Mr SLIPPER (Parliamentary Secretary to the Minister for Finance and Administration) (12:18 PM) —My friend the member for Kingston will not be at all surprised to know that the government is not going to accept his second reading amendment to the Taxation Laws Amendment Bill (No. 7) 2002. We do not accept the allegations contained in that second reading amendment. I am always happy to talk about Australia's tax rates, tax thresholds and our tax system and what a wonderful job this government has done in this particular area. It is important that governments always remain mindful of the tax burden on Australians, and it is important that government minimises taxation to a level consistent with a reasonable demand for services that the community expects. But, having said that, there is a lot of grossly misleading information and misunderstanding out there, spread recently, about tax rates. So I would like to take this opportunity to put the facts on the record once and for all for the benefit of the member for Kingston.

I do not think there can be any room for doubt about this government's commitment to tax cuts and tax reform. Australia's overall tax burden, measured by total tax revenues as a share of GDP, is relatively low compared to other OECD countries. Australia's top marginal tax rate is also comparable to that of other OECD countries when you take into account all relevant items in the tax base, such as social security taxes. This government is delivering $12 billion worth of tax cuts each year as a result of the introduction of the new tax system. These tax cuts have meant that average wage earners are paying less tax than if the government had indexed the scales applying to consumer price index movements when we took office. A person on average weekly earnings now pays $500 less tax on the current tax rates than he or she would have paid if the 1996 tax scales, which we inherited, had been indexed.

Under the new tax system, more than three-quarters of taxpayers now face a marginal tax rate of no more than 30c in the dollar. This contrasts with only 30 per cent of taxpayers under the previous system being on such a low marginal rate. Members on this side of the chamber would remember that, as part of the introduction of the new tax system, the 34 per cent and 43 per cent marginal tax rates were both reduced to 30 per cent—a very, very big tax cut. With the new tax system, the coalition was not able to deliver all of the income tax reductions that we had planned. We sought support from the Australian people for our new tax plan and we received that support. But, regrettably, we were not able to get all of it through the Senate. As members would be aware, the government had intended to increase the thresholds for the top marginal tax rate from $50,000 to $75,000. But, as part of the negotiations to get the tax package through, the government had to reduce that new threshold to $60,000.

The government have continued to keep inflation low, to reduce the impact of bracket creep and to maintain the economic conditions that have created more than one million jobs since the government were elected in March 1996. We have placed the Commonwealth's public finances on a sustainable basis by predominantly running budget surpluses. The government actually want workers to be better paid. We are actually in favour of productivity improvements which will improve workers' real wages. Over the past five years, real wages in this country have grown by 10.9 per cent under this government. We have also delivered lower income and company tax rates.

Other tax reforms for personal investors include capital gains tax discounts and refunds of excess imputation credits. As well as $12 billion in income tax cuts, the new tax system delivered $2 billion in extra family assistance. This government has also worked hard to deliver balanced budgets rather than being two or three per cent in deficit, as the former Labor government was in the early 1990s. Moreover, the Australian economy continues to be the fastest growing economy in the developed world.

The latest OECD statistics show that, taking into account all levels of government, Australia was the sixth-lowest taxing nation out of 30 OECD countries in 2000. The Commonwealth budget papers clearly show the Commonwealth's tax share has decreased under this government. Commonwealth general government sector cash taxation revenue, as a proportion of GDP, has declined from 23.5 per cent of GDP in 1996-97 to an estimated 20.9 per cent of GDP in 2002-03, and this compares favourably with the record 24.4 per cent tax to GDP ratio in 1986-87.

Mr SLIPPER —My friend interjects. He, of course, is part of the Australian Labor Party, and he would like me to remind him and the Australian people of Labor's record in the area of economic management. I suspect he is probably a bit regretful of some of the decisions that his former government made. But all taxpayers must be breathing a sigh of relief when they compare the economy under this government to the economy under Labor. For all Labor's posturing, they could deliver real wages growth of only 1.8 per cent and, over 13 years under Labor, just a miserable 1.8 per cent real wage growth.

