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Thursday, 21 March 1985
Page: 565

Senator MAGUIRE —Has the Minister representing the Treasurer seen the recent Press report in which the Leader of the Opposition, Mr Peacock, is reported to have said that the dependent spouse rebate in respect of income tax should be reviewed to determine whether it should be means tested? If so, what is the Minister's response to that report? Can he tell the Senate what is the total cost to revenue, on the latest available figures, of the dependent spouse rebate?

Senator WALSH —The latest figures on cost are from the financial year 1982-83, so I think it should be noted that something like 18 per cent ought to be added to all the figures that I am about to give to update them to present levels. I am aware of the report last week that the Leader of the Opposition-he is Leader of the Opposition for the time being anyway, until the Sydney faction takes over the Liberal Party-believes that the spouse rebate should be means tested. The cost for 1982-83 was some $900m. In that same year about 17 per cent of taxpayers, those with taxable incomes above $22,000, which is approximately 120 per cent of average weekly earnings for that time, received one-third of the total rebate. In other words, one-sixth of the highest taxpayers received one-third of the rebate. It could certainly be argued, I believe, that that provides a prima facie case for means testing. The argument commonly cited against means testing such a rebate is derived from the principle of horizontal equity in taxation matters, but whether horizontal equity ought to take priority at all times over all other equity considerations is something which could perhaps be questioned.

Senator Watson —It depends how horizontal it is.

Senator WALSH —Yes, horizontal equity. It perhaps ought to be noted that suggestions are made from time to time that the rebate ought to be cashed out and paid to the spouse instead of the taxpayer claiming the spouse as a dependant. In practice, of course, that usually means being paid to the wife or daughter-housekeeper rather than to the taxpayer who is claiming the deduction on behalf of the wife or daughter-housekeeper. There are certainly attractions in that proposition, although it would involve considerable administrative difficulties unless the rebate was paid out on an annual basis which, unfortunately, would reduce on a temporary basis the after-tax income of the 95 per cent of pay as you earn taxpayers eligible for the spouse rebate who are paid on a PAYE fortnightly basis. Nevertheless, it is something which I am certainly willing to look at and which I am sure the Treasurer also will be willing to look at. One final comment ought to be made. Should the Government make such a change-I am not suggesting that it will do so-it would induce a cosmetic increase in both outlays and tax revenues without changing the underlying reality.