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ACOSS President discusses equitable ways to fund the tax package.

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FRAN KELLY: John Howard has already taken a bit of pain this week over his tax package, which we’ve been hearing a lot about. It’s now starting to look pretty tatty indeed. After three meetings yesterday, Meg Lees and John Howard were really no closer to a deal. In fact, things have deteriorated from where they were at the beginning of the week.


The talks have stalled over the question of how to responsibly fund the tax package if the government takes the GST off basic foods. That will shoot a $4 billion hole in the package that Meg Lees wants repaired by shaving the tax cuts and closing more tax loopholes. Now, the Prime Minister says the tax cuts are untouchable, especially those to middle Australia who’ve been promised that they won’t pay any more than 30 cents in the dollar for income tax. The Democrats think that’s unfair, extravagant and unnecessary.


The government is now apparently talking filling the $4 billion hole from the surplus and by leaving some of the nine smaller taxes like the FID, the BAD and stamp duty taxes in place. That’s a solution that has filled the business community with horror.


But the business community aren’t the only ones horrified at the moment, Peter, the welfare sector is horrified, too, at some of the plans the government’s putting on the table. And Michael Raper, President of the Australian Council of Social Service, joins us now.


Michael Raper, good morning.


MICHAEL RAPER: Good morning.


FRAN KELLY: What is horrifying about the noises coming from the government over funding for its tax package if food is taken out? What’s disturbing you there?


MICHAEL RAPER: I don’t think the government has ever understood that there are two parts to the equation to taking food out. We have always said it’s not just a question of taking food out, which protects low income earners and is essential, but you then have to fill the revenue hole in an equitable way as well. And if you don’t shave the tax cuts, or cut those cuts that the government is offering or broaden the base by filling in some of those avoidance opportunities that are there for high income earners. And if you fill it in an inequitable way by keeping FID or BAD or by raiding the surplus, then of course low income earners will simply suffer. And instead of having a tax on food to pay for the tax cuts for high income earners, you’d simply have a tax on their bank accounts to pay for tax cuts for high income earners. It’s not fair. Obviously they have to face that 30 per cent rate.


FRAN KELLY: But what is wrong with the government digging in a bit more to the surplus? The surplus is there. If it can be done to take the GST off food, raiding the surplus won’t hurt the lower paid and in the end they’ll end up better off because there won’t be a GST on food.


MICHAEL RAPER: Well, raiding the surplus will hurt the lower paid, it will hurt low income earners particularly. I think we have to remember ....




MICHAEL RAPER: Well, we have to reflect on how we got that surplus. We got that surplus largely by cutting very harshly into expenditure that affects low income earners, by cutting into social security, by cutting into legal aid, health, dental health programs, child care, everything from child care through to age care basically. So that surplus is there largely on the backs of low income earners. If, in fact, we now raid that surplus again too much, when the Wall Street crash comes, or the downturn comes, which is inevitable in the next year or two, services will be yet again slashed to low income earners and they will end up paying again, in just a slightly different way, for the tax cuts for high income earners. The tax cuts themselves have been promised, but that’s all they have been. They’re promised. They’re unfair. They should never have been promised and they really can’t be delivered.


FRAN KELLY: But what is unfair with promising 80 per cent of Australians that they’ll only pay 30 cents in the dollar? These are not wealthy Australians we’re talking about - they’re people earning less than $50,000 a year. Don’t they deserve a lower tax rate, and isn’t that a fair line in the sand to draw?


MICHAEL RAPER: Yes, there is a point in all of that. The bracket creep issue is certainly an issue and we think that has to be addressed, and we would give the government in our proposals, our options cover the range of income from $20,000 through to $50,000 with a lower rate certainly.


FRAN KELLY: What sort of rate?


MICHAEL RAPER: We think it can be done certainly by maintaining the 43 cent rate at the top and shaving the 34 cents rate down to 32 cents rather than to 30 cents, if of course that’s also accompanied by some base broadening, that is closing down avoidance opportunities, removing company car FBT concessions, for instance, or curbing artificial income splitting, curbing tax avoidance through private companies. There are various methods to raise about two billion. That would fill the gap.


But I think we actually need to look, Fran, quickly at the claim about 80 per cent of Australians benefiting from a 30 per cent rate. Look who benefits from that proposed 30 per cent rate. Earners on $20,000 get no benefit from that 30 cent rate. If you isolate the 30 cent rate that they’re offering, people on $20,000 get nothing; people on $30,000 get $8 a week. Now, 50 per cent of Australian wage earners, 50 per cent of wage earners in Australia get less than $30,000. The median salary is 29 and they would only get $8.


FRAN KELLY: So what would you do then for those people earning $30,000 a year? How would you make them get a bigger tax cut?


MICHAEL RAPER: Just to finish that. People on $50,000 will get $23 a week, and that’s just isolating out the 30 cents. Now, that’s what we say is unfair. If you keep the 43 cent rate for people over $50,000 or $60,000, thereabouts, you can raise some money. You reduce that 34 cent rate down to 32 cents and base broaden in the way that I’ve suggested, that is close those tax avoidance opportunities to raise another two billion, you can fill that $4 billion hole. And remember this, that those middle income earners that you’re talking about, $30,000 through to $50,000, will also gain significantly from not having a new tax on food which would affect them weekly.


FRAN KELLY: Okay. So is this what you’re suggesting to Meg Lees then today, that she should take to the table when she goes into the talks today?


MICHAEL RAPER: We’ve suggested this to anyone who’ll listen to us, Fran. We’ve suggested it to the government, we suggested it to the ALP, we’re suggesting it to the Democrats. The central point, of course, is that you can’t just take food out. You have to fill that hole in a fair and equitable way and we can’t see any other way. If the government wants its GST package up, we can’t see any other way other than by filling the hole through cutting the tax cuts and closing down avoidance opportunities.


FRAN KELLY: Let me just ask you very finally and very briefly, what about tax reform with no GST? Is a GST essential for tax reform?


MICHAEL RAPER: No, we’ve always said it’s not essential. We put up two options. We said that we do need to broaden the base on the income tax side, we do need to look at federal-state financial relations. We do need to look at business taxes and we do need to look at consumption tax and we do need to broaden the base in the consumption tax area. But we put forward two options: one was an option for reforming wholesale sales tax; one was an option in a broad-based consumption tax like the government was offering. It can be done in other ways. We put forward two options. It’s not absolutely essential at all.


FRAN KELLY: Michael Raper, thanks for your time.


MICHAEL RAPER: Thanks very much, Fran.


PETER THOMPSON: And Michael Raper is President of the Australian Council of Social Service, talking there to Fran.