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Thursday, 13 May 1999
Page: 5351


Mr ANDREWS (10:27 AM) —As I sat here listening to the honourable member for Lilley, Mr Swan, I was reminded of those lines from Shakespeare in Macbeth : a great deal of sound and fury signifying nothing. How short memories are for some people in this place.

This person is a member of a party that for over a decade was in government when the gap between the rich and the poor in this country expanded an enormous amount. He is a person who is a member of a party that for over a decade in government in Australia saw unemployment and interest rates rise to record levels which drove people, families and individuals into bankruptcy; a person who is a member of a party that for over a decade was in government in Australia when we saw the number of people in receipt of welfare assistance and dependent upon benefits from government rise to record levels in this country; and yet this person comes in here today as if none of that occurred.

After I have dealt with some measures in the family assistance bill—most of which the honourable member for Lilley did not address; he raved on about other matters—I will come back to some of the things that have happened in relation to families over the last 20 years in Australia, when for much of that time this country was governed by the Labor Party of which the honourable member for Lilley is a member.

I rise to support this bill, unlike the previous speaker, as a means by which the living standards of many Australian families, particularly those on low incomes, will be improved significantly. The legislation is part of the government's new taxation system and is further evidence of the government's commitment to strengthening Australian families and the communities in which they live.

Let me remind the House of some of the key measures in the new taxation reform package, of which the matters in this bill form a part. This package includes: personal income tax cuts totalling over $13 billion a year from July 2000; tax cuts to be provided for all taxpayers, with reductions in marginal tax rates for about 95 per cent of individual Australian taxpayers; the tax-free threshold for all taxpayers to be increased from the current level of $5,400 to $6,000, with the greatest proportion of benefit going to low income earners; a doubling of the tax-free thresholds under the family tax initiative, which will result in all single income families, including sole parents, with a child under five years having an effective tax-free threshold of $13,000, more than double the new general threshold of $6,000. This provides an additional assistance of $490 a year.

For those with two children, one of whom is under five years, that is additional assistance of $630 a year. For those with three children, one of whom is under five years, the additional assistance is $770 a year. Dual income families with one child and single income families with no children aged under five years will have an increase in family tax assistance of $140 a year, a 70 per cent increase. Those with two children will have an increase of $280 a year, and those with three children will have an increase of $420 a year.

On top of that, there are other measures, and I do not have time to go through them all. The 20 per cent marginal tax rate will be reduced to 17 per cent, while the 34 per cent rate and the 43 per cent marginal tax rate will both be reduced to 30 per cent, with the result that over 80 per cent of taxpayers will face a marginal tax rate of no more than 30 per cent, compared with only 30 per cent now.

The member for Lilley was talking about compensation. He claimed that there was a lack of compensation in these measures. I ask the House, I ask those who are listening: when the Labor Party raised the rates of wholesale sales tax in Australia, when 10 per cent rates went up to 12 per cent, when 20 per cent rates were put up to 22 per cent, when 30 per cent rates went up to 32 per cent, where was the compensation? There was absolutely none.

When the Labor Party reneged on its personal income tax cuts—you know, the infamous l-a-w law tax cuts which had been introduced by the former Prime Minister Mr Keating—where was the compensation? And when it raised a myriad of other taxes—indirect taxes, which had an effect on all Australians, on all people in this country—where, I ask, was the compensation? The answer in each of those cases is: there was absolutely no compensation from the Labor Party. Yet they have the hide to come in here—when there is a compensation package of great detail, which does deliver benefits to Australian families—and say, `There is not enough compensation.' This is coming from a party that provided absolutely no compensation over a period of more than a decade when, increasingly and gradually, they hiked up tax rates, whether they were personal income tax rates or indirect tax rates. They have no credibility in relation to these matters.

As part of the new taxation system, the government proposes in this legislation to implement a major rationalisation of the family assistance it provides by simplifying the structure. At present there exists 12 family benefits—12 different ways in which family benefits are provided to Australian families. The proposal in this legislation is to simplify these matters into three levels of family benefits and to create a new family assistance office, which will be able to provide advice to Australians about these benefits.

The bill gives effect to the new simplified structure, as it removes all family assistance components from the Social Security Act and the Income Tax Assessment Act. Secondly, it abolished the Childcare Rebate Act and the Child Care Act and replaces them with a new structure as well as higher rates of assistance and work incentive measures. These measures in this important piece of legislation have been guided by three principles: firstly, the need for simplicity; secondly, ensuring delivery of choice for families; and, thirdly, ensuring families receive the same level of assistance, regardless of the delivery mechanism that they choose.

