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Wednesday, 5 September 1984
Page: 484


Senator Dame MARGARET GUILFOYLE(3.16) —Prior to the Budget, the Opposition had identified the reduction in living standards of many Australians. Before the presentation of the Budget, the Opposition took the opportunity to issue a statement to the effect that a calculation had been made that a worker on average weekly earnings needed at least a $22 a week tax cut to be in the same position he was in two years ago.

In the context of the discussion prior to the Budget and the promises of tax cuts, it is timely to look at the numbers of promises that have been made to the Australian people. First, there was the firm election promise of 1983 in which the Prime Minister (Mr Hawke) promised that there would be immediate reductions for about six million taxpayers with assistance to go to those who had the greatest need. In 1984, the Prime Minister again made the promise. He said:

. . . we will I believe be able to have tax reductions in our second Budget. We aim to do that in the context of a reduced deficit and in doing that we will obviously seek to give relatively greater relief to those who need it most.

There were expectations of tax cuts, because allied with those promises were open discussions held with the Australian Council of Trade Unions to give tax cuts to maintain the prices and incomes accord. The discussions held with the trade union movement gave rise to public commitments by the Government that there would be tax cuts. In July, the Minister for Finance (Mr Dawkins) made a statement in which he said:

. . . the important principle that we ought to be pursuing in taxation reform is the requirement that the taxation system as a whole becomes more progressive. That is that those people who have the ability to pay more in fact do pay more and that in relation to the equity of the system we don't exclude certain forms of taxation in favour of certain other forms of taxation.

That promise gave rise to much concern by those who wondered what other forms of taxation were likely to be used by the Government in either the current Budget or a future Budget.

A feeling of certainty about tax cuts was given because of the certainty of an early Federal election. The early Federal election seems to be upon us-at least, it will be the election that relates itself to this Budget. The Budget now before us certainly proclaimed that it gave some tax cuts. If we look at the Budget, as the figures that have been provided enable us to do, we find that the dominant feature relating to households would sustain the view that we had-that there are no real tax cuts for the majority of Australians as had been promised. A benefit of something over $7 a week has been given to a number of taxpayers. However, a number of other things were not done by a government which has an indexation mentality with regard to the collection of excise and with regard to wages through the prices and incomes accord. The Government does not, however, seem to transfer that approach to indexation of personal taxes. The approach used was a tax cut, and statements were made that it would be directed to those who were most in need of assistance. Yet we find from tax scales that have been produced that those with an annual income of $5,000 or $6,000 do not enjoy the same benefits as those with higher incomes. Indeed, people in the middle structure have benefits related to their incomes which are in excess of the benefits given to those on the very lowest level of income. That is not something that would be expected when people talk about a progressive tax system , and the figures prepared by the legislative service bear that out. A little later I may seek to have a table incorporated in Hansard.

The matter of public importance relates to the position of households in Australia. In the Budget there was a restructuring of the personal income tax scale, which now comprises five steps in lieu of the former three steps. For the very broad band of taxpayers with incomes in the range of $12,501 to $28,000 per annum the tax cut represents a saving of some $7.60 per week. Beyond the $28,000 income level the tax cut gradually reduces to a level of $2.79 per week, which is reached on an income of $35,788 per year. This exercise has made for a rate scale which is even more progressive than before, so we can assume that that promise has been upheld.

There were measures in the Budget to extend spouse rebates to de facto couples, and income tested rebates will be provided for the recipients of unemployment, sickness and special benefits. It should be noted that the low income threshold below which the one per cent Medicare levy is not payable will be increased, but for many people the Medicare news is in the opposite direction, that is, the increase in the levy ceiling to $750 per annum from the previous level of $700. That change will take effect from 1 November this year.

The Budget also introduced changes in welfare benefits, and my colleague Senator Messner will speak about these in more detail. The increases to pensions and benefits which needed to be made to compensate for Medicare did mean a change of some $2.50 per week for single people and $4.20 a week for couples. The tax changes ranged from $7.60 a week for some people down to something like $2 for those at the higher end of the tax scale.

It must be noted that the Budget increases taxes; it does not reduce taxes. There is the reduction that has been mentioned, but there is also an increase of some 23 per cent in the income tax collected from individuals. The average weekly earner, prior to the Budget, had experienced a reduction in his standard of living by something like $20 a week. We are now looking at an increase in taxes of 23 per cent under this Budget. This leads one to the inevitable conclusion that, although some headlines referred to tax cuts, the Budget was a very high taxation Budget. It increased taxes for individuals to the extent that such collections will this year represent 53 per cent of total receipts compared with something under 51 per cent in 1982-84.

Senator Walsh, in an answer at Question Time, chose to give some figures relating to the gross domestic product. Such figures can be misleading because in a period of lower growth and depressed gross domestic product we will get a particular result. I think it is more appropriate to look at the total revenue the Government is collecting in the Budget year and to consider taxes as a percentage of that amount. I repeat that the income tax to be paid by individuals this year will represent 53 per cent of total receipts. In effect, the Treasurer (Mr Keating) has relied on the old device of fiscal drag whereby, under an unindexed progressive income tax system, as incomes increase taxpayers are carried across the thresholds that mark the tax brackets. Thus we get the increased revenue that it is quite clear will be derived from this Budget. The Treasurer has been able to finance his tax cuts of $1.2m, meagre though they might be, whilst limiting his future loss of revenue by making the tax scale even more progressive. We therefore finish up with a more complex and more progressive tax scale when what ought to be our aspiration is something more simple, something which encourages people rather than imposes a penalty on rewards given for extra effort. A higher progressive tax bias undoubtedly encourages tax evasion and involves extra expenditure on its policing, as is foreshadowed in this Budget by the Treasurer.

