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Tuesday, 15 October 1985
Page: 1268


Senator SIDDONS(9.22) —I guess that the one unforgivable sin at this hour of the evening is to be boring. It is difficult, though, because one wonders what has happened to the great tax reform that we have heard so much about. We were to have basic tax reform in this country. Without a doubt, we have had some tax reform. But the great initiatives, I am afraid, have fallen between the cracks. We are not debating those great reforms tonight. We started off with the proposal for a broad-based consumption tax. That has disappeared. We were then told at the National Taxation Summit that we were to have a broad based wholesale tax. The wholesale tax legislation that will shortly be before us contains virtually no reform of wholesale tax. We hoped that something substantial would be done in regard to marginal rates of tax. I will talk about that point in greater detail shortly. But the fact is that virtually nothing has been done about marginal rates of tax this year. We will have to wait until next year or the year after to see the reforms, such as they are.

It is very difficult not to be boring at this late hour of the evening in discussing the legislation that is before us. It is essentially uncontroversial. But one or two points, I believe, are worthy of comment. I propose to comment on these areas so that the Australian Democrat's position is made abundantly clear. We will support the legislation by and large, although we propose to move one amendment. The first comment that one could make concerns the abolition of the concessional expenditure rebate. This is a good thing. Concessional rebates have been available on a broad area of expenditure. I refer to education, health, superannuation and so forth. But essentially they were gifts to the wealthy and did not really help the bulk of Australians very much. They were of some value to those with high marginal tax rates and those who spent a great deal of money on health and school fees. In fact, only about 6 per cent of taxpayers are now gaining any benefit from the concessional expenditure rebates. There was reform in this area by the Fraser Government in the late 1970s, when the minimum threshold for the rebates was raised to $2,000. This was a trade-off at the time for tax indexation. Tax indexation did not last long under the Fraser Government. Unfortunately, it has not been promised under the Labor Government. We will not have fundamental tax reform until we have full indexation each year.

One matter in the rebate area that could be commented on is the new medical expenditure rebate. This has been introduced to compensate the chronically ill for the removal of the concessional expenditure rebate. As I said, we are in favour of the removal of these concessional expenditure rebates. The Government has introduced a rebate at the rate of 30 per cent. As this is about the average rate of tax paid by most people, the rebate will be more advantageous to those on middle to low incomes than to those on high incomes. However, one must spend $1,000 a year before this rebate becomes effective. We believe this figure is far too high. In particular, it will disadvantage those on very low incomes. We suggest that a reasonable base figure for the rebate is about $500. I will move an amendment to that effect in the Committee stage.

One aspect of the tax package for which we applaud the Government is that it has agreed to allow the election expenses of local councillors and members of the Australian Capital Territory House of Assembly as a tax rebate. In a democratic society the opportunity to run for office must be available to all. The provision of this rebate will mean that people who do not have very much money will be able to run for office, in particular at local council level. We can expect this reform to mean that people who are genuinely concerned about local government will run as independents and will not need to be financed by large and influential political parties.

The tax rebate changes for pensioners are also very welcome. The effect of this change is to raise the tax-free threshold to $5,275 for single people. That will give a rebate of $220. The threshold for married people is to be raised to $8,795. This move is to be commended because it means that poverty traps have been addressed to some degree.


Senator Peter Baume —Surely they have only lifted the level. The traps are still there. They are just at a different level.


Senator SIDDONS —Indeed they are, Senator. I was about to make that point. It is quite complex, but at least I will try to give accurate figures. The tax rebate now shades out above that threshold at the rate of 12.5c. One must remember that these people are also paying an initial marginal rate of tax of 25 per cent. In addition, their pension is to be reduced at the rate of 50c in the dollar as soon as they earn more than $30 a week. Each of these provisions on their own is reasonable, but added together we have the 12.5 per cent plus the 25 per cent plus the 50 per cent, which equals 87.5 per cent-one of the highest marginal tax rates that one could imagine and certainly above anybody else in this country. This is what is known as a poverty trap. It is a great disincentive for pensioners to join the work force, even on a part time basis. The fundamental solution to these poverty traps is to index the marginal rates.

