Jacinta Collins (Victoria, Australian Labor Party) Share this | Hansard source

The robustness of the Australian economy, contrary to what Senator Abetz would suggest, is in large part due to the wide-ranging economic reforms implemented by the Hawke-Keating governments. This government aims to build on those reforms. So, Senator Abetz, look forward to more sensible amendments to how we organise tax law in this country.

There are some aspects of the macroeconomic environment that we cannot control. But there are many things that the government can influence. What we have to ensure is that we do as much as possible in relation to the things that we can control to reinforce Australia’s economic position. One thing we have control over is our fiscal position. That is why in its most recent budget the government put in place a $22 billion surplus. This surplus will put downward pressure on inflation and in turn downward pressure on interest rates.

In their political opportunism the opposition is playing a very dangerous game. They are threatening to oppose a series of measures that could reduce government revenue by more than $6 billion. Blocking measures such as those contained in these bills would reduce the size of the surplus and put upward pressure on inflation—and we know this opposition’s record on inflation. This in turn would place upward pressure on interest rates—and we know this opposition’s record on interest rates. By reducing the surplus, the opposition not only threatens to create upward pressure on interest rates but also to reduce the capacity of the three funds set up in the budget to support much needed investment in infrastructure and the health and education sector—that is, the Building Australia Fund, the Education Investment Fund, and the Health and Hospitals Fund. Together, these funds will be used to invest $40 billion in nation building in our longer term future.

The luxury car tax increase is a balanced approach to dealing with the difficult economic challenges we face. It will raise over $500 million over four years. Therefore, it constitutes an important component of the government’s fiscally responsible position. Furthermore, the opposition’s attacks on this measure are important in that they are part of a broader range of attacks on the surplus totalling, as I said, more than $6 billion. By blocking the measures contained in the luxury car tax bills—and indeed, in a number of other measures contained in the budget—the opposition is taking a hatchet to the surplus. The luxury car tax bill will impose a moderate cost on the sector. Further, it will impose it on those most able to bear it.

There is no evidence that the luxury car tax increase will increase car prices more generally. It is just scaremongering to assert that this measure will hurt working families. Of the 20 top-selling cars in Australia less than four per cent of those sold are subject to the luxury car tax and, for the lower end, the increase is in the hundreds of dollars and not the thousands of dollars that the opposition might suggest by their rhetoric. The so-called Tarago tax only applies to one Tarago model, and the price increase is just over one per cent. The entire Tarago category, including the four other models that are well below the luxury car tax threshold, is less than half a per cent of the passenger vehicle market. Nor will the tax disadvantage people with disabilities. The tax law already provides exemptions for people with a disability from the luxury car tax. Treasury has also consulted with disabled groups to ensure that they are not adversely impacted by these measures. As I have already stated, this is a balanced approach. We do not think it is unreasonable that people who have done well in recent years pay a little more for a luxury car. If everyone pays their fair share and we plug the gaps in the system we can reduce the overall tax burden imposed on working families.

These bills sit well within the goals of a tax system. Two of the key objectives of any tax system are equity and simplicity. This measure satisfies both of these criteria. First, it satisfies equity in that it is progressive. Everyone in our community is shouldering the burden of ensuring that our economy is well positioned to withstand the current global economic uncertainty. That is why the surplus in this year’s budget is built on spending cuts across a range of areas. But surely it makes sense that the wealthiest in our community should bear more of the burden than those struggling to make ends meet. That is why a tax on items that are clearly a luxury makes sense.

We apply progressivity in many areas of taxation. The most obvious is income tax, where the tax rate on a marginal dollar earned rises with income. Consider the tax rates on income. The tax rate on income is zero for taxable income up to $6,000; 15 per cent for income between $6,000 and $34,000; 30 per cent for income between $34,000 and $80,000; 40 per cent for income between $80,000 and $180,000; and 45 per cent for income above $180,000.

We also apply this principle to the major purchase in most people’s lives—their house. In most jurisdictions, land tax and stamp duty are progressive. For instance, I looked up the situation in Victoria to make this comparison. Both land tax and stamp duty are progressive. Consider the general land tax schedule. In Victoria it applies at a rate of 0.2 per cent on each dollar over $250,000 and less than $600,000; 0.5 per cent on each dollar over $600,000 and less than $1 million; 0.8 per cent on each dollar over $1 million and less than $1.8 million; 1.3 per cent on each dollar over $1.8 million and less than $3 million; and 2.25 per cent on each dollar over $3 million.

What about stamp duty on a principal place of residence? Again, let us look at the Victorian example. The rate is 1.4 per cent of the value of the property up to $25,000; 2.4 per cent of the value in excess of $25,000 and less than $130,000; five per cent of the value in excess of $130,000 and less than $440,000; six per cent of the value in excess of $440,000 and less than $960,000; and 5.5 per cent on the entire value of the property if the transaction is greater than $960,000.