This government is not going to apologise for its strong record of economic and employment growth and for acting to repair the abysmal budget position that it inherited from those opposite. Low tax to GDP ratios could be achieved by running high budget deficits, as Labor did in the early 1990s. However, this feat of Labor's was only achieved by driving the economy into recession, with 11 per cent unemployment and massive budget deficits. Labor's answer to reducing budget creep and lowering the total tax take was to drive the economy into recession, drive people out of work and make sure that wages did not grow. While Labor might seek to use some statistical tricks to try to drive up concern about tax rates—

Mr SLIPPER —you have to remember, my friend, it was Labor that opposed further tax cuts under the new tax system. It was Labor that deceived Australians about the l-a-w law tax cuts that were never received. The current Labor leadership are out of touch. They make vague promises about handing back $6 billion in tax but fail to say where they will get it from. That is on top of the false promises made by Labor when they say that more should be spent on this, that and the other—but, of course, there is no commitment and no plan for such spending. The members on this side know exactly where Labor would get the money for their additional programs: they would whack it on the national credit card; it is a Labor tradition. The last time they got their hands on the economy, they ran up government debt to a phenomenal $96 billion, and I suspect that there would be some on the other side who would like to see that particular action repeated.

The member for Kingston, in his speech in the second reading debate, referred to firefighters' expenses—and one thing I always try to do when I sum up bills on behalf of the government is to do members the courtesy of responding to individual points. Tax deductions are generally only allowed for expenses incurred in earning assessable income, and to allow a deduction for expenses incurred by volunteers would, in effect, be allowing a deduction for a private expense. Firefighting is a state and territory government responsibility, but the federal government does contribute. In particular, the government has made contributions to bushfire appeals, and donations to these appeals are also deductible for taxpayers. I note what the honourable member says, but I just wanted to outline to him what is actually the situation with respect to this particular matter.

My friend the member for Kingston also focused a substantial portion of his contribution on querying why the government does not index the medical expenses tax offset threshold rather than make ad hoc increases from time to time. The government does not support the proposal to index the medical expenses tax offset threshold and considers the proposed increase to be appropriate. The government believes that little purpose would be served by making small automatic increases to the threshold in line with the CPI. Indexing the threshold would add unnecessary administrative and compliance costs for both taxpayers and the Australian Taxation Office. Let us look at the background: the government announced on 14 May last year, as part of the 2002-03 budget, that the level above which the medical expenses offset applies would be increased from $1,250 to $1,500. As the member for Kingston is aware, indexation would actually represent an incremental and ongoing reduction in the offset to taxpayers, and therefore the government would not support indexation.

The member for Kingston also spoke about the exemption for the Commonwealth Games Federation. He suggested that that was unusual because the federation is not a resident. The exemption is not unusual. I suppose what is unusual is that we do not tend to have Commonwealth or Olympic Games very often in Australia—it would be great if we had more of them. But the federation was also provided with an exemption for staging the Commonwealth Games in Brisbane. The International Olympic Committee was also provided with an income tax exemption for the staging of the 2000 Sydney Olympic Games, so I suppose, in a sense, you could say we are being consistent. I know you are not too worked up about that particular point, but I just want to say that we have followed a precedent—and I acknowledge the honourable member's thanks.

The member for Kingston asked why expatriates are not being dealt with in the review of the international tax arrangements. The expatriates measure was a Ralph Review of Business Taxation recommendation. Ralph did not look at international tax issues in a comprehensive way; instead, Ralph identified the most pressing areas for reform. Expatriates were identified as being so important. It was seen to be a real barrier to the flow of skilled workers into Australia, and this impediment was recognised as affecting Australia's international competitiveness. So the expatriates measure is a stand-alone measure. There is nothing in the review that would change or affect the expatriates measure. On the contrary, the review is based on the enactment of the measure. The measure has already been subject to extensive consultation, both during and after Ralph, and there is considerable support from a wide range of groups.

The member for Mitchell spoke on this bill, as he does on many of the bills involving taxation, and made the point that this bill complements the government's earlier measure to allow temporary residents to access their superannuation upon permanently leaving Australia. I want to thank the member for Mitchell for his contribution and also for his assistance to the processes of the House, for which the member for Perth also gave him credit. The government is committed to sensible changes to ease the disincentives faced by those who contribute skills to the Australian labour market. The member for Mitchell also asked the question: would the provisions affect entertainers and will earnings be tax free? Entertainers would be subject to tax on Australian income; there is no exemption from tax on Australian income. The measures are directed at expatriates who would be taxed as a resident on their worldwide income—that is, overseas income.

In this bill the government continues to deliver on its promise of tax reform. I have noted that there is some concern with regard to the measures to give foreign income tax exemptions to temporary residents, but I am not at all convinced that it is justified. As has been done before, the opposition has attacked the measure as a special concession for rich foreign executives. This kind of criticism in the circumstances is unwarranted, particularly given my response to the point made by the member for Kingston just a moment ago. The measure will apply to people who would have been Australian residents for tax purposes but are only here on temporary entry visas.

