Senator MURRAY (7:40 PM) —There are conflicting and confusing messages in the media about tax right now, aided by sloganeering from our leading politicians. Australians at large want more money spent on essential services. That means raising more revenue. Against that there are regular calls for cuts in income tax, ranging from the venal, self-serving calls of the wealthy to genuine pleas for relief from salary earners. Most commentators focus on the nominal tax rate, not the effective tax rate.

Lowering the top 47 per cent tax rate plus 1.5 per cent Medicare levy has real validity for some poor souls earning $60,000 without deductions or concessions. But the higher up the earnings and wealth scale you go, the less meaningful is that 48.5 per cent tax rate, as welfare and tax dodges for the well-off kick in. Based on the 2000 tax statistics, I am told the effective tax rate for all individuals earning $70,000 or more is 39 per cent. How to reconcile these conflicting calls? More importantly, how to pay for them? If you want the top rate to come down, I see no option but to reduce the hidden subsidies. Government's usual levers are to increase tax rates or taxes, which both major parties pretend they have ruled out, except for seemingly endless variants of that tax art form, the levy. They could increase public sector debt but, given the uncertain times we are in, they are rightly cautious about that.

Labor sold off most of our assets and the coalition want to finish off the job. The Senate stands in the way of that, so that is off the list for the moment. That leaves the coalition and Labor's main hope relying on economic growth and bracket creep to bring in the revenue. Unfortunately, it is not enough for both tax cuts and growing expenditure needs. And, as for surpluses, the Prime Minister and Treasurer spend them as fast as they appear. An editorial in the Australian Financial Review on 28 November joined the call for lower income tax rates. It also added this remark:

Breathtakingly wrong—and interesting, given that the Fairfax group asked for an exemption from GST in submission 854 to the Senate Select Committee on a New Tax System.

Labor of course opposed the GST and they had nothing to do with its form or rate. The coalition chose the tax rate level of 10 per cent. They also proposed extensive GST exemptions for dwelling rentals, health services, education, financial services and exports, totalling over 20 per cent of GDP. The Democrats agreed with those exemptions and then broadened them to include basic and fresh food, plus extending the exemptions in the health, education and charitable services sectors.

The government proposed to cut income tax rates for better-off Australians by raising taxes on food for all Australians. The Democrats disagreed. Why in this time of great world uncertainty, this year's fiscal deficit, low future fiscal surpluses and the danger of rapidly rising security costs is there a campaign by some Australians for expensive income tax cuts? Why when there is a great cry from most Australians for more government spending on creating jobs, on the environment, on defence and internal security, on industry programs and on health and education services is credibility given to a tax cuts campaign? When I hear moronic nonsense about this government being the highest taxing government in Australia's history from the very people inconsistently and simultaneously clamouring for a greater spend on health and education, I feel exasperated— especially when Australia's total tax take is amongst the very lowest in the OECD. However, it might be possible to do both—to cut and spend. But it will take political courage.

If you were contemplating tax cuts, the first step would surely be to end bracket creep. Indexation of tax scales is costly. Restoring the indexation of petrol could be used as a partial trade-off for starting to index at least the bottom rung of the tax rates. How else could you pay for it? Reducing unwarranted tax expenditures and concessions is a possibility. When I last looked, tax expenditure was over $30 billion—and growing— and a $7 billion to $10 billion reduction is feasible. The budgetary cost, distributional implications, efficiencies and imperfections of tax expenditure policy have not been systematically studied. They should be; if they were, reform would release many billions of dollars. Eliminating tax rorts and cutting wasteful tax expenditure are always attractive options.

Very seldom—I might almost be tempted to say never—do I hear those calling for income tax cuts tell us how they will pay for them. The most transparent and fairest way is to cut out corporate welfare and welfare for the well off. Not all government industry assistance programs, support schemes, subsidies and tax concessions are needed. They do not just help corporations; they help individuals through businesses run as a family trust, a partnership or a small proprietary company. Many exporters, farmers, manufacturers and entrepreneurs are well off, and they get the hand-outs too. There are corporate assistance packages for major industries and their highly paid executives. Highly paid executives get private health insurance rebates, child-care benefits, first child tax refunds, free or subsidised Medicare and concessional treatment of superannuation contributions. Treasury estimates say that superannuation concessions are reaching toward $12 billion. Other wealth-creating measures include capital gains tax relief for individual shareholders and institutional shareholders, venture capital concessions and capital gains discounts for individuals.

The Democrats are game to consider any reform program on its merits, provided additional money also goes to meet legitimate unmet needs. There are three main principles to look for in taxation: equity, efficiency and simplicity. For the moment simplicity is just too hard, so let us concentrate on the first two. It is not fair to tax superclubs less than hotels or to tax one cereals manufacturer less than its competitors just because it is owned by a church. Neither is it efficient; nor from a revenue point of view is it very smart. Australia's overall tax burden is not too high, but some people and businesses are not paying their fair share and others are paying too much. Then there is the need to incentivise people to move from welfare to work.

There is a problem between the feds and the states with regard to responsibilities, cost shifting and efficiencies. In their budget submission earlier this year the Australian Council of Social Service estimated that the government could raise more than $7 billion per year in additional revenue without increasing the rate of tax. The government's private health insurance rebate will soon reach $3 billion per year. Based on tax statistics, nearly 75 per cent of the money goes to the top 40 per cent of income earners. Capping and means testing this rebate would deliver savings of $1.1 billion. The government's backdown on the equitable taxation of family trusts is costly. In 2002-03 alone the cost of this backdown is $450 million. The concessional treatment of company cars under fringe benefits tax costs more than $800 million per year. The Ralph Review of Business Taxation estimated that $200 million could be collected from the introduction of modest reforms to the taxation treatment of company cars. It is estimated that up to $600 million can be raised by reforming employee share schemes that benefit some employees and not others. The overall value of work related deductions is about $7 billion. Up to $500 million could be raised by rationalising and capping work related deductions.

The majority of overseas countries, including the USA, the UK and Canada, do not allow or severely restrict negative gearing. It costs Australia well over $2 billion a year and tax reform could save at least $700 million of that. Removing the mutuality provision tax exemption from the large big business clubs and others that operate on a commercial basis would save upwards of $200 million a year. We could reduce funding to wealthy private schools by $150 million and reduce funding for offshore asylum seekers by $100 million. You get the picture. Why don't we agree on how much we want to cut income tax by and how much more we need to spend on essential needs, add the two together, work out how to pay for it and see what the trade-offs are? It is a better idea than whingeing, don't you think?