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Tuesday, 20 April 1999
Page: 3907

Senator MARK BISHOP (7:44 PM) —Madam Acting Deputy President, thank you for the opportunity to make a contribution to this debate concerning the government's proposed new tax system. As we all know, the new tax system has been discussed extensively around Australia since last July. We have had almost 12 months of discussion around the tax system, and many possible alternative variants have been floated.

Many individuals in our nation have firm views on a whole range of relevant issues: the wholesale sales tax system as it exists at present; the proposed goods and services tax; the elimination or replacement of incidental or transaction taxes; the reduction in corporate taxation rates and to what level, if any; the alteration of PAYE tax scales; the quantum of compensation; the form of compensation; which sector of the community should receive compensation; the utility or otherwise of the range of minimisation measures proposed by the government; and a lot of discussion, almost an excess of discussion, about models and modelling and their effects.

I must say at the outset that I am sure there is a lot of value in this discussion about modelling, but it seems to be somewhat archaean and to centre around the interests of aficionados in this debate. All of those issues have been fully fleshed out by both the government and the opposition, and there is plenty of argument which addresses those issues in the relevant, recently tabled Senate reports. I am sure a lot of my colleagues are more capable than I am of addressing the nuts and bolts of those issues.

This leads me to put on the public record what I regard as the important priority in this ongoing debate. As one of the submissions to the public inquiry said, it is useful in developing a framework of analysis to have a number of core principles which should guide deliberations in this important matter. It seems to me that there are three core principles which policy makers would be wise to have regard for in this debate concerning a new tax system for Australia: firstly, a recognition that the family is a fundamental group in our society; secondly, that a standard of living consistent with human dignity is or should be the fundamental right of all Australians; and, thirdly, that it is appropriate for government to support families and that such support should be consistent with an absolute priority to be given to low income families.

Low income families tend to be those dependent solely on award based income or income marginally higher than that offered by the relevant award or enterprise agreement. For a single income family it is in the order of $18,000 to $24,000 per year; for a dual income family it is in the order of $28,000 to $34,000 per year. The work of those low income earners is unskilled or semi-skilled. They are often dependent on the vagaries of the economy and may be commonly found in the working section of our population, in manual occupations or emergent service industry occupations—occupations like labourer, trades assistant, driver, storeman, cleaner, shop assistant and barman come readily to mind in those classifications.

A feature of all these industries and the major occupations found within major industries is an increasing proportion of casual and part-time work—non-full-time work—which leads to less than adequate incomes to enable people to marry, raise a family and build the life that all Australians regard as their birthright. Low income families effectively spend all of their income in order to meet their needs to sustain themselves at adequate levels. They have little, if any, discretionary income. Indeed, recent debt and credit statistics show that an increasing and alarming number of Australian families are now dependent on debt to survive, and debt servicing is becoming an increasing proportion of net income.

It is clear that middle and high income earners—those who have income streams unrelated to work, those who have the ability to plan and arrange their incomes and finances to minimise tax obligations—will benefit from the government's package. They will benefit because they have the benefit of receiving income which allows them choice as to how they spend or dispose of that income. In an ideal world, we would all like that choice. Low income families do not have that choice. If there is an increase in the cost of living, accepting that low income families are already spending all or nearly all of their income to meet those needs, it follows that any increase that is not compensated must have an impact on the standard of living of those low income families.

In this context, it is trite to say that taxation is a major drain on the income of low income families. NATSEM research shows that federal, state and local government taxes on average are 48 per cent of family income. About one-fifth of weekly income goes in weekly income tax. Indirect taxes levied by the Commonwealth, including wholesale sales tax, excise duty and customs duty, take up to 22 per cent. State and local government taxes—notably land tax, stamp duty, payroll tax and, increasingly, gambling taxes—absorb about 20 per cent of the tax take. Local council rates account for another 4 per cent of taxes.

Overall, the least wealthy one-fifth of households pay 36 per cent of their total income in tax. Importantly, families with children are the hardest hit by indirect taxation. They pay, on average, 48 per cent of their income on tax. That outlay grows as children grow and consume more in their formative years. All tax systems can be improved. There is no perfect tax system, and the current Australian tax system is not perfect. However, some imperfections have been exaggerated by the current government, and some have been ignored altogether. Some problems that currently exist and cause harm to ordinary Australian wage and salary earners include the following four points. Firstly, the taxation system is not simple and is not easily understood. There are various complications with respect to deductions that can be made. This is often unfair as it treats similar taxpayers and taxpayer entities differently.

Secondly, the taxation system is unfair as it treats PAYE and non-PAYE taxpayers differently and has directly led to the large increase in self-employed workers under the guise of independent contractors. The continuing failure of government to adjust or index tax rates to take account of wage movements leads to many low and middle income families being forced into higher tax brackets, although the actual value of their wage has not significantly changed. The tax system is unfair as it allows certain individuals to set up family trusts, shelf companies and other avoidance mechanisms to avoid or minimise taxation obligations.

Thirdly, the taxation system creates poverty traps. This issue has become rather topical of late, and part of the government's new taxation system attempts in a minor way to come to grips with this problem. NATSEM, in recent research of working families and their associated income tests, looked at a low income family with three children. They found the family is financially worse off if the mother works between 10 and 24 hours a week rather than just nine hours. By increasing her hours of work from five to 35 hours per week, the family benefited by only a miserable $12 per week. That particular study concluded that for many families the joint impacts of tax and overlapping means tests for government programs meant there was little benefit for some types of paid work.

