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Monday, 21 February 2011
Page: 666

Mr CIOBO (5:13 PM) —by leave—I rise on behalf of coalition members to speak to the dissenting report that was put forward by the coalition members to the House of Representatives Standing Committee on Economics with respect to the reference of the Income Tax Rates Amendments (Temporary Flood Reconstruction Levy) Bill 2011 and the Tax Laws Amendment (Temporary Flood Reconstruction Levy) Bill 2011.

All members of the committee are joined and united in the view that this summer was a time of trial and tribulation not only for Queenslanders but, indeed, across much of Australia. The summer of 2010-11 proved to be a very bad one indeed, and we have already heard the chairman outline a number of consequences where we saw extraordinary loss, damage and suffering—unfortunately not unprecedented, though, in this country. Australia has for many, many decades certainly been a country of extremes when it comes to weather. For those that have had their homes inundated in flooding—the 21,000 or so affected—to consider that in Queensland alone, for example, 51 of the 73 local government areas were declared areas of emergency just highlights that this was an incredibly bad summer. To compound the flooding that took place across parts of Queensland and Victoria, we also had, for example, Cyclone Yasi, which struck North Queensland and in particular the townships of Tully and Cardwell and surrounding communities.

That really is at the epicentre of what gave rise to the inquiry that was undertaken by the economics committee. On 27 January of this year, we saw the government announce its new flood tax. Estimating that it would be liable for repair and reconstruction to the amount of about $5.6 billion, the government announced this new flood tax in the context of saying it was necessary to raise money through taxation coupled with, at that stage, about two-thirds of the funding being sourced from spending cuts the government was making. Much of this has now been overturned, but I will go to that in a moment.

The coalition members of the committee were the ones who instigated this report. The coalition had concerns about the government’s continued predisposition to impose new taxes as part of its fiscal solution. The concern of the opposition—of coalition members—was that once again we saw Labor revert to form, seeing higher taxing and more spending as the way forward. So the coalition took the view that what we needed to do was to work in a cooperative way with the government, and we made a number of options available to the government. The first was that the Leader of the Opposition signified that he was willing to work with the Prime Minister in a constructive and bipartisan way to identify cost savings that could be achieved in the budget so that Australians did not have to face the prospect of yet another new tax under this government. That offer was rejected by the government.

So, as part of our attempts to ensure that we hold the government to account, we proposed—and referred to the economics committee—that these bills be subject to a short, sharp inquiry. We worked in a constructive way with the government for only a one-week time period for this inquiry, and indeed the inquiry itself took place over the course of one day. We felt as coalition members of the committee that it was appropriate that there be as comprehensive an investigation as possible—given the parameters and the time frames involved—for us to look at this new levy raising nearly $2 billion. It was disappointing, therefore, as part of the process and the investigation into this new flood tax, that after only 45 minutes, with a very clear need for there to be additional questioning of Commonwealth Treasury officials, the Labor Party gagged coalition members from seeking an extension of time with respect to questioning of Commonwealth Treasury officials. It seems entirely unnecessary when there were adequate breaks in the course of the day for the committee to continue questioning, and it raises the question of why the government refused to allow the additional questioning on a new $2 billion tax when it could easily have been accommodated in the work program that the committee had. But, that notwithstanding, that was an issue of process.

With respect to the merits or demerits of the new flood tax, the evidence is clear, and it is summarised in the dissenting report that coalition members put forward. The evidence is clear that the reason why this new flood tax is not the appropriate response to the natural disasters that we have had is that it creates a new precedent. First of all, we know that this new flood tax is unnecessary. It is entirely arbitrary and there is no connection that has been made by witnesses or indeed by the government about why, with $5.6 billion in estimated and forecast expenditure required by government for the repair and reconstruction effort, a flood levy of $1.8 billion needs to be raised. It is entirely arbitrary.

So we remain inquisitive as to why this amount was the amount that the government has decided to raise. Bear in mind that, when it was first announced on 27 January, the government said that two-thirds of the required expenditure would be found through savings, yet despite this much has actually been overturned. For example, the government announced the reversal of some $364 million under the Solar Flagships program and the National Rental Affordability Scheme to secure the support of the Greens. In addition to that, $50 million of funding cuts under the Australian Learning and Teaching Council have also been reversed, which was made necessary by the government attempting to buy the support of the member for Denison as well. These examples just highlight the fudgy figures this government works on when it comes to something as important as imposing a new tax on the people of Australia.

In addition to that, we raised our concerns about the fact that, had there not been billions of dollars of wasted expenditure previously, again this flood tax would not be necessary. This is a government that wasted over $2.4 billion under Building the Education Revolution, that wasted another $1 billion or thereabouts under the failed insulation program and that then says it needs to tax the Australian people $1.8 billion as part of a flood rescue tax, as it likes to package it. The reality—clear from the evidence—is that it would have been entirely unnecessary had money not been wasted to the tune of billions of dollars.

