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Tuesday, 8 December 1998
Page: 1612


Mr NUGENT (7:31 PM) —I rise to participate in this debate, having heard a lot of speakers before me canvass much of the ground. I want to phrase my comments in the context of how I think people in my electorate—which is an outer suburban seat in Melbourne—by and large tend to view things. I think one of the lessons that the opposition have not yet absorbed—it is one of the reasons that they lost the last election—is that, first of all, people understand that the tax system does need some changes. Secondly, we laid out a very clear program in that respect, and people have accepted that. Thirdly, I think they believe that the members who sit opposite have very little credibility when it comes to economic management generally and tax reform in particular.

The reason that there is very little credibility is that there is a history of chopping and changing over the years. We fought the 1993 election with the Fightback package, which included a goods and services tax. We did the same thing this time. In the early 1980s, the opposition—the then government—was very much going down the same track. At that time, Paul Keating was very keen that the Labor government should introduce such a tax. Subsequently—quite clearly for political motives—he changed his position. I was a member of the Liberal opposition prior to and after the 1993 election. The Keating government went into that election saying, `You don't need a GST. You don't need a consumption tax. You don't need major restructuring of the taxation system in this country. You can achieve all of those things. We can give you personal tax cuts.' We all remember the l-a-w tax cuts. Mr Keating stood up in this place and boasted loud and long that it was all in law, that it was legislated and that it was going to be there. But, after he had won the election and we came back to this place, the tax cuts were not implemented—people were cheated because, clearly, it was a false promise.

What people did not realise then—but they understand now—was that at that time the Keating government raised all the wholesale sales taxes and also introduced wholesale sales taxes on a range of other items. Because it was a hidden tax—and remains largely a hidden tax to the public in terms of its detail—people did not realise what was happening. But I think the electorate have cottoned on now—I think in 1993 they did not understand it—and they now understand that that is the case. That is one of the reasons why we were able to win this election—we put what we are all about honestly on the table and they understood what we were fundamentally talking about.

The other aspect of that was that we have credibility not only because we have turned the economy around—and the economy is stronger now than it has been for many, many years in all sorts of respects—but because, when we were elected in 1996, the family tax package we had promised before the election was delivered on time and in full. This side of the House has a record of delivery and of doing what it says it will do. The other side, frankly, does not.

It is important that we understand the principles of what we are talking about in this debate. We are not talking about adding 10 per cent on top of everything that exists at the moment. The reality is that there will be a goods and services tax that will apply to most things at the rate of 10 per cent. There are some notable exemptions but, by and large, it will apply to most things. But, before the GST is applied, there are a whole raft of existing taxes—the worst of which is the wholesale sales tax—which are going to be sucked out of the system. At the moment, in most areas—even where the wholesale sales tax does not apply directly—they are there as an embedded cost further back in the production and distribution chain.

What we are about is restructuring the tax system to make it more equitable, to try to make sure that people have a better deal with income tax and to try to assist our overseas exporters. One of the reasons we can say with great confidence that we are not adding an extra impost on the Australian people is that we will be collecting less tax overall under the new system than we do under the existing system because we have a surplus on the budget. We are handing back to the Australian people—the shareholders in Australia—a part of that surplus, effectively as a dividend.

In restructuring the system, yes we are going to have the GST but we are going to make sure that, where people are going to be adversely affected purely in terms of the GST, they get compensation in one form or another, depending on their circumstances. So if you are a pensioner, you get a pension increase. If you are a self-funded retiree with some money in the bank, because the cost of living will go up by 1.9 per cent or thereabouts and therefore your nest egg is slightly devalued, you will get a lump sum to compensate so that your nest egg is not devalued. If you are paying income tax, you are a salary earner or a self-funded retiree with dividend stream and so on, then of course you get the benefits of the income tax cuts. So everybody gets compensated to some extent. It seems to me that that is a very good way to approach things.

The reason we need to do some of these things is that the present system is frankly very broke indeed. My electorate in fact has a very high proportion of young families, and those young families are doing it quite hard in the area of taxation, and have been doing so for quite a long time. I quote from the Kevin Andrews book Changing Australia. This is a very good basic reference book; it is not a book of opinion. It actually quotes good sources—the ABS and others—on factual information. I read to the House a short extract from that book on the subject of families and taxation which will give the House, I hope, an idea of why we need to change the tax system:

It has been estimated that by the early 1990s, a family paid two and three-quarters times the tax paid in 1996-97, while the single person paid one and two-thirds times as much. Much of the increase in tax paid has been the result of bracket creep, the process by which taxpayers move into a higher income tax bracket, or more of their income falls in a higher income bracket. A reduction in the number of tax brackets from 29 in 1973-74 to 4 in 1978 contributed to this increase in taxation.

