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Thursday, 29 May 2003
Page: 15446

Mr McARTHUR (1:03 PM) —I rise to speak on the Appropriation Bill (No. 1) 2002-2003. I am delighted to participate in this year's budget deliberations because of the strength of the Australian economy and the fundamentally sound basis on which the budget has been put forward to this parliament. As the Treasurer has said on a number of occasions publicly, we have a situation in Australia, unlike the United States and other countries around the world, where the budget has delivered a tax cut and is in surplus, yet we have been through a drought and we have been through the Iraq war. If you look at that scenario, you see that the presentation of this year's budget is a remarkable demonstration of the strength and fundamental soundness of the Australian economy.

The growth rate projected in the budget is 3.25 per cent for the next financial year. This compares very favourably with other countries around the world and gives us a basis of confidence that we can move forward to fulfil the budget commitments and again, hopefully, provide a tax cut and bring in a surplus. The surplus of $2.2 billion compares very favourably with other countries. Those opposite should be fully aware of this budget as it compares to the Keating years, when deficit budgeting was the order of the day. In the USA, the Bush administration has produced a budget which is 4.2 per cent of GDP. My understanding is that if you convert that to Australian terms that would be a $30 billion deficit in the Australian budget. So we can see the relativity. In Japan, the budget deficit is eight per cent of GDP; again, a very big figure. The OECD budget deficit is 3.5 per cent of GDP and the EU budget deficit is about two per cent of GDP. So it can be seen that the Australian position is very good indeed, and that has not come about by any stroke of luck. It is because of sound economic management, taking the hard decisions and introducing policies that are for the benefit of all Australians.

Those opposite are always nagging around the edges, but unless we get the economy moving in the right direction, unless it is sound, everyone will suffer. If you look at the public debt position—again, something those opposite tend to overlook—the $96 billion debt that the Keating and Hawke governments ran up was something they glossed over year after year. The sum of $63 billion of that debt has now been paid off, leaving us with approximately $35 billion worth of government debt, which is four per cent of GDP. Again we can look at this total debt relative to other countries, and we see an interesting and stark figure. In Germany the public debt is 50 per cent of GDP, for the OECD it is about 50 per cent and for the EU it is about 55 per cent. A staggering 80 per cent of the GDP of Japan is held in government debt and in the USA it is about 45 per cent. Australia, according to the budget papers, is showing a trend to reduce its public indebtedness, whereas other developed countries are showing a trend towards increasing their public indebtedness. As everyone would be aware, that sustains an interest rate cost to governments and to the people of those countries.

Of course, the tax cuts are a showpiece of this particular budget. Whilst some commentators and those opposite and others have suggested that the tax cuts are not very great, let me say that by giving a tax cut the government is flagging its position that it is a low-taxing government and it wishes to keep the incentive for people to work and save, whereas most Labor governments around Australia have increased their taxes. In fact, in Victoria 300 items are now indexed so they will go up automatically without any decision or debate. Mr Deputy Speaker, I seek leave to have incorporated in Hansard the new tax rates proposed by the government.

Leave granted.

The personal income tax thresholds will be increased as follows:

Current tax thresholds Income range ($)

New tax thresholds Income range ($)

Tax rate (%)


0 - 6,000


6,001 - 20,000

6,001 - 21,600


20,001 - 50,000

21,601 - 52,000


50,001 - 60,000

52,001 - 62,500


60,001 +



Mr McARTHUR —I want to refer to the tax rates that I have incorporated in Hansard and the changes to the various thresholds. This is very important because of the way they affect individual tax payers. The threshold where people pay no tax is $6,000, and from $6,001 to $21,600 they will be taxed at a rate of 17 per cent. The next tax rate, the 30c tax rate, from $21,601 to $52,000, has gone up approximately $2,000. That is where a high number of Australian taxpayers are incorporated, paying the 30c in the dollar tax rate. The next threshold, which is the 42c tax rate, has been raised about $2,000, covering income from $52,001 to $62,500. Of course, the highest tax rate is for income over $62,500. The income threshold for the 47c tax rate has moved up from $60,001 to $62,501. Obviously here in Australia, as people's incomes rise, thresholds and tax rates are a major problem; the 47 c tax rate plus the Medicare levy coming in at $62,501 is starting to affect a higher number of Australians. I encourage opposition members and senators to support the government's suggested change to a $70,000 tax rate, which was rejected by the Senate last year.