But, from an economic perspective as well, there were clear arguments made that there was no economic rationale in favour of this new tax. In particular, I would highlight two economic experts that gave evidence to the committee: Mr Saul Eslake and Professor Warwick McKibbin, both of whom gave very detailed information about the merits or demerits of the flood tax. Both highlighted that there were effectively three pathways available to government when it came to the repair and reconstruction costs that needed to be met: to impose a new tax or increase an existing tax or taxes; to reduce spending on another program or programs; or to borrow the necessary funds and repay the debt over time—or a combination of all three of those. Mr Eslake in evidence said:

I would be concerned if every time a significant or expensive natural disaster or indeed any other exigency fell to the Australian government the response was to slug the 40 per cent of the population who are considered rich enough to bear an additional tax burden. I think that would be problematic, although there is an element of political judgment in that as well as economic. But, obviously, if you continue to increase marginal rates of tax on a segment of the population by large amounts or with high regularity over time then there could well be some adverse consequences for incentives to work, save, invest and the like, which have been well documented in the economics literature.

Professor McKibbin said:

I wish to comment on the principle of how to finance the cost of a natural disaster or any temporary negative economic shock. The main reason for focusing on this issue despite the relatively small amount of money involved in the current case is to make sure that important principles are in place for future disasters and future economic decisions which may be of significantly larger magnitude.

Most economists who study public finance would support the view that taxation is not the optimal way to finance the reconstruction of infrastructure after a natural disaster. The argument has a long tradition in economics.

The two economic experts that gave evidence to the committee made it very clear that, out of all the pathways available to government, this government’s choice was the least preferable. That is part of the reason that the coalition members formed the view that these bills should not be supported. In addition to that, unintended consequences were highlighted. It is clear, based upon the evidence that the committee heard, that among a multitude of foreseeable unintended consequences there also exists the very real likelihood that, as a result of the government imposing this new flood tax, next time—and there will be a next time, unfortunately—a natural disaster occurs Australians will be less willing to dig into their pockets to make a donation to support. The reason they will be less willing is the very realistic expectation that the government will impose a new tax or increase taxation as part of the relief and reconstruction effort. For this reason as well, the coalition members were unimpressed with the government’s path to imposing a new tax. Further to that, there are significant transaction costs associated with the new tax, which Professor McKibbin referred to. He said that he expected up to 10 per cent of the revenue from the tax could be lost through churn in collection.

In addition to that, an issue that concerned coalition members and senators is the moral hazard of the Commonwealth vis-a-vis the states. We heard from numerous witnesses, including Mr Bradley, the Queensland Under Treasurer, and the Insurance Council of Australia, that there is a very real moral hazard whereby, as a consequence of the natural disaster funding arrangements that exist in this country, the states are effectively underwritten by the Commonwealth government. Various states have taken different decisions in seeking reinsurance of public infrastructure. The state of Queensland took the decision not to seek reinsurance, arguing that it was uneconomic to do so. I sought advice from Mr Bradley, as the Queensland Under Treasurer, as to what the premium was expected to be and an answer was not forthcoming, unfortunately. That notwithstanding, what is clear and what is on the record is that Queensland took the decision not to undertake commercially available reinsurance because it knew that the Commonwealth would, in time of crisis, step in. The imposition of this new flood tax exacerbates that problem both politically and economically. Politically, we as coalition members feel the argument can already be made that for any state government the decision to go to the Commonwealth to seek reconstruction repair costs is enlivened by the fact that the politics and precedent that this new flood tax creates make it politically more acceptable for a state government to do precisely that.

The final argument that the committee had concerns about was those who will be paying for this new flood tax. The ACTU made the argument that those who can afford it should pay the tax. This is despite the fact that the flood tax kicks in at over $50,000 a year unless the recipient has received the Australian government disaster relief payment. As it currently stands, the average wage in Australia is $65,000 a year, so we already know those earning below the average wage will have to pay the tax. There is also, unfortunately, a high likelihood of inequities arising as a consequence of the design of this new tax. Professor McKibbin said:

I am sure that there are Queenslanders out there who had no insurance, who incurred significant damage and did not receive any assistance from the government. They will now be hit with the levy.

This reason more than any other highlights the gross inequity of this new tax, where those least able to afford it, those earning below an average wage and those who have suffered economic harm as a consequence of these natural disasters will now have that harm magnified as the government imposes this new flood tax on them. For all of these reasons, coalition members recommended to the committee that the bills be rejected and not supported through passage of this House.

The DEPUTY SPEAKER (Mrs D’Ath)—Does the member for Dobell wish to move a motion in connection with the report to enable it to be debated on a future occasion?