Indeed, NATSEM research conclusively demonstrated that high effective marginal tax rates often render participation of both spouses rather than one in the paid work force as having only a marginal benefit. That research by NATSEM found that some families actually keep less than 20 cents from the extra dollar of earned private income due to the combined impacts of income taxes and the withdrawal of means tested government assistance. To make matters worse, many low income families are denied access to family payments. Initially, these payments were available on a fairly reasonable basis. There was widespread access to them. But now many low income families no longer receive the non-HCCA component of the parenting allowance. This is because of the very stringent income test provisions applying to this payment, which mean that only those on exceptionally low incomes receive it.

The fourth point is in respect of payments by government to families. It should be noted that the real value of family payments has declined over time and fewer families receive the full current value of these payments. There are significant problems in the current tax system which particularly and inequitably impact on low income families. These problems, as I identified, include: the lack of simplicity in the system; the unfairness in the system between PAYE and non-PAYE taxpayers; the real problem of the taxation system creating poverty traps for working families and perversely acting as a serious disincentive to work; and, finally, the stringent means testing of many government payments, particularly family and parenting allowances, resulting in fewer and fewer families benefiting from government redistribution and assistance policies. The situation will soon become so bad that assistance programs for low income families will only go to welfare dependent families. Families with one or two incomes will receive little benefit. In time they will legitimately question the whole basis of the welfare system and ask why there is little, if any, benefit for them.

Let us now turn to the proposed taxation reform package. The coalition promise improvements in three areas. Firstly, they argue that the reduction of effective marginal tax rates will lessen the impact of poverty traps. They argue that this is a major reason for supporting the entire package. As I have just argued in this area, their reforms are minor and at best on the margins. They do not eliminate poverty traps and they do not go a significant way to doing this. At best, it is mere dressing.

Secondly, the coalition argue their proposals to reform fringe benefits tax and family trust provisions result in more equity in the taxation system. Again, this is true on the margins, but nowhere near enough is done to get rid of tax avoidance. Thirdly, the government argue that government payments over time will lead to a less confusing taxation and social security system. This may be true, but the real problem over time is the increasing number of low income families who are being denied access to traditional government assistance. The inadequacy of family support payments needs to be addressed in the new taxation system.

However, the key feature, as we all know, of the coalition tax reform package is the proposed GST and the proposed tax cuts. Both are essentially regressive as they benefit high income earners at the expense of low income earners. Consumers will pay this tax for all goods and services on which they spend their money each week: all food at the supermarket checkout; all shoes, clothing and other necessities; all home services such as gas, electricity, water, telephone and rates; all doctors' bills, prescriptions, medicine and other health expenses; rent and mortgage payments; all insurance premiums; and all sporting, leisure, recreational and gambling activities—in other words, virtually everything an ordinary family spends their income on would be subject to a GST.

Low income families already spend most, if not all, of their weekly income. High income earners often save, or at least have the capacity to save, a substantial proportion of their income. Such savings are not taxed by a GST. Hence those in a position to save also benefit from a GST. Consequently, it is not surprising—although it is certainly a matter for concern—that the ACOSS research has shown:

. . . households would be on average $7.69 out of pocket but Australia's high income earners—with weekly incomes averaging $855—would benefit by $9.41 a week.

Thus it is clear that under the proposed tax package high income households will gain substantially whilst low income households, including pensioners, unemployed people and sole parent families, will lose. ACOSS commissioned Neil Warren of the Australian Taxation Studies Program to identify the impact of higher consumption taxes on households. That research has shown:

. . . at the bottom end of the income scale—the lowest 20%—married pensioners would lose $15.36 from average disposable income of $383 a week and single pensioners averaging $232 a week would be $8.92 worse off.

ACOSS goes on to state:

Unemployed households and sole parents in the bottom 20% would be $13.14 per week and $13.80 out of pocket.

Families with one parent working would see average weekly disposable income fall by $7.31 a week from $590. Couples without children—averaging $457 a week—would see income fall by $7.45 per week.

The bottom 20% of households working part-time, self-employed or relying on superannuation and investments—averaging around $300 a week—would lose more than 3% of disposable income, $10 a week.

At the high end of the income scale, the top 20%, working couples with children would increase their weekly disposable income of $2,326 by $24.88 a week and couples without children would see $19.81 a week on top of their existing $2,455 a week.

They go on to say:

Households with one parent remaining at home averaging weekly disposable income of $1,731 would gain $13.15.

. . . . . . . . .

Self funded retirees, with weekly disposable income of $1,127 from superannuation and investments gain $30.17 a week.

Having demonstrated that the new reform package of the coalition is at its heart regressive and unfairly penalises low income families and low income earners, let me suggest a number of measures that could be categorised as desirable reforms in this area. As the coalition parties aim to benefit high income earners, I believe that the reform package should be targeted at the lower end of the scale and accordingly I support significant tax relief for low and middle income families, with the greatest relief to those families at the bottom end of the income scale.

As wages are adjusted, so too should be the tax scales so that low and middle income earners are not pushed into higher tax brackets. There needs to be serious attention paid to the elimination of tax avoidance schemes, and targeting of family trusts would be a worthwhile initiative in this area. Similarly, poverty traps need to be eliminated so that families seeking to earn sufficient income are not penalised financially because one or both of the partners gains extra work. Finally, family payments need to be increased to realistic levels.

Any worthwhile taxation system would incorporate these features. The key features of the coalition's package do not seriously address these issues as they affect low income families. Accordingly, this package of bills should be rejected.