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Tuesday, 15 March 2005
Page: 27

Senator JACINTA COLLINS (2:22 PM) —My question is to Senator Patterson, the Minister for Family and Community Services. Is the minister aware that the House of Representatives Standing Committee on Employment, Workplace Relations and Workforce Participation report Working for Australia’s future: Increasing participation in the workforce unanimously recommended:

… the Australian government review ... effective marginal tax rates ... to maximise incentives to move from income support payments to increased participation in paid work.

Is the minister aware that a single-income minimum wage earner with children under five would be not one cent better off from earning an extra dollar, since 30c would go to the tax man and 70c would come off the parenting allowance? In light of the unanimous finding of this committee, does the minister agree that the government has not done enough to reduce the disincentive to work from very high effective marginal tax rates?

Senator PATTERSON (Minister for Family and Community Services and Minister Assisting the Prime Minister for Women’s Issues) —I thank Senator Collins for her question because it gives me an opportunity to compare our record on effective marginal tax rates against Labor’s record. The Australian government significantly reduced effective marginal tax rates for many families when it introduced A New Tax System. In the 2004-05 budget, income taxes were cut by $14.7 billion. As a result of that, more than 80 per cent of taxpayers will pay no more than a top marginal tax rate of 30c in the dollar over the next four years.

The government also reduced the first income test taper rate. This is one of the issues that affects assistance to families when the person returns to work. They are substituting taxpayers’ assistance for dollars that they earn for themselves. This is not a tax but is replacing welfare dollars with dollars earned. In order to reduce the effective marginal tax rates we reduced the first income test taper rate for the maximum rate of FTBA from 30c in the dollar to 20c, and the FTBB income test taper from 30c in the dollar to 20c from 1 July 2004. This builds on the reduction in the withdrawal rate of maximum family allowance from 50c in the dollar to 30c, undertaken in 2000. In the OECD’s 2004 economic survey of Australian states, with the May 2004 budget also incorporating a reduction in the withdrawal rates of the family tax benefits and increased family assistance, EMTRs for families on average earnings have fallen to 51.5 per cent. Compare that with what they were when Labor was in government: families faced an average EMTR of 84c in the dollar.

There will always be a withdrawal rate when you have assistance. The only way you can eliminate a withdrawal rate is to not have any assistance. Improving the taper rates reduces the EMTR, but there are more Australian families facing EMTRs because more families have jobs. EMTRs higher than the marginal tax rates arise out of the interaction, as I said, between the tax and social security system components.

The OECD report Taxing wages shows that, after income tax and cash benefits are taken into account, working Australian families have the highest disposable incomes in the OECD. This is in part due to the higher level of real wages growth that Australian workers have enjoyed since 1996, tax cuts provided in 2000, 2003 and 2004—unlike Labor’s l-a-w tax cuts that never came into being; they lied to the Australian public—and increasing family payments.

This government has a proud record of supporting families. The base rate of family assistance has increased from $22.70 per fortnight in 1996 to $66.50 per fortnight. We have also introduced the maternity payment for every woman having a child. As I have indicated before, we have seen the average effective marginal tax rates faced by families dropping significantly from 84c in the dollar under Labor to 51.5c under us.

Senator JACINTA COLLINS —Mr President, I ask a supplementary question. Is the minister aware that the chair of the committee, Liberal MP Phil Barresi, argues that reducing the still far too high effective marginal tax rates, not cutting people’s wages, is the best way to encourage people to get a job or to earn more money? Minister, will the Howard government finally adequately deal with burden on Australian families of high EMTRs in its 10th budget?

Senator PATTERSON (Minister for Family and Community Services and Minister Assisting the Prime Minister for Women’s Issues) —Labor’s record for families when they were in government was high interest rates, high inflation and high effective marginal tax rates—families faced on average an effective marginal tax rate of 84c in the dollar. Labor’s record in assisting families is appalling. We are now seeing families getting $7,500 on average in family assistance—$2,500 before we take into account the child-care tax rebate assistance for child care. We have seen reduced interest rates, reduced unemployment and reduced inflation. Labor have no record. They do not have a leg to stand on when it comes to their record on families. They neglected families in their policies in the last election and the Australian public knew and did not vote them in.