In summary, the income test-free threshold for family assistance rises from $24,350 for one child to $28,200. The income test taper rate will reduce from 50 per cent to 30 per cent—that is, the rate at which the benefit cuts out once you start to reach the threshold point. Rather than cutting out at a rate of 50 cents in the dollar, it will be cutting out at a rate of 30 cents in the dollar, which in itself delivers further benefits to many Australian families. Thirdly, eligible families will receive an increase of $140 a year for each dependent child, and single income families with a child under five will receive an increase of $350 a year. The upper income test-free area for the base rate has been increased by this bill from $66,403 plus $3,322 per child after the first child to $73,000 plus $3,000 per child after the first child. The calculation of income will be based on the current year income for the family in question.

What this bill does, in terms of reducing the 12 categories of family assistance currently provided to three, is to provide the following three categories: firstly, family tax benefit part A, which is for helping families raise their children; secondly, family tax benefit part B, which will provide extra help for single income families; and, thirdly, the child-care benefit, which will help with child-care costs.

As a result of the announcement in this week's budget, part A will be extended to families of young people up to the age of 21 who are not eligible for youth allowance because of the parental income test. The primary carer in the family will be able to choose how they want their family assistance paid: as fortnightly payments to their bank or financial institution, reductions in their tax instalments or as an end-of-year lump sum. Families receiving some form of income support will also benefit from a four per cent up-front increase in compensation payments and easing of the pension income and assets test.

These measures address the unfair work disincentives and poverty traps in the current system and substantially reduce the effective marginal tax rates for many low and middle income families. Poverty traps arise in this country from a combination of losing entitlements to income support payments as one's income increases and paying more tax, which ensures that individuals and families retain very little of the extra money they earn. It means that there is no incentive to work harder—that is, when people reach a certain income level not only do they pay more tax because they are earning more income but also they lose some of the benefits they have. In many cases, the combination of those two things on the effective tax rate means that there is no incentive to work harder because, in effect, they are not bringing in any additional money, even for their additional work.

These measures can be viewed against the background of what has happened to the financial fortunes of families over the past three decades. It has been estimated, for example, that by the early 1990s a family paid 2¾ times the tax paid in 1966-67 while a single person paid 1⅔ as much. Much of the increase, of course, has resulted in bracket creep over the last three decades.

According to a study by Dr Alan Tapper, between 1960 and 1990 the effective tax rate on individuals in Australia rose by 83 per cent while the effective tax rate on the family rose by 360 per cent. This is taken into account in referring to the effective tax rate of both taxation and benefits. Dr Tapper also claimed that in the Australian welfare state today there is a large transfer from young households to the older households—that is, people over 55 years. He also asserts that, while sole parent families are substantial beneficiaries, two-parent families are net losers, contributing more in taxes than they actually receive in benefits. In fact, over a decade ago, in 1987, the then Director of the Institute of Family Studies, Dr Don Edgar, 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 weekly earnings—

then—

of $24,000.

Indeed, one can say that having children in Australia has become a wealth hazard. Families with children comprise 62 per cent of households in the poorest 30 per cent of society but only 32 per cent of those in the top 10 per cent. Those with the highest disposable incomes, after adjusting for the cost of housing and family dependents, comprise both partners of a couple working full-time, 35 per cent; couples with one full-time and one part-time earner, 19 per cent; single income couples, 10 per cent; single people, 26 per cent; and elderly retired people, seven per cent. As Dr Tapper said at the beginning of this decade:

. . . there is now no net assistance from government to families with dependent children. Families with dependent children pay fully in their taxes for everything they get from governments (local, state and federal), including what is by far the biggest item, the costs of education. Life cycle assistance now goes to the elderly, the over-65s. This assistance comes from young adults before they have children, from parents of young children, and from households of couples with non-dependent children.

According to Alan Jordan's analysis published in The Common Treasury , families with dependent children enjoyed a real standard of living of about three-fifths of that of the rest of the adult working population.

I say to the honourable member for Lilley, who comes in here complaining the way that he did, that this analysis by Tapper and Jordan and others, which was carried out at the beginning of this decade and published in a series of books and articles at the beginning of this decade, showing the diminution in the income and the financial circumstances of ordinary Australian families, occurred whilst his party was in government in Australia. If he wants to come in here and complain about measures which, on the whole, deliver a raft of desirable benefits to Australian families, and then say something about compensation not being adequate, he ought to look again at what his party did in government for more than a decade in Australia.

