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Wednesday, 9 May 2007
Page: 95


Senator SHERRY (4:18 PM) —The matter of public importance that I have moved today deals with aspects of last night’s budget. Naturally, the day after the budget there would be a focus on some aspects of it. I intend to touch on these in my contribution.

First and foremost, as the Labor Party have indicated, we welcome the tax cuts and one-off payments that were announced in last night’s budget. The tax cuts will apply from 1 July, generally to low- and middle-income earners. Those earning between approximately $10,000 to $26,000 receive a tax cut ranging between $3 and $6 per week and those earning between $27,000 and $70,000 receive a tax cut of between $10 and $14, but the tax cut peaks at about $21 per week for those earning between $30,000 and $40,000. There are further tax cuts for middle- and higher income earners from 1 July next year. Labor broadly welcome those tax cuts.

Frankly, it is about time that low- and middle-income earners did receive a tax cut, because what has been a contrast in previous budgets is that group of low- and middle-income Australians—the battlers—who have been doing it tough in many respects. They have had increases in petrol prices, food prices, rent and mortgages. There have been four interest rate increases since the last election. I would remind the chamber and those listening of the promise of the Prime Minister and the Treasurer that interest rates would remain low under a re-elected Liberal government—a promise made and broken. So low- and middle-income earners do deserve some tax relief, and that is delivered from 1 July. Unfortunately it is a bit late and was not given great consideration in previous budgets.

However, looking at the value of those tax cuts, many of the taxpayers in the low- and middle-income bracket who receive a tax cut from 1 July are receiving back little more than bracket creep. Bracket creep occurs when the increase in wages takes you into a higher tax bracket. It varies from income tax payer to income tax payer, but a large proportion of that tax cut effectively represents the increase in bracket creep that has occurred over the previous few years.

Looking at the budget papers from last night, one of the interesting aspects of the tax cuts is that after those tax cuts are delivered to that group of battling Australians the individual taxation from income tax still increases. Income tax collection still increases even after those budget tax cuts: in 2006-07, it is $107,000 million; in 2007-08, $110,700 million. This is an outcome of two things. It is an outcome of bracket creep, which I referred to earlier, and also of economic growth.

Turning to the issue of economic growth, one of the fundamental drivers of a strong economy for the long term—sustaining economic growth, sustaining growth in the economic cake, in wealth creation, so that we can either have tax cuts or important expenditures to support health, dental care and like matters—is productivity growth. That is a key fundamental to the economic equation and to the long-term strength of the Australian economy.

I want to refer to a couple of aspects of productivity growth that I think should be of concern to the Australian people. If you look at last night’s budget papers, in table 2 on page 1-5 of Budget Paper No. 1, you can work out productivity growth for the 2006-07 year. You may recall that I asked Senator Minchin a question about this in question time. With not much of the year left to run, the calculation for productivity growth is zero for the current financial year. If you look at last year’s Budget Paper No. 1, the forecast for this current financial year for productivity growth was 2 1/4 per cent. So the forecast for productivity growth, which is important for underpinning long-term economic growth, was forecast 2.25 per cent but is going to come in at zero.

If you look at the forecast for productivity growth in 2007-08 on page 1-5, it is approximately 2.25 per cent. It is then projected, over the following three financial years, to drop away to 1.75 per cent. That highlights one of the lies around the so-called Work Choices legislation. That legislation is not going to be a major feature of my contribution today. But if the argument from the government is—and it has been their mantra—that Work Choices is about contributing to productivity growth, why is it that, for the three years from 2008-09 through to 2010-11, productivity growth is projected to fall if Work Choices continues in operation in the event that a Labor government is not elected at the end of this year?

Even more disturbingly, the long-term average productivity growth over the last three years has been below that which Australia enjoyed in the early and mid 1990s. This is a worrying sign for sustainable economic growth in the long term, because we are heavily dependent at the moment on a mining boom. I think I saw a figure from the ANZ Bank showing that the mining boom had delivered approximately $300 billion, although that may have been updated today. Indeed, while I am on the ANZ Bank and their well-respected economic commentator, Mr Eslake, the bank notes its disappointment at the low productivity growth that is implicit in the budget productivity forecasts; however, I am not sure if that should be attributed to Mr Eslake. Frankly, the government has run up the white flag on productivity growth, which is so necessary to ensuring our long-term economic future.

