APPROPRIATION BILL (NO. 1) 2004-2005Cognate bills:APPROPRIATION BILL (NO. 2) 2004-2005APPROPRIATION (PARLIAMENTARY DEPARTMENTS) BILL (NO. 1) 2004-2005APPROPRIATION BILL (NO. 5) 2003-2004APPROPRIATION BILL (NO. 6) 2003-2004: Second Reading
Mr CADMAN (Mitchell) (4.10 p.m.) —It is a delight to be able to speak on the Appropriation Bill (No. 1) 2004-2005 in this cognate debate on this year's budget. I want to focus my remarks on Australian families.
There has been much discussion about Australian families. For some time, with some of my colleagues, I have been raising the issue of the tax-free threshold for parents. I am so pleased with the efforts that the government has made to meet some of the obvious deficiencies that are apparent in the tax system as it applies to families, particularly those with children. Raising the tax-free threshold appeared to me to be one of the only mechanisms available which would neither cause dislocation in the work force nor encourage unnecessary welfare dependency. For instance, by raising the tax-free threshold by $4,000 for the first child and an additional $2,000 for the second child, choice would be restored for parents—no longer would there be the penalty of a loss of benefits, weighed up against increased income and tax for mothers, should they seek to work part time. [start page 29602]
That is what most families and most women seem to want. It is generally the mum who goes back to work part time and seeks to supplement the family income for a period, either to meet short-term family goals or to ease the strain on the week-to-week pressures of the cost of living. The part-time option for many women has carried penalties with it. In many instances, for women on quite low incomes, there has been a very severe penalty that they have to carry. For example, in a family with three dependent children where the father earns $759 per week and the mother earns as little as $11.70 per hour, they find that the effective tax rate is above 80 per cent. If the mother works from five to 20 hours, it can rise by as much as 20 per cent, so there is no benefit in working. The loss of part A or part B of the tax rebate and the cost of child care, plus the tax factors that are already in place, are sufficient to make it almost not an option to work part time. That is why many women refuse to work more than a few hours a week. To ability to take on work for two or three days a week, which would be their preference in many instances, is often denied to them because of the penalties that the process carries.
The choice is often whether to work full time or part time but it is an easy choice because it comes down to this: work full time or not at all. I believe that is a damage to families. It is at a point where no choice is being exercised. The preferences of the family, the best options and the optimal arrangements for the family, are not available to them. This budget seeks to redress much of that problem. I have studied a series of comments by NATSEM, had the Parliamentary Library chase information, been to the Centre of Independent Studies and have looked at the work of a range of people to see what has been the impact of the budget. I would have to say that most experts are very favourably inclined towards the budget and its impact on Australian families with children. The impact on family payments—and that aspect of the budget—has increased the disposable income across the range of families with children. There is no doubt about that. And there is no doubt that the tapering process is a wonderful improvement. For many it will improve their conditions, from 10 per cent to 20 per cent, and the problems of the estimated family income will probably be less acute. They have not been removed completely, but I think it is a great step forward.
In addition to those factors that I have been concentrating on, there is the ability for families with children to claim, on reconciliation, $600 from the beginning of this month —provided they fit within family tax benefit A. They can, on reconciliation next year, claim a further $600. This is a total of $1,200 per child within a short period of time, and then there is an ongoing $600 per year. There have been complaints about the clawback process, that some families may have underestimated their incomes, received greater benefits than they should and therefore need to reconcile that. This $600 will help to alleviate that process. People will be able to say, `The $600 is there. It's coming through at the right time. We can adjust it within the $600, and there is going to be a surplus left,' thereby removing the difficulties that were obvious with the reconciliation process. I have looked at the reconciliation process for family tax benefit A and B, and I cannot see how it can be done other than to work on the total amount, unless a family were willing to have a fortnightly adjustment, which seems to me be the most sensible way. But many families want to wait until the end of the year, and therefore there is reconciliation, and the $600 helps to resolve that problem.
NATSEM, in their studies of family tax, pointed out that for families with an income of, say, $1,000 per week and the mother earning perhaps $20 an hour the effective marginal tax rate ranges from 40 per cent up to 80 per cent at the eighth hour of work. So, even on fairly high income, for the couple there is a pretty severe tax penalty created by loss of benefit, added to by the tax regime and increased by the need for family day care or child care of some sort. A tax-free threshold adjustment would solve much of that, but the government has instead chosen to lift the availability of the benefits despite the second income. That is another neat way of producing the same result with a tapered effect so that the impact of the effective marginal tax rates on a family come into play at a much higher level so that families with children can benefit.