In addition to the matters I have already pointed out, the rise in the dual income family appears to have widened the gap between the rich and the poor. A second income has been an economic necessity, as we know, particularly for so many low income families. But where high income families have delayed or chosen not to have children, a second income has significantly increased their disposable income. According to Professor Ann Harding, double income no kid families—so-called DINKs—are replacing single income families with children in the top 10 per cent of income earning families. The impact of this change during the 1980s was noted by Professor Harding, who is the Director of the National Centre for Social and Economic Modelling here in Canberra. She said:

The real area where placing families on more equal footing makes a difference is our perceptions of who is rich and who is poor. Once income is adjusted for need, `dinkies'—dual income couples without kids—emerge as the largest family group in the top decile, making up 36 per cent of the top decile . . .

Similarly, using an income measure adjusted for needs totally changes our perception of which groups are the poorest in our society. The aged no longer dominate in the lower decile, making up only 14 per cent of the total. Instead, couples with children are the single largest group in 1989/90, making up 36.6 per cent of individuals in the lowest Whiteford equivalent income decile . . .

Sole parents are the other major group, making up 23 per cent of the other decile. This group is particularly disadvantaged, with 37 per cent of all those individuals in Australia living in sole parent families being placed in the lowest income equivalent decile (and a further 19 per cent being placed in the second lowest decile).

As Professor Harding indicated, the proportion of dual income couples in the richest 10 per cent of the population increased from 28 per cent in the beginning of the 1980s to 36 per cent by the end of that decade. In subsequent research, Professor Harding has concluded:

. . . there appears to be an increase in the proportion of married couples in poverty between 1989-90 and April 1994 using the Henderson "before housing measure"; while that for single parents has fallen.

Harding's figures—and others that one could quote at length in here—describe the detrimental impact of Labor policies on families and children in this country. A 1995 study found that families required two incomes to maintain their position in the middle class. According to the study by NATSEM:

. . . couples with children make up half the middle class. Of these, 50 per cent are dual income. Only a quarter survived on a single income, with the other quarter relying on investments and other income. Where a family had a second job, it was more likely to be part-time . . .

That is suggesting, of course, the financial imperatives involved for many Australians.

Two income families made up 54 per cent of the top 10 per cent of Australia's households, but single income families accounted for just five per cent, according to Professor Harding. Families with children required a gross income of $143,000 to reach the top decile, but those without children required only $102,500. Five out of six parent households in the top bracket were dual income families. The Western Australian Taskforce on Families concluded:

Effective tax rates for many families have risen by about 14 per cent in the past four decades. Lifetime effective tax rates for those who brought up children in the 1950s (and those reaching retirement in the 1990s) would be very low: "Those bringing up children today have a very different situation, as successive governments have moved away from a policy of net support for young families, towards a commitment to net support for the elderly."

Recent studies also suggest that living standards may fall as the number of children in a family increases. Again according to NATSEM, couples with three children or more and single parents with two children or more are less well off than smaller families. However, some of those figures are incomplete and further study is required.

These measures, not only in these particular bills before the House today but in the range of taxation and family assistance bills which this government has brought in, are very welcome measures. The measures involve a far-reaching recognition of families in the taxation and benefits system. It is an import ant recognition also that two economies exist within the nation: the market economy, where exchanges take place through money and where competition and efficiency drive decisions; and the home economy, where exchanges take place through the altruistic sharing of goods and services among family members. As Allan Carlson and David Blankenhorn wrote recently:

It is precisely the home economy—acts of unpaid production ranging from parental childcare and nursing of the sick and the elderly to gardening, home carpentry and food preparation—that is the organising principle of family life and the basis of civil society.

Every marriage creates a new home economy. These little economies are largely undetected in our measurement of gross national product, just as they are usually beyond the reach of tax collectors. But they are vitally important. If they thrive, the well-being of children in society as a whole improves.

This nation does require a strategy, of which these measures are part, which recognises that becoming a parent involves financial cost brought about by the needs of children, the additional costs of housing, the desirability of full-time care by a parent—at least in the early year or years of the life of a child—and the fact that parents tend to be young and, accordingly, earning less than they do later in life. As I said at the outset, I wholeheartedly support these measures and commend the bills to the House.