The best way of summarising the budget is that it is a clever political document designed to assist the government in securing re-election. It is a clever political document. We have seen it from Mr Howard and Mr Costello—but particularly from the Prime Minister, Mr Howard—time after time: clever political calls which are exemplified in a number of ways in the budget. I refer to one: the income tax cuts for low and middle-income earners who have largely been ignored in budgets in recent times. The government knows that it needs to lift its support amongst this group of battlers, so it delivers a tax cut for them on 1 July. The government is finally giving them some attention.

There are a couple of other interesting measures that are one-off payments. There are two in particular I want to refer to. One is the $500 that is to be paid to senior concession card holders—pensioners and seniors who are eligible for that card. They are to receive a $500 one-off payment. They are receiving some attention—rightly, I think. If you look at the battlers in our community, full age pensioners are really doing it tough. In Braddon on the north-west coast of Tasmania, where there is a high proportion of full age pensioners, I receive regular reports about food prices and petrol price increases in recent times. I even receive reports about things as basic as paying the rates on their homes. Where I live, the majority own their own homes and it has become a real battle for them. But I would pose a basic question about this one-off $500. You cannot help but think that this is yet another clever short-term payment, to a group in the community who deserve a payment, to help secure re-election of the government. What happens next year?


Senator Ronaldson —Shouldn’t they get it?


Senator SHERRY —No, they should get it. That is exactly my point, Senator Ronaldson. They have largely been ignored and they should get it. But what happens next year to the battlers—the basic age pensioner receiving about $13,700 a year? A pensioner came into my office a few weeks ago with a rate bill for $1,200. She owned her own home but was sadly widowed. She was really battling to pay the rate bill. It is $500 one-off, but what happens next year and the year after? If there is a logic to paying the battlers like the full age pensioner $500 because they are doing it tough—and I think they are doing it tough—what happens next year when there is no one-off payment?


Senator Carr —It’s not an election year.


Senator SHERRY —Of course, as Senator Carr reminds me, there is no election next year; it is this year. Maybe that is why a bit more attention is being paid in this budget to the basic, battling age pensioner.

The other one-off payment that I want to touch on is the one-off superannuation co-contribution payment of $1,000. Labor supports the co-contribution scheme. If Labor is elected to government, it will continue. It is a watered-down version of Labor’s original co-contribution scheme, which the government signed up to and then dropped. It made a promise it would implement it but dropped it in 1997. Nevertheless, the co-contribution scheme will continue under Labor. Labor welcomes the additional $1,000 going into the individual superannuation accounts of slightly more than one million people. Labor welcomes that extra up to $1,500—the payment varies depending on your income and your level of contribution—but it is going into the superannuation accounts of people who made a contribution in the 2005-06 financial year. It is rewarding past saving. It does not deal with some critical threshold issues that need attention in the co-contribution scheme to encourage future saving.

I note that a number of commentators from the financial services sector have mentioned this. It is not just commentators from the financial services sector; according to an inaccurate budget leak some weeks ago, the Assistant Treasurer, Mr Dutton—to his credit—was purportedly arguing that the parameters of the co-contribution scheme should be changed going forward, particularly to assist under-45s, the younger group in our community. But he obviously got done over by Mr Costello and probably the finance minister, Senator Minchin. What have they come up with? Rather than redesigning the scheme to lift superannuation savings going forward into the future, there is up to $1,500 placed in the superannuation accounts of people who have already saved. Whilst there is an extra $1 billion going into super—that is fine; that is extra moneys—the fundamental design issues of the voluntary co-contribution scheme to give encouragement and incentive going forward were not dealt with, and that is unfortunate.

My colleague Senator Carr is going to comment expansively, I am sure, on some issues relating to the new part of the Future Fund that is being created for higher education. Five billion dollars is being placed in that section of the Future Fund, and the revenue is to be used for various capital purposes at universities. We have seen this before—smoke and mirrors, I call it. We saw it with the first sale of Telstra, where there was an environment fund set up with the proceeds from the first tranche of the Telstra sale. This was to support extra environment expenditure. But what happened on the expenditure side? In following budgets, the Commonwealth government cut expenditure on the environment in other areas. They gave a boost on one side of the ledger and cut environment spending on the other side of the ledger—smoke and mirrors. That occurred after the election, and I suspect we will see something similar if this government is re-elected at the next election. (Time expired)