Senator CONROY (2:00 PM) —My question is to Senator Coonan, the Assistant Treasurer and Minister for Revenue. Is the minister aware that the Howard-Costello government continues to extract more in bracket creep than it returns in tax cuts? Can the Minister for Revenue explain to the Senate why the tax cuts offered by the Howard government will return $1.9 billion in 2004-05 to taxpayers, but around $2.5 billion will be clawed back in bracket creep this year?

Senator COONAN (Minister for Revenue and Assistant Treasurer) —I thank Senator Conroy for giving me the opportunity to explain some of the budget measures that deal with the issue of bracket creep. The government's 2004 budget tax cuts come on top of those already delivered through the new tax system in 2000, which were $11 billion per year, and a further $2.4 billion in tax cuts in 2003. When taken together, these three tax cuts will have more than returned bracket creep since 1996. In 2004-05, someone on average weekly earnings—around $40,000 under the new tax scales announced in the 2004 budget—will be about $550 better off than if the tax scales had been indexed to the CPI. The finding that taxpayers are better off is true for those earning half average weekly earnings or twice average weekly earnings. As a result of the government's tax cuts, over 80 per cent of taxpayers will face a top marginal tax rate of 30 per cent or less. Reductions in tax rates combined with real growth in wages over the past nine years will have increased the real disposable income of the average individual earner in 2004-05 by 13 per cent.

The notion that bracket creep is not returned is completely unsustainable. This government is continuing to deliver ongoing tax reform and structural tax reform. As a matter of fact, the combined effect of three stages of tax reform has delivered significant tax cuts for all Australians. There has been some suggestion that this is only for the rich. That is also nonsense. Taxpayers earning $20,000 paid $2,770 in tax prior to the new tax system. They now have a reduction of around 23 per cent in tax. For those on $50,000 the reduction is around 21 per cent. By July 2005, if the Labor Party do not muck around and they pass this tax package, those on $90,000 will get a reduction of around 18 per cent. These are ongoing structural tax reforms that benefit all Australians and the economy.

Senator CONROY —Mr President, I ask a supplementary question. Can the Minister for Revenue confirm that, whilst the government will return almost $5 billion in tax cuts in 2007-08, almost $7 billion will be clawed back into Commonwealth revenue through bracket creep in the same year? Given that the government is only returning to taxpayers part of the proceeds to Commonwealth revenue through bracket creep, isn't Prime Minister Howard just giving with one hand but taking even more back with the other?

Senator COONAN (Minister for Revenue and Assistant Treasurer) —I thank Senator Conroy for the supplementary question. Senator Conroy appears not to understand that bracket creep occurs when inflation pushes taxable income into a higher tax bracket, and of course this government has a very good record on inflation. The government has a record of low inflation, averaging 2.4 per cent since March 1996. Interestingly, by contrast, under the previous Labor government inflation rose to 11 per cent, an average of 5.4 per cent over 13 years. If anyone listening to this broadcast is worried about bracket creep, they had better be very afraid of any return to a Labor government.