There we have it: a change in the thresholds and a reduction in tax. This is a very great thing from the government, that they are prepared to return hard won money back to individual taxpayers rather than spending it on grandiose programs. Whilst commentators and those opposite have been saying the tax reductions to individuals are very small, the trend is right and the cost to revenue is $10.7 billion over four years. So it is very significant, and that demonstrates a problem—that any tax reduction can be quite difficult for the Treasurer and budget estimates.

If we look at world economic conditions we see Australia's very good position. We have a growth rate projected at 3¼ per cent relative to the projected world growth rate, which has got a few problems, of about three per cent. Look at some of our trading partners: Japan for instance has got almost a zero projected growth rate, and six major banks are facing bankruptcy yet again and are being bailed out by the central government; the Middle East has got some difficulties; and the SARS epidemic has had a major impact on airlines. This is just another factor of world economics. As everyone would be aware, the American economy dominates world economic situation with some 25 per cent of the world's economic activity. However, the Bush administration has seen fit to run a deficit budget and the position of the American economy is a major concern to me and to Australia. US interest rates are at a 40-year low. Again there are possibilities of deflation taking place in the USA. A number of commentators are now worrying about the distinct possibility that the US may enter a deflationary stage rather than fighting the bogey of inflation. There is a problem with Germany as they need structural change in their labour force and their banking system. You have the UK, which has only 1.8 per cent growth rates. If you look at that you see that Australia has done well, that the Howard-Costello economic management has been one of responsibility, one of setting the right policy for the benefit of all Australians in the longer term rather than short-term political advantage.

There are several issues that are incorporated in the budget, but one that is not actually in the budget is the GST. Now the states are receiving some $28 billion—I think that is the latest figure sourced to their revenue—and a couple of them are ahead of the allocation that would they would be receiving from the Commonwealth. This is a growth tax. The premiers are reluctant to acknowledge the political courage of the Commonwealth in instituting this tax. I notice that even Premier Bracks, Premier Beattie and others were never critical of the fact that they would be receiving the GST but they were happy to go on the ALP bandwagon in their opposition to the GST. I notice there is no roll-back. The GST is here and there is no roll-back from the shadow minister at the table, Ms Gillard; even she is not going to roll-back the GST, if she ever gets to government. We do not hear much policy alternative from those opposite about the GST. Every other country around the world has got a similar tax. Those opposite have got many big spending proposals but they have not got any genuine revenue proposals to seek the revenue for their big-spending operations.

I put it on the record that the courage of Treasurer Peter Costello and his detailed proposals put to the Australian people are very important policies which will be of benefit to the states in the longer term. I predict better relationships between the Commonwealth and the states because they genuinely now have a growth tax, they have revenue that comes their way and they will not be resorting to some of those other minor taxes which have been so much an irritant to the population of those states.

I will move on to the drought. Mr Deputy Speaker Hawker, you, I and other rural members have been greatly concerned about the drought as it impacts on all rural Australians. There has been a lot of comment about exceptional circumstances, and I again say to the states: you are very quick to blame the Commonwealth about the arrangements for drought aid and the criteria for exceptional circumstances. The Commonwealth is providing some $740 million over the total drought package. There has been some debate about this, but the Commonwealth has come good with the money while the states have spent most of their time complaining and not contributing to the drought effort. I condemn them for their attitude and lack of performance. The lack of water throughout the eastern states is a major worry, and it is my hope that we get a good general rain before the winter sets in.

In terms of health, this budget provides a $42 billion, five-year health agreement for the states for 2003-07. It is a 70 per cent real growth rate, and I think the argument that the states should contribute in similar terms is quite valid and sensible. That should be agreed to by the states, rather than having the argument at election times about how they are going to be better health providers than their opponents and that it is the Commonwealth's problem all the time. In terms of the PBS scheme, I again support the Treasurer's comments last year that this scheme will be unsustainable—it now costs $5.7 billion, and will move to $7 billion in the year 2006-07—unless there are a considerable number of copayments. Very small though they are, they do help to contain the scheme. This is a very important scheme for all Australians, especially older Australians, and it should be maintained at a more sensible economic level.

