Senator SHERRY (12:39 PM) —The Senate is now debating the Tax Laws Amendment (Personal Income Tax Reduction) Bill 2007 and the Tax Laws Amendment (2007 Budget Measures) Bill 2007 in cognate. On behalf of the Labor Party I rise to support these bills, which provide tax cuts to Australian taxpayers. I firstly want to deal with the personal income tax reduction bill. The bill amends the Income Tax Rates Act to increase the threshold at which the 30 per cent marginal tax rate begins to apply and increases the threshold for the top two marginal tax rates. For lower income earners, the bill provides that the 30 per cent threshold will be increased from $25,000 to $30,000, and that applies from the 2007-08 income year. The bill also amends the Income Tax Assessment Act 1936 to increase the maximum amount of low-income tax offset from $600 to $750 per annum and to raise the threshold at which the offset begins to phase out, from $25,000 to $30,000. The level of income at which the offset will begin to phase out is increased from $40,000 to $48,750.

Further, the bill also amends the Medicare Levy Act 1986 to increase the income threshold for taxpayers eligible for the senior Australians tax offset. The 40 per cent threshold will increase from $75,000 to $80,000 and is designed to reduce bracket creep for middle-income earners. The 45 per cent threshold will increase from $150,000 to $180,000 and is designed to better align our top personal tax rate threshold with international standards. The changes to the 40 per cent and the 45 per cent marginal tax rate thresholds will apply from the 2008-09 income year. The Labor Party supports these tax cuts because they reflect our calls for changes to the personal income tax system to deliver greater relief and incentive to middle- and lower income earners. However, it appears it takes an election year for lower income earners to get a tax cut under this government. We all know that Prime Minister Howard is a tricky politician; he is clever. There is an election coming up only a few months away—

Senator Abetz —We can give you a few ticks for mentioning those buzz words.

Senator SHERRY —As I say, Senator Abetz, there is an election coming up. We all know the Prime Minister and we know his track record. He is a clever and tricky politician and obviously, with that election coming up, sorely needed tax cuts for low- and middle-income earners are on the agenda. For many years now, Labor has been calling for greater attention to low- and middle-income earners. Labor has consistently called on the government to tackle disincentives for workforce participation. These changes heed Labor’s call to help boost workforce participation, and staging the tax cuts in two tranches will help alleviate inflationary pressures. Shifting the income threshold at which the 30 per cent rate cuts in, from $25,000 to $30,000, improves work incentives over a crucial income range so that the 15 per cent marginal rate will apply up to $30,000 of income. Lifting the low-income tax offset from $600 to $750 effectively raises the tax-free threshold for low-income earners from $10,000 to $11,000. This reduces the effective marginal tax rate over a small additional income range, which should encourage people to move from welfare to work. Again, Labor believes these changes are worthy and we support them.

The bill will provide a tax cut of $21.15 per week for people earning between $30,000 and $40,000. It will mean a cut of $14.42 per week for most middle-income earners. High-income earners will be receiving a tax cut of over $24.04 from the following year. These are modest weekly gains that will help take the pressure off families, who have had to endure four interest rate rises under this government. Remember the government promise at the last election: keeping interest rates low. This was a promise from the Prime Minister,

We hear a lot of history. I can recall the history of 1983 and the period up until then, when the current Prime Minister was Treasurer. Interest rates hit almost 22 per cent under the current Prime Minister, when he was Treasurer. So I hope the Australian people are a little more sceptical of the promises made by this very clever and tricky Prime Minister, Mr Howard, when it comes to interest rates and other matters.

Labor believes the tax cuts improve incentives for those earning the minimum wage, particularly the significant disincentives arising from the interaction between tax, social security and family benefits. Labor will commit to reducing the effective marginal tax rates to encourage greater participation in the workforce through its support of this legislation. The tax cut will present modest gains for low- and middle-income earners and their families, who have endured four interest rate rises under this government since the last election. We all know about higher petrol prices, which are nudging $1.50 per litre in many areas, and the various other pressures being faced by families—for example, on the weekly visit to the supermarket to buy food. Low- and middle-income families are under significant pressure, and these tax cuts are welcome.

Over the last few weeks, since the presentation that the Treasurer, Mr Costello, gave to the Press Club in the week after the budget, we have heard a great deal from the Treasurer, waffling on about how he thinks the Liberal Party is the party of tax reform. In that presentation at the Press Club, the Treasurer used comparative charts to compare the income tax that is payable now—after these changes pass the parliament—and the income tax that was payable 15 years ago. He made a great point of drawing attention to the allegedly reduced income tax burden. What I did note was that he forgot to mention the GST in that tax comparison. If you are going to make a valid comparison about the level of tax being paid by Australian families, you should not just be drawing attention to income tax rates as they are as a consequence of the passage of this legislation. Historically, you should at least draw attention to the fact that Australians are now paying a 10 per cent GST. But that was conveniently omitted from the tax comparison that the Treasurer presented on that occasion.

