Senator ALLISON (Leader of the Australian Democrats) (2:22 PM) —My question is to Senator Minchin, the Minister representing the Treasurer. In the last two budgets your government has increased the take-home pay of someone earning $100,000 by at least $7,000, but for someone earning $30,000 that increase has been a mere $300. How can you possibly justify such an unfair and elitist policy? Why is it that the tax-free threshold, the level at which people pay tax, is only $6,000 when the Henderson poverty line is around $12,500? Why does the minister think that it is reasonable for people living in poverty to be paying income tax?

Senator MINCHIN (Minister for Finance and Administration) —There are several questions there. I think what the question in relation to the tax changes ignores is the very substantial tax that will continue to be paid by higher income earners. As I have said in this chamber repeatedly—

Opposition senators interjecting—

Senator MINCHIN —They find it funny. As I have said repeatedly, the top 25 per cent of income earners in this country carry the burden of some 65 per cent of the income tax revenue of this government. As NATSEM recently showed, through Ann Harding’s research, the first 60 per cent of Australian taxpayers are net beneficiaries of the tax and welfare system—in other words, they are net recipients of largesse from the government. Forty per cent carry the whole burden for the 100 per cent.

I think the Senate has cited the example of a taxpayer on $100,000. That taxpayer, after the tax cuts come into effect on 1 July 2006, will still pay nearly $30,000 per annum in tax—they will be paying nearly 30 per cent of their income in tax. But a taxpayer on $50,000 will only pay just over $10,000 in tax, or one-fifth of their income, and a taxpayer on $30,000, after 1 July 2006, will only pay under $5,000 tax, or one-sixth of their income. So the progressive tax system is still in operation. It still works; it still means that people on higher incomes pay a higher proportion of their incomes in tax than people on low incomes. All we are doing is reducing the extent to which the progressive system penalises those who are on higher incomes.

I think the Democrats continue to ignore the necessity to have a tax system which recognises the global nature of our world economy. The fact is we are in a competitive situation with our tax system. Young Australians are free to go and work wherever they like in the world. We want to try and retain young Australians in Australia. We want to try and attract the best and brightest from around the world to come and work in Australia. We have to have a competitive tax system. The fact that our highest tax rate has been cutting in at such relatively low incomes—a factor cited by the Labor Party in the past—has been a substantial disincentive to many Australians to even stay in the country, let alone to work hard, aspire to earn more and take on greater responsibilities in their working lives.

The Australian tax system is still substantially biased towards those on lower incomes. Indeed, if you refer to the figures in the budget overview, which sets out cameos of family situations, it shows that families with two children receive more in benefits than they pay in tax, up to an income of around $45,000—in other words, they are net beneficiaries. The Democrats are ignoring the impact of our very generous and substantial changes to the tax benefit system and they forget that the real wage increases experienced by families under our government have meant that Australian living standards have never been so high.

Senator ALLISON —Mr President, I ask a supplementary question. Isn’t it dollars in the pocket that make a difference to people on low incomes? Do you agree that, if the 2001 tax-free threshold of $6,000 had been indexed in each year by the CPI, the 2005-06 threshold would now be $7,064? Why does the Treasurer not understand that indexing tax scales, particularly the tax-free threshold, is the most basic fairness measure of all?

Senator MINCHIN (Minister for Finance and Administration) —As the Treasurer has explained, the tax cuts we have introduced, particularly over the last three budgets, deliver much more in tax cuts than if we had simply indexed the thresholds. Yes, dollars in the pocket do matter. That is why, through the combination of the tax system and the tax benefit system, Australian families are much better off—and, as I just said, a family with two children receives more in benefits than they pay in tax, up to an income of around $45,000. The Democrats should take a look at how the tax benefit system works to the tremendous advantage of Australian families.