The 30 per cent private health insurance rebate is also a matter of some debate by those opposite. They will not quite say whether they are going to take it away, but they are looking at the $2 billion that has been contributed by this government to individual private health insurance holders. There was only 30 per cent of our population in private health funds in January 1999—and there was 44 per cent in December 2002. This helps to sustain the system. Even Senator Richardson said that we needed a private health system to ensure the long-term possibilities of health in Australia. The provision of private health insurance ensures that there is an alternative and that more funds will be injected into the total health system in the longer term.

I will now refer to some of the policy debates that are incorporated in Budget Paper No. 4 and a speech given by Dr Ken Henry, Treasury secretary, to the Australian Business Economists on May 30. I will quote from that, because he covers the issues in Budget Paper No. 4. In that paper, he talks about long-term wealth production in Australia and the importance of the population of working age. He talks about participation; that is, the number of hours worked by those participants in the work force, and productivity; that is, the GDP generated per hour. There is a fair bit of discussion about those matters in terms of what is involved and how those parameters make Australia a better and wealthier nation. Those matters are canvassed quite extensively in Budget Paper No. 4 and, fundamentally, one of the key tenets of that is the importance of Australia maintaining its population both in sheer numbers and in terms of the spread of age groups.

As you would be aware, Mr Deputy Speaker, Japan has a problem with an ageing population. That problem that has hit Japan before it will hit Australia. This trend is something that we need to be concerned about. Mr Henry makes the comment in his paper that this will not be such a major problem in America. He says:

As the Economist magazine noted in a recent essay on America's demographic exceptionalism—

he is saying that America has a breadth of population and working population and will be a driver for economic activity—

“... anyone who assumes that the United States is now at the zenith of its economic or political power is making a big mistake. There are plenty of other ways in which America could weaken itself economically or politically, but demography we will offer a fine basis for future growth, and strength.”

There we have it. In America, they have not only their fundamental strength now but—because of the range of ages in their population, their birth rate and their diversity—they will continue to be a nation of strength.

Budget Paper No. 4 has a number of policy options which I personally have been interested in over the years in this parliament, which the Howard government have adopted and which have been the underpinning basis of our increasing wealth here in Australia. Mr Henry said that Budget Paper No. 4 contains OECD findings into the linkages between policy settings, participation and productivity performance. The OECD said:

Anti-competitive ... market regulation worsens labour market performance.

Labour market regulation affects product market performance.

... ... ...

Job security cannot be bought with anti-competitive product market regulation.

Product market deregulation does not lead to permanent increases in earnings inequality.

That is from the OECD. That is a bit of jargon. But Mr Henry goes on to note some of the important policy settings that have taken place here in Australia:

First, policies directed at improving education and training.

That is the first one. So the higher education reforms that Minister Brendan Nelson has brought forward are very much in line with international best practice.

Second, policies to enhance labour market flexibility; permitting the evolution of markets that facilitate the deployment of new technologies, the engagement of older workers and the upgrading of skills.

When the industrial relations acts were changed in 1996, it brought about flexibility on the waterfront and through the whole Australian work force.

Third, taxation policies that recognise the disincentive effects of high marginal rates; developing a tax system that encourages participation rather than early retirement ...

There we have it again—taxation rates need to be reduced, especially marginal tax.

Fourth, health and welfare policies—including the interaction of the tax and social security systems—that encourage labour market participation.

Again, we need to get the mix between welfare and those going on to welfare, and certainly the McClure report addressed those issues.

And fifth, a pro-competition reform agenda, encompassing the areas of energy, water and transport ...

I note that Mr Graeme Samuel, who has done a remarkable job in this area, has now been appointed to the position that Dr Fels has held. I note on the record the remarkable contribution that Graeme Samuel has made in competition policy. Mr Henry's final important comment is that demographic change will be a key driver of economic activity. Of course, the Intergenerational Report tabled last year highlighted the problem facing Australia in the future. I commend the budget. I commend the Treasurer and the Prime Minister for a most responsible document and forward-thinking policy setting.