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Wednesday, 23 May 2018
Page: 4392

Mr MORRISON (CookTreasurer) (17:57): In summing up this debate, I want to thank members for their contributions to this debate. In concluding the debate, there are a couple of points I just wanted to reinforce to the House. The first of those is who currently pays tax in the country and how much tax they pay when it comes to personal income tax.

When you look at the distribution of that, what you see is that the share of personal tax paid by those on the top tax bracket is 30.3 per cent. The average—median—tax paid by those individuals is $84,600 a year. They represent 4.1 per cent of taxpayers and they pay 30.3 per cent of tax. In the next tax bracket, from $87,000 to $180,000, are just less than 20 per cent of taxpayers, and they pay 34.8 per cent of tax and pay, on average, around $30,500 a year in tax. Combined, those two top tax brackets account for less than a quarter of taxpayers and pay two-thirds of the personal income tax in Australia. The $37,000 to $87,000 threshold—remembering this government increased the threshold from $80,000 to $87,000 a couple of years ago—accounts for more than half of taxpayers. That is 5.4 million taxpayers, in fact. And they pay less than a third of tax—32.5 per cent—and have an average tax paid, based on the 2015-16 data, of $10,400. That's about a third or just over of what's paid on the next tax bracket up and about a sixth of those on the top.

And then you've got those on the lowest tax bracket above the tax-free threshold, and that's 2.3 million taxpayers. It's 23 per cent of all taxpayers—almost a quarter—and they pay 2.4 per cent of personal tax. They pay each year, on average, a median tax of $1,900.

We have a progressive tax system. That is what it is designed to do. Those who earn more pay more—and they pay more not just in terms of dollars, they pay a higher rate overall. A bigger percentage of income is paid in tax for those on higher incomes than for those on low incomes. That is what enables us to provide for a safety net in this country. I don't think Australians subject to that principle at all. In fact, I think they support it. But they don't want to be taken for mugs either. They also understand that the system has to provide reward for effort. As we were reminded by the member for Fenner, humans, if they are in the position of paying less tax, tend to do more.

Mr Pasin interjecting

Mr MORRISON: As for other taxpaying mammals, I'm not sure what the practice is! The point is this. We have a progressive system. That is a good system but it shouldn't overreach on those who are out there working hard and doing better and become a disincentive for that, because that undermines the economy. So what this tax plan that we have announced in this budget is designed to do is ensure that we conform to that principle. It respects the progressivity of our tax system. In 2024-25, the year when the full plan comes into being, those on $40,000 a year will be paying an average tax rate of 11.2 per cent under our plan and those earning $200,000 a year will be paying an average tax rate of 30 per cent. So the progressivity of the system is not under challenge—not at all. We retain, as indeed we should, a progressive tax system. Indeed, it will move from those on the top tax bracket paying around 30.3 per cent of the total personal tax bill in this country in 2015-16 to, at the end of that plan, 36 per cent. So those on the higher tax brackets will then be paying an even higher proportion.

Mr Pasin: It's more progressive.

Mr MORRISON: It is more progressive, indeed. So we are retaining the progressivity of the system. What the plan is also doing, though, is protecting against bracket creep. This is an incredibly important part of this plan. If you are on an average wage at the moment, the full-time ordinary wage of $84,600, in 2022-23, which is when step 2 of the plan kicks in, you will be earning $96,850 and by the end of this plan you will be earning over $100,000. Bracket creep, unless addressed, will unfairly take back from those working Australians what they haven't earned.

So what our plan is designed to do in three steps, as other speakers from the government have rightly noted, is, firstly, deliver that relief to low- and middle- income earners. We understand the pressures they face and the many expenses they have, particularly their fixed expenses-utility bills and all those things. Step 1 of our plan responsibly delivers that relief by providing a tax offset for low- to middle-income earners of up to $530 a year, which is claimed back through their tax refund. Step 2 of the plan is to adjust the thresholds in 2022-23 to address the theft of bracket creep. We do that by adjusting the thresholds from $37,000 to $41,000 and by moving the $90,000 threshold, which we have moved from 1 July this year under this plan, as part of step 2, up to $120,000. That will ensure that hundreds of thousands, if not millions, of Australians will be prevented from paying higher rates of tax. Step 3 simplifies the system. It removes the 37 per cent tax bracket so that 94 per cent of Australians will not pay more than 32.5 per cent as their marginal rate of tax.