According to Dr Alan Tapper, (author of The Family in the Welfare State ) between 1960 and 1990, the effective tax rate on individuals rose by 83 per cent, and the effective tax rates on the family rose by 360 per cent. The "effective tax" rate takes into account both taxation and benefits. Dr Tapper claims that in the Australian welfare state today, there is a large transfer from young households to old (over 55) households, sole-parent families are substantial beneficiaries of the welfare state, and two-parent families are net losers, contributing more in taxes than they receive in benefits.

It is also interesting to note that in 1987 Mr Don Edgar, then Director of the Australian Institute of Family Studies, said:

. . . a one income family with two children required an income of $42,900 a year in order to have the same standard of living as a single male on average yearly earnings of $24,000.

So that is why I want to see tax reform for my electorate, which has a very high proportion of young families, because families have gone backwards in the last few years in terms of the taxation system. And therefore I want to see that situation adjusted, and what we are proposing in this legislation is aimed very much at making sure that young families get a better deal.

I think it is also important that we look very carefully at the proportion of taxation that governments raise from various sources—both through the indirect taxation system and from the personal taxation system. Again, I would like to quote from the same source:

The Australian taxation system relies disproportionately on the taxation of income, particularly investment income, relative to consumption. Over the past decade, personal income tax as a share of total Federal Budget revenue has risen from 35 per cent to 54 per cent. This compares to an average of 31 per cent for nations in the OECD. Overall, personal income taxation in Australia (across all levels of government) is 40.1 per cent of all taxes collected, compared to an OECD average of 27.5 per cent.

I think that one of the most telling condemnations of the current tax system is found in marginal tax rates. Professor John Freebairn argues:

Australia's progressive tax structure disadvantages low income earners. While wages are taxed in a progressive way, the phasing in of the Medicare Levy and the phasing out of social security payments has meant high marginal tax rates (the tax on the money you earn) for low income earners. The top rate of marginal tax cuts in at about 1.3 times average weekly earnings. A decade ago, it was 1.6 times average week weekly earnings. In 1954-55, it was 19 times average weekly earnings.

So it seems to me that that whole process demonstrates that there is a lack of incentive for people to go and earn money, to work overtime, to try and seek that job, or to invest in business in some shape or form, because in terms of personal income, frankly you just do not get to keep enough of it to compensate you for the efforts you have to make. Therefore, it is very important that we restructure the tax system in that respect as well—not only to look after families but also to make sure that those who are creating the wealth in our society, who are doing the right thing by Australia, who are doing that hour of overtime, who are seeking that promotion, in fact get a bit more of what they earn.

I would also like to say a couple of words about a subject the opposition seems to be very hung up about when it comes to question time in particular but that we have also heard about in some of the speeches—that is, the question of complexity of the system. We get a lot of detailed questions from the opposition such as `How's the GST going to work in this respect?' and other questions about some bit of petty detail.

But if anybody subjected the present tax system to even a fraction of the scrutiny we have seen of the government's tax package I think we could be here all night every night of the year, frankly, trying to sort out the complexities—like the number of different rates there are and the definitional problems. There is a whole army of people in the tax office in this country just trying to sort out definitional problems: what's a biscuit; is a chocolate biscuit a biscuit or is it food, or is it something else; is it sweets; is it confectionery? And you can go on through a whole range of items where the definition is very hard.

I regularly have constituents come in to see me—I know most other members in this place do too—about wholesale sales tax problems in their particular business. They have trouble getting definitions out of the tax office: are they wholesale sales tax exempt? What rate should apply? And so on and so forth. So, if you want to complicate the system, look at the present system. I can assure the House that what we are proposing is a jolly sight more straightforward than what we have at the present time. What we are proposing will cut administration costs compared with what the existing system does.

In the brief time I have got left I want to speak about Australia's place in the world economy and the need for us to export. One of the handicaps that Australian businesses have when they compete overseas in exports is that, built into their price, are a lot of these wholesale sales taxes and the other taxes which we plan to abolish with our legislation. They are built into the chain of production right the way through from go to whoa. That is not helpful to them when they compete with overseas markets. This system will make sure that those taxes come out of the price so as to make Australian businesses more competitive overseas. That will mean they win more contracts, which means their production will go up, which means they will create more jobs. It seems to me that the creation of jobs is pretty important for this country.

The Asian economic crisis, which we have withstood remarkably well, so far—we would obviously be complacent if we felt that it was not going to impact on us to some extent; nevertheless we are withstanding it fairly well—has damaged our trade. Our trade with Korea is down, our trade with the ASEAN countries is down from a very healthy surplus to a negative balance. That will, of course, recover. The more competitive we are in the marketplace as the Asian economies recover so much the better, because they will be out there competing hard to build their economies again. We need everything on our side to make sure that we can compete.

It seems to me that, whether we are talking about who has got the runs on the board or who the best economic managers are, whether we are looking after families properly, whether we are taking our taxes for government expenditure from the right place and have the balance right, whether we are looking at marginal rates of tax and incentives, whether we are looking at simplifying the whole process or whether we are helping Australia's export economy, this tax package will be an outstanding success for all of those reasons. I commend the bills to the House.