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Thursday, 27 November 2014
Page: 9550

Income Tax


Senator DAY (South Australia) (14:39): My question is to the Minister for Finance, Senator Cormann. Left unchecked, bracket creep will soon result in 1.8 million full-time workers being taxed at the second-highest tax rate of 37c in the dollar. Over the next decade, single-income families will pay 60 per cent more in income tax. The minister has said numerous times that the government will provide tax cuts to offset the impact of bracket creep. Without tax cuts, NATSEM—that is, the National Centre for Social and Economic Modelling—estimates that the government will receive an additional $25 billion in tax over the forward estimates due to bracket creep. The National Commission of Audit report assumed bracket creep tax revenue would be returned through tax cuts. What tax cuts will there be for Australian families and when will they be announced?


Senator CORMANN (Western AustraliaMinister for Finance) (14:40): I thank Senator Day for that question. The government is committed to lower income taxes to adjust for bracket creep. I would refer Senator Day to the budget papers, where we actually disclosed that very transparently—in particular, Budget Paper No. 1 at 1-5, 3-6 and chart 1 at 7-6. The point that I make is that we are very mindful that bracket creep, left unchecked, will push more and more middle-income families into the higher tax bracket. That is bad for economic growth, it is bad for jobs and it is bad for living standards for middle-income families. That is another reason why we need to repair the budget mess that we have inherited. Under Labor, we were on a trajectory to $667 billion in debt in 2023-24 and rising. That was based on an assumption in their last budget that there would be no adjustment for bracket creep throughout that whole period. If there had been adjustment for bracket creep through that period, that debt figure would be $748 billion and rising.

Senator Day, I would refer you to the high-level statement in the budget overview:

With the changes in this Budget debt would be $389 billion in a decade; $277 billion lower than the projection of $667 billion at MYEFO, and assuming future tax relief.

There is more detail on that in the budget. The important point is that for the government to be able to deliver on this, for the government to be able to provide tax relief for middle-income families, we need to be able to get the structural savings reforms through the parliament. We cannot deliver the income tax relief for middle-income families envisaged in the budget without the Senate passing the savings measures that are currently being held up because Labor is being so irresponsible. (Time expired)


Senator DAY (South Australia) (14:42): Mr President, I ask a supplementary question. The US, the UK and Canada all link income tax rates to inflation. Australian pensions and other payments are also linked to inflation. When will the government apply permanent indexation of income tax brackets so that we are not relying on ad hoc adjustments?


Senator CORMANN (Western AustraliaMinister for Finance) (14:43): Senator Day is quite right that there is an expectation that a lot government payments are indexed to inflation or above that. That is one of the reasons why we have put forward the measure for regular indexation of the fuel excise. At the moment, the value of the fuel excise is eroded through inflation. Of course, the Greens now are the champions of regular reductions in the real value of the excise on fuel and they are the champions of big oil! I hear what you are saying, Senator Day. It is a suggestion I would encourage you to put forward to the tax white paper review process so it can be considered along with other reform proposals and priorities. The important point here, though, is that if we want to provide income tax relief, and if we want to provide for a more competitive tax system where people across Australia have got a better opportunity to get ahead, we need to do that from a position of fiscal strength and we need to do that from a position where we have our spending under control.


Senator DAY (South Australia) (14:44): Mr President, I ask a further supplementary question. On 30 October the Canadian Prime Minister, Stephen Harper, announced income splitting to allow spouses to transfer up to $50,000 of income to each other, yielding up to $2,000 per annum in family tax credits. Australian experts have also indicated that workforce participation, particularly for women, will fall if bracket creep is not addressed. Given bracket creep's negative impact on families, will the government implement income splitting for families? (Time expired)


Senator CORMANN (Western AustraliaMinister for Finance) (14:44): Firstly, I congratulate Senator Day for taking such a positive and constructive approach to building a stronger, more prosperous economy. This government is always open to good ideas. I would agree with Senator Day that it is very true to say that one of the very serious structural economic challenges that we as a nation are facing is falling workforce participation rates on the back of an ageing population. That is of course why we have measures in the budget to ensure that young people, who are healthy and well and who are able to work, earn or learn. That is why we have measures in the budget to ensure that Australians are working longer. That is why we have measures in the budget to lift workforce participation by women.

I hear the suggestion that Senator Day is making. Over the next few years we will continue to build on our reform agenda, as we are getting some of our priorities— (Time expired)