the Board of Taxation in order to ensure that we get greater tax transparency and a greater say for the community sector in taxation.

Labor does not believe that this is the right time to be raising taxes on middle Australia, as this bill does, while giving a huge tax giveaway to the top end of town. We know already—thanks to Labor's laws, opposed by those opposite—that among large Australian firms one-third do not pay any tax. We know, too, that under their very own analysis any benefits from a corporate tax cut to the top end of town will in the first instance go disproportionately to overseas shareholders, because dividend imputation means that Australian shareholders benefit only through reinvested profits, not paid-out profits.

But I would urge any cheerleader of the government's company tax plans to read their own documents, in particular a document called Analysis of the long term effects of a company tax cut, which shows that under the most likely scenario, in which a company tax cut for big business is funded by higher personal income taxes, the benefit to households is 0.1 per cent—total, not annualised. The total benefit to households of the government's $65 billion company tax cut, if funded through higher individual personal income taxes of the kind in this bill that we are debating, will be a benefit to households of 0.1 per cent—and all this in order to reduce a company tax rate which is, according to the United States Congressional Budget Office, not among the highest in the world.

Those opposite would have you believe that Australia's company taxes are extortionately high. The United States Congressional Budget Office, in its analysis International comparisons of corporate income tax rates, released in March of this year, found that Australia's statutory corporate tax rate of 30 per cent was right in the middle of the G20 range, that our average corporate tax rate—that is, the amount of corporate tax actually paid as a share of corporate income—was 17 per cent, the fourth lowest in the G20, and that our effective marginal tax rate, which is the share of income paid in tax from a marginal investment, is at 10 per cent, which is about the 11th highest in the G20. So, if you compare Australia's company taxes paid with those of G20 nations, we sit in the middle—or, indeed, on some measures, in the lower part of the distribution.

And that is before you get to the fact that Australia has dividend imputation, a system that gives back about a third of company tax revenues to taxpayers through the personal income tax system. A company tax system with imputation means that you raise about a third less revenue. Therefore, a 30 per cent company tax rate with imputation raises about as much as a 20 per cent corporate tax rate without imputation.

This government would seek to raise taxes on middle Australia at a time at which the coalition has set a host of new worst records for economic management. In an article in Crikey on 1 June, economics reporter Alan Austin reported a range of these 'worst ever' records. He reported that the figures of the Office of Financial Management showed total gross debt at a record of $495.5 billion—about to crash through the half-trillion figure. Net debt, according to the finance department, was $317 billion at the end of April. And debt is now increasing at a rate per month of $6.85 billion. The rate at which debt is increasing in Australia is the fastest in Australian history. It compares with the rate of debt increase during the global financial crisis, which was significantly lower. That is right: the coalition are borrowing at a faster rate now than Australia did to ward off the worst global disaster since the Great Depression.

All advanced countries put in place fiscal stimulus when the global downturn came. There was bipartisan consensus that it was important to take on debt to shield ourselves from the crisis. No-one thought the razor-thin surpluses that were left by the Howard-Costello government could have gotten us through the crisis. But the question is: why are we borrowing at a faster rate now than we did during the global financial crisis?

The government has also set a record for the number of people unemployed. There are 700,000-odd people unemployed. Full-time jobs have fallen to below 68 per cent for only the third time. We have seen hours worked per adult per month dropping to 83.8, the lowest since February 1994—significantly lower than it ever reached during the great recession. Hours worked per adult per month is the lowest it has been in more than two decades. The share of jobless women is 6 per cent, which is a higher figure than we have seen since the late 1990s. Underemployment is up to an all-time high, and has recently reached one million people. New housing approvals are significantly down. Infrastructure is declining again: according to Allen Austin, infrastructure has declined in 12 of the last 14 quarters, the worst result in Australian history. Annual wages growth is just 1.9 per cent, the lowest since records have been kept, and below the inflation rate of 2.1 per cent. Retail sales are up just 2.6 per cent, a real decline once you account for inflation and population growth. The only worst first quarter on record was 2.5 per cent in 2010. Interest rates are still low. There are record profits, yet record tax dodging.

When the Prime Minister took over from the member for Warringah, he said that his reason for doing so was to provide economic leadership. But we have seen now in Australia anything but that. We see real wages falling; we see debt at record levels; we see home ownership at a 60-year low and inequality at a 75-year high. This bill does nothing to address those challenges. It slugs Australian households with higher taxes. Middle Australia will pay higher taxes under this government, which is why Labor have said that we prefer a progressive approach. Make no mistake: what we are debating is an increase in a flat tax. Labor's approach is a progressive approach. This is the right strategy at any time of the economic cycle, but it is particularly the right approach when inequality is at a 75-year high. Labor believe that we need less inequality, not more. That is why Senator McAllister has announced today that a Shorten Labor government would task the Productivity Commission to inquire into the issue of inequality and ways we can reduce inequality in Australia. We cannot just sit back on our hands as inequality rises. We need to take action.

Labor has also announced that we will crack down on dodgy directors—another way in which workers and decent small businesses are diddled out of their rightful entitlements. I am pleased that the shadow minister for employment is here in the chamber, because he has been a powerful voice for cracking down on dodgy directors. Labor's plan on exposing fraudulent directors will tackle a problem which cost the economy $3 billion five years ago, and surely more now. We believe that we need a director identification number, stronger penalties and the right standard of proof to crack down on the scourge of phoenix activity. We are supported in this by the Productivity Commission, by the Australian Institute of Company Directors. We are supported by the Australian Council of Trade Unions, and we are supported by almost by almost every independent body apart from the Turnbull government, which is yet again sticking its head in the sand when it comes to tackling the critical issue of dodgy phoenix directors.

Labor has a plan to tackle multinational tax avoidance. Labor has a plan to tackle tax havens. Labor has a plan to tackle phoenixing. Labor has a plan to tackle inequality. The coalition only has a plan to raise taxes on middle Australia. Labor will not have a bar of it.

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