If we look at the major changes that Labor undertook when in government, we see that the tax policies were directed at making sure all Australians shared in the national economic growth. I want to talk a little bit about the history of that period. Labor delivered a fairer tax system—without a GST, I might say. The Labor reforms of the 1980s and 1990s mean that the tax burden now no longer falls unfairly on low- and middle-income earners. Labor broadened the base with the introduction of fringe benefits tax and capital gains tax. These were fairness measures which allowed consequential cuts to income tax rates.

Senator Abetz —Stalin would be embarrassed at this rewriting of history!

Senator SHERRY —Comparisons with Stalin! I was just about to get onto John Howard, the Prime Minister. I think it is a bit unfair of you to allege comparisons with Stalin, Senator Abetz. There is something Stalinist about the advertising campaigns we are seeing; they would put Joseph Stalin to shame. Hundreds of millions of taxpayers’ dollars are being spent on advertising propaganda campaigns that would put Joseph Stalin to shame.

Labor is the party that introduced the most profound tax reforms, when it was in government, and delivered the foundations of the modern tax system for which the current Treasurer, Mr Costello, takes credit. I have already referred to Mr Howard’s record on interest rates when he was Treasurer; they touched 22 per cent. But the marginal tax rate of 60 per cent which he presided over when he was Treasurer was reduced to 49 per cent by the Australian Labor Party.

This bill implements two measures announced in the 2007-08 budget, both of which have Labor’s support. Part 1 of schedule 1 to this bill amends the Income Tax Assessment Act 1936 to increase the dependent spouse tax offset from $1,655 to $2,100 from 1 July 2007. The separate net income at which the rebate is completely phased out will be increased from $6,901 to $8,681. The full dependent spouse tax offset is available to a resident taxpayer who contributes to the maintenance of a low-income spouse. Taxpayers are eligible to claim a dependent spouse tax offset if they maintain a spouse—married or de facto—and the taxpayer claiming the offset, or the spouse, is not entitled to family tax benefit part B. The full offset is only available where the taxpayer has a spouse who earns very little income or no income, as the tax offset is reduced by $1 for every $4 by which the dependent spouse’s separate net income exceeds $282. The income of the higher earner of income is not taken into account. The dependent spouse tax offset is currently indexed each year by reference to the consumer price index. Labor supports this proposal to provide a more significant tax offset to taxpayers supporting a low-income spouse. The dependent spouse rebate is one of a number of rebates provided to taxpayers who support a dependant. Others include the invalid relative rebate and a rebate for taxpayers who support a parent or parent-in-law. These and other offsets are increased by this bill in line with CPI increases and they are indexed each year.

Part 2 of schedule 1 to this bill amends the Medicare Levy Act to increase the Medicare low-income threshold for individuals and families. The dependent child student component of the family threshold will also be increased. The increases are in line with the consumer price index. They increase the Medicare levy low-income threshold for pensioners below age pension age so that they do not have a Medicare levy liability where they do not have an income tax liability, and they increase the Medicare levy surcharge low-income threshold in line with movements in the CPI.

These increases occur every year and they were announced in the budget. The Medicare Levy Act provides that no Medicare levy is payable by low-income individuals and families where taxable income or combined family taxable income does not exceed stated threshold amounts. The family income threshold increases by a set amount per child. The Medicare levy shades in at a rate of 10c in the dollar where the taxable income or combined family taxable income exceed the threshold amounts. This bill increases the low-income thresholds for individuals and families for the 2006-07 income year in line with movements in the consumer price index. The individual threshold is to be increased from $16,284 to $16,740. The level of the family income threshold is to be increased from $27,478 to $28,247. The family income threshold is to be increased by a further $2,594, instead of the previous figure of $2,523, for each dependent child or student.

The schedule also increases the threshold amount for pensioners below age pension age for the 2006-07 income year and subsequent income years. The increase ensures that such pensioners do not have a Medicare levy liability where they face no income tax liability. The threshold amount for pensioners who are the age pension age is to be increased from $19,583 to $21,637. The phase-in limits are also increased. The phase-in limit for individuals is increased from $17,604 to $19,694. The phase-in limit for pensioners who are below age pension age is increased from $21,170 to $25,455. References to the individual low-income threshold amount of $16,284 in the Medicare levy surcharge provisions, in respect of the surcharge payable on taxable income, are also being increased to $16,740. Labor supports this proposal to provide assistance to low-income earners by exempting them from paying the Medicare levy.

As a general comment, I reiterate that the Labor Party will be supporting the bills before the Senate. The tax changes before us, particularly those for low- to low-to-middle-income earners are particularly welcome. It is a real struggle for many low- to low-to-middle-income families, given higher petrol and food prices, and interest rate increases since the last election—some four interest rate increases. It is fit and proper and appropriate that their circumstances should be recognised through a reduction in income tax. Labor welcomes the somewhat belated recognition by the government, in the run-up to the election, of the need to ensure a reasonable level of tax cuts for low- to low-to-middle-income earners. Labor supports the legislation before the Senate.