Daniel Mulino (Fraser, Australian Labor Party, Assistant Treasurer) Share this | Hansard source

This budget deals with three big issues. Firstly, it deals with the fact that the tax system is not working for young Australians and is working against their aspirations to get into the housing market, and it deals with those issues. Secondly, it delivers another big set of tax cuts. It delivers the working Australian tax offset and the instant deduction. Thirdly, it deals with some very longstanding issues in our tax system in terms of better aligning taxes coming from capital and those receiving income from trusts versus those earning income from labour.

Now, if you heard the speech from those opposite just then, you would think that this is a topic that warrants a lot of mirth and merit. Look, humour has a place in this chamber. But if you listen to that speech from those opposite, you'd think the tax system is just fine. The opposition tomorrow are going to face two tests. The first test is whether they are going to vote against tax cuts yet again. They went to the last election opposing the two tax cuts for all Australian taxpayers that we took to the last election. They're going to face a test tomorrow. Are they going to vote against the working Australian tax offset and the instant deduction? The other test they're going to face is whether they are going to say that the tax system is just fine when it comes to young Australians and the housing market? Are they going to say the tax system is just fine when it comes to the balance between those paying income on labour versus those paying income from other sources?

Those opposite come in here and they crack jokes for five minutes about CVs, but what is it they're saying about our tax system? What is it they're saying about the need for change? We had a three-day economic reform roundtable. We had a three-day economic reform roundtable in which experts from right across the tax system—policy experts, academics, business leaders, union leaders, leaders from civil society—all agreed that we need more intergenerational fairness in our tax system. We need reform in our tax system to make it easier for young people to get into a house. They all agreed that we need to rebalance our tax system away from relying so much on income taxes and towards other sources, and this budget addresses those big themes. There's an agreement from that three-day economic reform roundtable from all the experts. There's also an agreement from the conversation in the community. When I talk to young people in the community, they all say that the tax system is not working for them. Those opposite face a big test. Are they going to stand with the status quo? From the speech you just heard, the answer is yes.

Now when it comes to small businesses, when it comes to business in general, this budget helps small businesses in a number of ways. Firstly, we're making the $20,000 instant asset write-off for small businesses permanent. They've been calling for that for years. This is a longstanding source of uncertainty for small businesses. Those opposite had almost a decade to do this. They sat on their hands. We're doing it. That's a big change for small businesses. We're reintroducing permanent loss carry back from 1 July 2026 so that business is better placed to withstand shocks from global uncertainty. In a period of uncertainty, this is a big change. We're also increasing the maximum asset cap on venture capital limited partnerships and early-stage venture capital limited partnerships, so that more entities can receive these important tax incentives. We're providing small start-ups that generate a loss in either of their first two years of operation with the option of a refundable tax offset. We're also better targeting the R&D tax incentive in light of the conclusions from the SERD report. So there is a lot of serious reform in this budget when it comes to small business, start-ups and venture capital.

Let's look at the capital gains tax. This is an area that has been calling out for change for over two decades. The 1999 changes that the Howard government brought in were supported on the basis that they would encourage more people into share ownership. What has happened in those 25 years? We have seen a significant drop in the proportion of Australians owning shares. We've seen, instead, a significant increase in the proportion of Australians owning highly-leveraged standalone houses. It has introduced significant distortions in the way in which assets and capital are taxed in our country. It hasn't worked the way it was supposed to. It hasn't led to an increase in share ownership; it has led to a decrease, and it has distorted the housing market in a way that is adding to barriers to young people getting into houses.

Our approach, when it comes to negative gearing and a more rational way of indexing the cost base of capital gains, is modelled to increase, over the medium term, the number of owner-occupiers by 75,000. That is 75,000 individuals and families owning their own home rather than renting. That is 75,000 houses with individuals or families as owner-occupiers, rather than being investor owned. That is a significant change in the housing market as a result of removing tax distortions that have been there for too long.

It is the interaction of negative gearing and this artificial 50 per cent reduction on nominal gains that is distorting the housing market. We are returning to the indexation method that was originally in place as introduced by the Hawke-Keating government. The goal of that indexation method is the sound 'neutral across different asset classes' method, whereby we are identifying real gains—that is the capital gain that will be taxed, the real gain. We're taking away inflation. That is the rational way to do this.

A number of commentators have discussed this way of taxing capital gains. Let's look at UBS chief economist Richard Schellbach:

From a 'big picture' point of view, equities would become a relatively more competitive investment proposition—

under the approach we are supporting.

Let's look at the comments from Sally Auld, the chief economist at NAB: 'By the principles of optimal tax policy, this CGT change should deliver an efficient, fair and robust regime once fully implemented.' The speech before contained a lot of hyperbole when it came to risk-taking and investing. But when we talk about the tax experts, what they're asking for is to remove distortions from the tax system that were introduced in 1999, which have had the opposite effect of what they were supposed to.

Let's look at the comments from Westpac's chief economist, Luci Ellis, an extremely accomplished economist: 'The tax system did overly encourage leveraged investment in property over investing in other things, whether that was the stock market or a business or something else that produced income.' Luci Ellis has identified exactly what happened after the 1999 changes; it led to a boom in investment in highly-leveraged standalone houses. That is exactly what is contributing to keeping young people out of the market, and that's exactly what underpins the fact that the modelling from Treasury shows that 75,000 families will shift from renting to being owner-occupiers.

Let's look at another key component. I talked about the three overarching themes. One of the key themes is this working Australians tax offset. This is a significant component. What it will represent, along with the instant deduction, is that this government will have cut income taxes five different times in three different ways over the course of its first four years. This will represent a $250 annual offset that will only be applied to earned income and will not apply to other forms of income, such as investment income. So we are designing an additional way in which we can cut income so that it applies to those earning income from labour. Again, this was one of the core themes that was identified in the three-day Economic Reform Roundtable. It is one of the core themes that has been identified in any number of tax reviews over recent decades. This government is delivering. When you add up all the different tax reforms that we have delivered, the five different tax cuts in three different ways, somebody earning the average income will see up to $2,800 a year taken off their tax bill. This is meaningful change being delivered in a responsible way.

The test for those opposite tomorrow will be do they support the WATO or not? But the other test for those opposite will be do they support changes to the way in which the tax system is distorting our housing market or not? These changes have been called upon by so many experts. So many have said for decades that we need to address these distortions, that we need to address the way in which trusts are taxed. If you listen to the speeches here of those opposite, the questions in question time and what they say outside this chamber, they have become the party of the status quo. They say that nothing's wrong, the housing market is fine, and the tax system is operating with the housing market in a way that's AOK. That's not what I'm hearing from the community. It's not what the experts are saying, and that's why this government is doing something about it.

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