Labour market intelligence undertaken by the Department of Employment and Workplace Relations in the latter half of 2001 identified that there was a national shortage of accountants, registered nurses, pharmacists, occupational therapists, radiation therapists and information and communication technology professionals. These workers are hardly rich foreign executives. People granted a temporary resident visa to come to Australia to alleviate the above skill shortages will benefit from the temporary resident tax exemption. In 2000-01, the top five occupations sponsored by employers under business long stay visas were computing professionals, applications and analyst programmers, general managers, registered nurses and accountants. These are the people who benefit most from this measure and not, as I repeat, the rich foreign executives that Labor talked about.

I think the next question is: why should an Australian accountant, for instance, be taxed differently from his or her colleague who does the same work but is here on a temporary visa? In effect, they will not be taxed so differently. Because both the Australian accountant and the temporary resident are taxed in Australia on their salary and wage income, they would pay the same tax on the same income. The difference is in relation to offshore assets. As an Australian resident, the Australian accountant pays tax to the Commonwealth on his worldwide income, including income generated by assets overseas. The temporary resident, however, will now have a period of four years during which he or she will be exempt from Australian income and capital gains tax in relation to foreign assets. Instead, subject to any treaty obligations, he or she will be likely to pay tax on income from that asset overseas. It is not as though the income escapes tax altogether.

In relation to the exemption from withholding tax liabilities for a period of four years, this will mean that temporary residents will not incur additional expenditure in borrowing money. An Australian resident does not have to pay interest withholding tax on his or her mortgage payments. Now a temporary resident can also pay a mortgage without any withholding tax issues. The exemption from the foreign investment fund lasts for as long as the temporary resident holds a temporary visa. These rules are largely intended to address anomalies which arise because otherwise the temporary resident is taxed in Australia every year on the increase in value of a non-employer sponsored superannuation fund. This can be particularly unfair if a credit is not given in the home jurisdiction because the fund is not taxed until realisation.

Convincing representations were made to the Ralph review and the government about the impact of tax considerations on the willingness of firms to bring temporary employees to Australia from overseas. Costs relating to temporary resident employees are an important consideration in the establishment of regional offices and headquarters, and in making Australia a financial centre. Other countries in the region that compete for this kind of investment also have special arrangements for temporary employees. The New Zealand government has indicated that it will be considering a similar measure. Singapore is extending its already concessional tax treatment and China is emerging as a further competitor in the international skilled labour market. Under the proposal of the government, Australia will benefit from the dynamic effects of having more and better businesses located here as well as from the expenditure and local employment that they will generate. Australia also benefits through the transfer of new management and other skills that key personnel can bring to Australian business.

The bill contains a number of other important changes to the tax law. The bill exempts from income tax compensation payments for the loss of defence remuneration where the remuneration itself would have been exempt from income tax. This ensures that where the ADF member returns to Australia because of an injury sustained in service, the lump sum compensation payment received for the loss of the deployment allowance is exempt from tax. The government has undertaken this measure as part of its commitment to the military effort and in support of the ADF personnel engaged in the Iraq campaign and their families. The personnel serving their nation in the Middle East can be assured of the full support of the government for them and for their loved ones.

The bill also amends the Income Tax Assessment Act 1997 to treat previously assessable income as not assessable where it must be repaid and that repayment occurs in a later year of income. It also amends the Income Tax Assessment Act 1936 to permit amendments of income tax assessments for the year in which the amount was originally treated as assessable income, despite the time limit for amendments to assessments being exceeded. The bill will also increase the level of expenses above which the medical expenses tax offset applies from $1,250 to $1,500 per annum. For the 2002-03 and later income years, the medical expenses tax offset will be available at a rate of 20 per cent of any net medical expenses above $1,500 in an income year. This measure was announced in the 2002-03 budget.

Finally, an income tax exemption is, as I have mentioned before, granted to the Commonwealth Games Federation. The exemption will apply to income received by the federation in the course of staging the Melbourne Commonwealth Games in 2006 and applies to income derived by the federation on or after 1 January 2000 and before 1 July 2007. The Taxation Laws Amendment Bill (No. 7) 2002 is a very important initiative of the government. I commend the bill to the chamber and I urge the chamber to reject the second reading amendment moved by the honourable member for Kingston.

The DEPUTY SPEAKER (Hon. B.C. Scott)—The original question was that this bill be now read a second time. To this the honourable member for Kingston has moved as an amendment that all words after `That' be omitted with a view to substituting other words. The question now is that the words proposed to be omitted stand part of the question.

Question agreed to.

Original question agreed to.

Bill read a second time.