Senator MURRAY (2:25 PM) —My question is to the Minister for Finance and Administration, representing the Treasurer. Has the government noted that chapters 1 and 6 of the recently released OECD Economic Survey of Australia 2006 still recommend tax reform for Australia? In particular, did the minister note that the OECD survey said that labour force participation, particularly for women, would be lifted by reducing low-wage traps, which are high in international comparison, by reducing the lowest income tax rate or raising the threshold at which income tax is first paid? Did the minister note that the report said that the focus of any future tax cuts should switch to reducing high effective marginal tax rates faced by many households in the lower income deciles? Does the government accept these OECD recommendations are worth considering for next year’s budget? Or is the government ruling out now any further help for Australia’s low-income earners?

Senator MINCHIN (Minister for Finance and Administration) —I thank Senator Murray for that question and for his reference to the OECD report, to which I think I referred last week. That report was a glowing report on the Australian economy, making the very important point that living standards in this country are now second only to the United States when compared to the major industrial countries of this planet. It made the point that the reform program that was, to their credit, begun by the Hawke and Keating governments and continued with great vigour by our government—particularly in the area of industrial relations—has produced one of the most robust economies in the world.

The report referred to the issue of tax reform. As Senator Murray knows, we have done an enormous amount in the area of tax reform, most particularly in the last budget. I think, from recollection, the Treasurer, in his response to the OECD report, did note that the OECD reminds us that reform is an ongoing process; that, in relation to any economy of the standard of Australia’s, reform has to be a continuous process. I think the Treasurer particularly noted the fact that the OECD regards our industrial relations changes as important but only part of the process of reform and that the OECD had referred, helpfully, to areas in which further tax reform could be conducted.

It is not for me to indicate one way or the other what might be in next year’s budget, but I do indicate that we do keep very much under observation suggestions as to how the Australian tax system could be improved. I acknowledge Senator Murray’s interest in the area of the effective rate of tax on the lower paid members of our community. He shares with us an enthusiasm for ensuring we constantly seek to increase the participation rate in the Australian workforce. That is going to be critical to our capacity to deal with the major challenge we face of an ageing population. It is very important that the government keeps under review constantly the impact of both its tax and welfare policies on the incentives to participate in the workforce. So, without saying what might or might not be in next year’s budget—because we are nowhere near considering that—I would say that this is an area that is kept constantly under review, and we will have in mind, as we approach next year’s budget, the full range of suggestions that come from the OECD and others.

Senator MURRAY —Mr President, I ask a supplementary question. I thank the minister for his answer. Minister, as Canada, the Netherlands, the United Kingdom and the United States all automatically index their tax thresholds, why does the government continue to deny this form of tax equity by not at least considering indexing the lowest tax-free threshold? Does the government concede that its tax cuts for higher income earners over the last two budgets were instead of real tax reform badly needed for low- and middle-income earners, a policy priority again stressed by the OECD in its latest survey?

Senator MINCHIN (Minister for Finance and Administration) —I make the point that the OECD and others have indicated how out of step with the major economies have been our higher rates of taxation—the top of the tax rates—and the very low thresholds at which they cut in. That was one of the reforms we made last year to bring ourselves more into line with the Western world. Senator Murray has asked before about the issue of automatic indexation of thresholds. We have said repeatedly that it is not government policy to index the thresholds. If you examine the facts, they show that we have returned to taxpayers more than would have been returned in our 10 years in office if we had simply indexed the thresholds we inherited from the Labor government. The problem, I believe, with indexation is that in a sense you freeze the tax system, the tax thresholds and the tax rates that are indexed. I think it much better that the government takes an active part in reviewing the thresholds on a constant basis. (Time expired)