I now turn to the Income Tax (Individuals) Bill 1985. It formally imposes the income tax rates. As I said earlier, the rates for this year are the same as those for last year. There has been no reform of the marginal rates at all in this tax package. The new rates that we have heard so much about are to apply next year and the year after. That is three years hence at this point in time. Fringe benefits and other revenue raising initiatives are taking effect immediately and are increasing government revenue, but the unfortunate thing is that the Government is not concurrently giving us tax relief.

I want to comment just briefly on what we believe should have been the great thrust of the tax reform which has been, as I said, avoided because the Government picked up its bat and ball and went home. The Government was not prepared to introduce a broad-based income tax. It was not prepared to introduce a broad-based wholesale tax, as it promised to do at the National Taxation Summit. It was not prepared to introduce a services tax, as it promised at the summit. The Democrats believe that there must be substantial reform to marginal rates if we are not going to stifle incentive in this country. I am not talking about the wealthy; I am talking about the tradesman, the typist, the school teacher and the single mother supporting her children. I am talking about the so-called middle class of Australia the backbone of this country. A toolmaker-and remember that the marginal rates have not been changed for this year-who earns about $17,500 a year pays a marginal rate of 30 per cent. He works a little overtime, earns another $2,000 a year and suddenly his marginal rate becomes 46 per cent. Suddenly he is being taxed at a marginal rate which was designed to catch the millionaire 20 years ago. What is true of the toolmaker is true of the school teacher, the secretary and millions of other middle class Australians. We consider that reform of the marginal tax rates is absolutely vital if incentive is to be restored in this country. This is the very area of tax reform that has not been addressed immediately. It is being addressed in a very partial way in two and three years time.

The Democrats have mentioned on other occasions, and I mention it again now, an alternative to the current rates of marginal tax that we would very much like to see introduced. It would not be very expensive to government revenue if above a certain level, say about $10,000 a year income, the marginal rates of tax were to be increased in a straight line; that is to say, for every additional $1,000 of income earned, the marginal rate should be increased by one per cent up to a maximum of, say, a 50 per cent rate. This would give a straight line increase in the marginal rate. There would be no bumps in it and it would have the effect of immediately restoring incentive to all Australians. It is an option which we suggest the Government look at carefully and which it could implement if it were prepared to face up to some mild form of broad-based consumption tax.

We Democrats made our position quite clear during the tax summit. We would have supported the Government on a broad-based consumption tax, although not at a rate of 12 1/2 per cent and certainly not a broad-based consumption tax on the necessities of life. However, with these two provisos we were open to any proposition the Government wished to consider, whether it be a value added tax, a retail tax or, as the Government finally indicated, a broad-based wholesale tax combined with a services tax. None of those approaches have been introduced by the Government. We believe that the Government went to water on that proposition far too easily and that it did not take sufficient account of the crying need to reform the marginal rates of tax for middle class Australians. In fact, Australians have a whole continent to develop and the people of our country are burdened with about the highest rate of marginal tax in the world. They are prohibitive rates. There is nothing more designed to cause discontent and to stifle incentive than to say to people: `No matter how hard you work, you are not going to be allowed to earn above a certain level of income'. In effect, that is what is happening with our high rates of marginal tax.

In summary, on one or two occasions we have applauded the Government for some of the initiatives it has introduced. We certainly applaud the way it has introduced the capital gains tax. It may not be particularly relevant to this legislation but it is a part of the tax reform package. We are pleased that the Government has taken note of many of the things that the Democrats said in relation to a capital gains tax and to that degree we compliment the Government. It has moved very well in these areas and has brought in a capital gains tax which we believe is mild and which will not impact unfairly on the economy at large. Unfortunately, the Government has not faced up, yet anyway, to the need for reform of marginal tax rates. It has not faced up to the need to reform and to create incentive again in Australia. That is very much to be regretted.

This legislation is essentially uncontroversial. I do not intend to speak at length on it. I have raised the points which I think are worthy of comment and which are of concern to the Democrats. We support the legislation with the exception of the amendment which will be moved at the Committee stage.