Another matter of great importance in this Budget is that the central purpose of the income tax cuts is, as quite frankly stated, a quid pro quo for wage restraint. We need to look at the revenue estimates because they depend for their validity on an assumption not only of better employment prospects but also of average weekly earnings on a national accounts basis increasing by around 7 per cent in 1984-85. That is the figure used in the Budget, and I think that ought to be emphasised because we are talking about indexation of wages. The pay -as-you-earn estimates for tax collection have been based on this figure of 7 per cent; whereas if one were looking at something that showed the restraint we want to see, particularly the restraint that has been based on the prices and incomes accord, one would have thought we would be looking at an increase in average weekly earnings of something closer to 5 per cent or 5.5 per cent. Yet we have assessed the income derived from PAYE taxpayers on an increase in average weekly earnings of 7 per cent. If inflation does come down to 5.5 per cent per annum, as measured by the consumer price index at the June quarter 1985 compared with the June quarter 1984, that 5.5 per cent, one would have thought, would have been related to the increase in PAYE estimates. This gives an indication that it is expected there will be some increase in average weekly earnings over and above the consumer price index increase. Changes have arisen through the introduction of the compulsory Medicare levy, and it ought to be said in passing that two-income families paying the Medicare levy are finding that, with the necessary provision of some private health insurance, they are in many instances paying more for their health care than they were.

Senator Walsh asked, in answer to a question put to him: How is it that we need to look at reductions in taxes, expenditure and deficits, and at the same time not find easy answers? I think it would be acknowledged that to do all of those things in any Budget in the current economic climate would be difficult. However , unless there is a serious approach to the reduction of expenditure by Australian governments, of course they will not be able to offer real tax reductions, real tax cuts, and to improve the standard of living of the Australian people in the way in which it would be expected when we are talking about recovery and improvement in the economy. With a Budget that increases taxes, increases spending, increases the deficit and increases the interest to fund the deficit by about 21 1/2 per cent, of course it is impossible to give real tax cuts. So it is a matter of looking at the Government's expenditure and the structure of a Budget before one embarks upon something that will impose further burdens on the people.

The $20-plus a week that had already been lost by workers before the Budget meant that the average wage earner needed to work an extra two hours a week to support the sort of government expenditure and the repayment of government loans and borrowings that are required by the Government. But there are other aspects of the Budget and this Government's decisions since its election which also impinge upon families' disposable incomes. For instance, we could take the Australian Labor Party proposal concerning a 31 per cent tax on lump sum superannuation. That was said to be something that would affect only those on high incomes; it would not affect many. However, looking at the number of people in superannuation schemes, one finds that we are talking about not just a few people but hundreds of thousands. They are now affected by the superannuation changes. If we add to those already in schemes the possible 430,000 people from the construction industry who are hoping to be in a scheme, we find that we are talking about more like three million people than any other number. That is not just a few people.

If one relates the changes introduced by the Labor Party to the position of a person now aged 45 who enters a superannuation scheme today with a view to achieving a modest enough lump sum benefit of, say, $150,000 at the age of 65, in 20 years' time, one realises that that person will have to pay an extra $5 a week in tax contributions for the rest of his or her working life because of the 31 per cent tax on lump sum superannuation. Therefore, that sort of additional expenditure, when related to the tax cut of $7.60, even on the best scale, means that that tax cut is seriously eroded. The people affected by superannuation policy changes are the people who will look at the tax cuts very closely, because they are aware of the other imposts that will be there for them.

Another promise that was made but not fulfilled was a change to the tax free threshold. In 1983 the Prime Minister said that he would raise the threshold from $4,595 to $5,000. He said that this was necessary in order to free tens of thousands of low income earners from all tax. He also promised that the Government would raise the dependent spouse rebate where there were dependent children from $1,030 per annum to $1,134 in order to provide additional benefits to families. That would have been a real benefit to families, but it was not achieved in either of the Budgets that have been introduced.

It was also said that the 46c tax threshold would be raised from $19,500 to $19 ,750. Of course, with the new structure of five tax scales, more people now find themselves in an even higher tax bracket, let alone with the creep that occurs through the non-indexation of previous thresholds. So the real value of the dependent spouse rebate has been allowed to erode. There were not the changes that took account of indexation in the tax thresholds. There was not the change that would have been expected in the tax brackets. So we look at tax cuts, as they were described, and find that they were not cuts but a reduction in increased taxes that are being drawn from the people. In 1984-85 about one million Australians will move into higher tax brackets. The tax free threshold, the 46c threshold, the new threshold-all will impinge upon many workers. With one million people moving into higher brackets, we need to be concerned for the effect of this on families' disposable incomes.

It was for these reasons that we felt it timely to raise these matters as matters of concern and importance. This Budget raises expectations that there are benefits within it but those benefits are illusory. We need to look at this Budget's implications in terms of financing a deficit of the magnitude of the present one, and the amounts that are drawn from all Australian people to finance the big spending programs and to finance the deficit. Yet the people are given the platitude that in some way they have been given a tax cut. Big deficits and big spending make it impossible for tax cuts to be given. We wish that the Government would look at these matters in context and not try to delude the people with the illusion of a tax cut that does not exist.