I have looked at some of the work of Maley and Saunders of the Centre for Independent Studies, and they are very sure that Australian conditions match those of both Europe and Britain—and, to some degree, the United States. Where families are comfortable and given more choice, there is always the option of an additional child. With a fertility rate of about 1.7, Australia is right on the verge of not being at a replacement level. It is my view that it is far better, if we can, to replace our population from within, rather than relying on immigration. If Australian women and families feel more comfortable and secure, and they have the provision to and wish to—because I do not think there is any process of manipulation that is going to get people to have more children—they are more likely to have additional children. That is a very desirable goal for this country. I do not want to see a situation in a few years time where our population drops off and we are facing the situation that Japan will be facing, where there are large numbers of elderly and only a small number of young people. The situation in China will be worse, because of their one child policy. But that is not something that is going to impact very seriously on them or have any large economic impact. [start page 29603]
Fertility rates in most countries are falling, but some countries, such as Norway, Sweden and France, have arrested that decline with fertility rates that are stable or rising slightly. The United States remains high and is at the upper end of the range, behind Turkey only. According to Dr Lucy Sullivan, who did a paper for the Menzies Research Centre, government expenditure does not necessarily produce increased fertility, because one can look at a range of fertility rates and see that Germany and Greece have very generous family support regimes and they have not produced any significant impact on fertility. However, at the other end of the spectrum, the United States, where there is a significantly high fertility rate, there has traditionally been very little expenditure on families by the government; neither is there significant expenditure on families in Turkey. There is a range of options available. South Korea has a very low expenditure on families and its fertility rate is mid-range.
Where does Australia figure in all of this? We have a fairly modest fertility rate and a reasonable expenditure on families. In fact, we are at about the median of expenditure on families and towards the upper end of the spectrum on fertility rates. I think this budget is going to do a great deal to ease the pressure on Australian families with children. I am delighted with the tack the government has taken as it relieves those at the lower end of the spectrum, because that is where the greatest need occurs and where the greatest benefit will be received. The upper income end is significant in dollar terms but, if you look at the percentage or the variation of income, it is a small percentage as compared with the lower income brackets.
I think that these changes will produce a great result. Another interesting result is the payment this year of $3,000 to families having children, rising to $4,000 in 2005 and $5,000 in 2006. This is a collapsing of the maternity allowance and the baby bonus scheme into one worthwhile product, and I think that $60 or so a week will be a significant support for families raising children. Some would argue that the later teenage years represent the greatest expenditure for families and that that is where we should be directing most of the benefits. I do not necessarily agree with that, because the family tax rebate that we have introduced helps cover that by relating to both income and to the number of children and does vary by age group. There is a greater benefit to those families with older children, so that is a compensating factor which I think the government has dealt with nicely. If there is any need for movement in the future, I would argue that there is still room to increase the tax-free threshold, because that would help compensate for some of the bumps that are still in the system but which have been largely removed. That could be a future objective.
A range of families are assisted by the government's comprehensive tax policy. Peter McDonald tends not to be a philosophical supporter of this government but he has said some interesting things about family incomes and the support of families. Commentators ranging from McDonald to the Centre for Independent Studies consistently say that the government is on track and that these are very substantial improvements in the budget for the benefit of families. If anybody argues against that, I point out that they would be tackling a range of experts that have made a lifetime study of the impact of income on families. They have also looked closely at fertility rates. According to my analysis, the commentators, whether they be Lucy Sullivan of the Centre for Independent Studies, Peter McDonald, NATSEM or any other well known authorities, consistently say the same thing. There are continuing problems, as I have said, at the higher end of the disposable income range which are caused by the stacking effect of family tax benefits parts A and B, but that has always been a feature. The only way to remove it is to do something about the tax free threshold.
The other areas of great interest in the budget have been well documented. There has been a massive reaction to it. I know what people have said about the opinion polls. I must say that I cannot find that reaction in the community. I think they are waiting to see the government deliver. The government will deliver, because the funds are there. They have been carefully husbanded and they will be carefully paid out because Australia has come through a time of recovery. We are now on track. We do not need to go back to a regime which creates—for example, look at the Labor Party's proposal—an impossible set of ideals and goals that are fairly typical of a poorly managed economy: all the high ideals but no capacity to deliver them.
The latest set of Labor's promises include more spending. The spending results are out there—we hear them every day in the parliament and we hear them in shadow spokesmen's speeches. We hear the shadow Treasurer talk about bigger tax cuts. We know that there cannot be bigger tax cuts, more spending, larger surpluses, a reduction in debt and lower taxation and spending as a share of GDP. It just cannot be done. Government members are looking very carefully at the opposition. We are looking at where the fudging is going to take place. There will be cuts in areas that people will not like if that regime is to be maintained. There must be cuts. You have to ask, `Where is the money coming from?' You cannot make those inconsistent claims and produce a desirable result. As far as the tax cut regime is concerned, the government, in a targeted and well-thought-through way, is encouraging savings, supporting families and more spending on the elderly. There is massive expenditure on the elderly and retirees, because we need to consolidate funds and prepare for the future. The government has given attention to the need to resource our security and our defence. Those are sensible judgments. [start page 29604]
There has also been an emphasis on encouraging small businesses and employment rates. Despite the increase in the size of the work force, the unemployment rate is the lowest it has been for decades. The Australian Labor Party say, `We are going to do even better by spending more, giving bigger tax cuts, providing larger surpluses, reducing debt and lowering taxation and spending as a share of GDP.' It cannot be done. There would have to be massive cuts somewhere. Where is the money coming from? We can only say that we will wait and see what smoke and mirrors come out of the opposition.
I commend the budget to the House. From the point of view of the Australian family with children it is a most desirable outcome. Everybody seems to agree that it has been well done and that it has removed some of the anomalies that were obvious prior to the budget.
Author: Hon Alan Cadman MP
Source: House Hansard - 2nd June 2004
Release Date: 22 Jun 2004