That is a structural change to the tax system. It makes it simpler, it protects against bracket creep and it provides immediate relief. It is important to understand that these parts of the plan are linked. Step 1 and step 2 of the plan are inextricably linked, as, indeed, is step 3 to achieve all the purposes of the plan. Under step 1 of the plan, the low- to medium-income tax offset runs for those four years, and then it is absorbed into the threshold changes and the adjustments to the low-income tax offset to ensure that the tax relief for low- and middle-income earners is preserved for all time. It's preserved into the future by the adjustments to thresholds and the adjustments to the low-income tax offset that is in step 2. So the idea that you can break these two apart and not impact on low- and middle-income people shows a complete lack of understanding of or a failure to read the budget documents or a willingness to not seek to understand them. That's why it's incredibly important that we understand the componentry of this plan.

I look at the componentry of this plan and I could set out the costs for you over the short-term—over the budget and the forward estimates—and over the 10-year period. When you look at the cost of the low- and medium-income tax offset over the forward estimates, that's $11,650,000,000. Over the full 10 years, just the residual component of that step 1 program is $15.9 billion. If you look at step 2, which includes the increase in the threshold from $87,000 to $90,000, the cost over the budget and forward estimates is $1.75 billion. The cost, though, of that over the full 10-year period is $6.45 billion. When you take steps 1 and 2 together over the medium term, the cost of that program is $102,350,000,000. Now I stress that when you're projecting over the medium term, there are very real issues. Over the medium term, over a full-year period, the Treasury will advise, of course, that there are swings and roundabouts that happen with forecasts and assumptions that you make. I also stress, though, that it is nominal dollars. A dollar 10 years from now is obviously going to be worth less than the dollar is today. The dollars we're talking about here are nominal figures, so when you see larger figures in out years over the back of the medium term, those dollars don't cost the same as the dollars in the medium term. That $102,350,000,000 is the combined cost of step 1 and step 2 over the medium term, and the combined cost of the entire program over 10 years is $143,950,000,000.

So that sets out the costs of step 1, step 2 and step 3 of the plan. I think it demonstrates the proportions. Of the $143 billion or thereabouts—we've been saying roughly $140 billion—just over $100 billion is actually going to steps 1 and 2 of that program, which is targeted towards low- and middle-income earners over that period. That's what steps 1 and 2 are costing, and the total cost of step 3 over the medium term is just over $143 billion, at $143.95 billion.

This plan is also designed not just to provide this relief and deliver actual, real reform to our personal tax system and deal with real problems in the tax system; it's also designed to ensure that taxes as a share of our economy do not rise above 23.9 per cent. That is something we've set as a fiscal rule, as a tax speed limit, because we know that if you allow taxes to rise as a share of the economy to unsustainable levels this undercuts growth, costs jobs, costs investment and costs the budget. It's self-defeating. It's like a snake eating its tail. The shadow Treasurer used to believe that. He actually set us a goal of staying below 23.7 per cent. That's what he said. He said that was the test of the new coalition government. In the first election he went to subsequent to that, he came forward with a tax plan which saw tax to GDP rising to 25.7 per cent of the economy over the medium term, and I suspect it's much higher now. We don't share the view that taxes as a share of the economy should be able to consume the economy and slow growth, and we've committed to that. Our personal tax plan is designed to ensure we stay under that speed limit. That's what this plan does.

Our tax plan also does not seek to punish those who are self-funded retirees, small and medium-sized businesses, family businesses, or nurses and police officers who've decided to buy an investment property. We're not seeking to punish any of these people. That's the Labor Party's plan. What we are doing is providing this tax relief and this personal income tax plan which says that 94 per cent of Australians will not face a marginal tax rate of more than 32½c in the dollar. We're doing that without hitting anyone else with higher taxes, because we don't believe that you have to punish Australians who are working hard in order to provide relief to other Australians who are working hard. That's fair. I think that's fair. It's not fair to go around and say, 'We are going to punish you because you're doing better,' to simply provide tax relief elsewhere. We believe you can achieve both things: encourage those in all parts of the tax system—

Mr Sukkar: Including retirees?

Mr MORRISON: especially retirees—and, at the same time, deliver that fairer outcome for those on low and middle incomes. It's a responsible plan. It's a comprehensive plan. It's a plan that deserves to have the support of this House. If this House is prepared on numerous occasions to commit the Australian taxpayer to decades and decades of expenditure as far as the eye can see, this chamber should also be prepared to say to taxpayers, 'We're also prepared to commit to tax relief in the future.' If you're prepared to commit to spending in the future and if you're concerned that tax relief might in other ways undermine the budget in the future, that same rule should be applied to expenditure in the future. You can't apply a double standard. We understand that you've got to fund hospitals into the future, and we do: $30 billion extra in just over five years as part of our plan. This is a tax relief plan that gives Australians certainty in the future. For that reason, I commend it to the House.

The SPEAKER: The original question was that this bill be now read a second time. To this the honourable member for McMahon has moved as an amendment that all words after 'That' be omitted with a view to substituting other words. The question now is that the amendment moved by the member for McMahon be agreed to.