Second Reading: Treasury Laws Amendment (Cost Of Living Tax Cuts) Bill 2024

I rise to speak about the Treasury Laws Amendment (Cost of Living Tax Cuts) Bill 2024. I want to put three propositions to the House this morning. The first is that what the Albanese government has done here is a terrible failure of tax reform. My second proposition is that this is a cynical breach of a promise made by the Prime Minister and other senior Labor figures over 100 times. My third proposition is that this is a second best to what the coalition has legislated, and the coalition has reached a decision because we are in a world, to use the economic jargon, of second bests. Let's start with the terrible failure of tax reform which this backflip by the Albanese Labor government represents. The rationale for these stage 3 tax cuts was to deliver structural reform to the tax system, to encourage aspirational Australians who want to work hard and get ahead. The whole design of the stage 3 tax cuts was that, between $45,000 and $200,000 of income, anywhere you are in that range, you know that you would only be paying 30c cents in the dollar.

The stage 3 tax cuts were part of a long-term plan that was designed and legislated several years ago. It was done with the view of giving Australians adequate notice of the change that was coming to allow them to make their decisions about how they wish to respond, should they choose to do so. If you were thinking about doing some extra shifts or getting an extra qualification so your earnings increase or if you were thinking about starting a business, you would do these things with the knowledge that, for an income right up to $200,000, the most that you would be paying would be 30c in the dollar in tax.

This was a design intended to address the known and corrosive impact of bracket creep, which results in more of your income being taken in tax every year through the effect of inflation. I make the point that a very deliberate intention of this reform was to remove the 37c tax bracket. The result would be a simpler, clearer, fairer tax system. There would be a 30c bracket and a 45c bracket. The effect of the 30c bracket under the plan, legislated by the coalition and promised to be upheld more than 100 times by the Prime Minister and his party, would have been to cast onto the ash heap of history the 37c per cent tax bracket and, in turn, unleash greater activity, greater energy, greater aspiration by Australians in the knowledge that throughout that range, from $45,000 to $200,000, they would pay no more than 30 cents in tax.

Unfortunately, all of that has now been trashed by the Albanese Labor government. The government have said a lot of deeply misleading and inaccurate things in the course of justifying this egregious broken promise. One of the things we never hear from those opposite is the historical fact that this is stage 3 and that suggests, doesn't it, that there was a stage 1 and a stage 2. Indeed, there was a stage 1 and stage 2, each of which were very much focused on reducing the burden on low- and middle-income earners. That was a very important component of the coalition's plan.

The third component of the coalition's plan was to change the tax system through this long-term reform that would increase the incentive for people as they thought about how much work they wanted to do. It has to be said that one of the deeply regrettable consequences of this cynical political decision, this political backflip, taken just months before this long-term change was due to take effect, having been legislated several years ago, is that it will make it so much harder in the future for any government that wants to engage in serious reform of our tax system.

You need only talk to any economist and they will tell you that our tax system is a drag on Australia's productivity, on Australia's competitiveness, on Australia's prosperity. Tax policy experts consistently argue for a simpler system and one that imposes, in the economic jargon, the smallest possible deadweight loss. According to John Humphreys of the Australian Taxpayers Alliance, 'Stage three income tax cuts represent Australia's most important piece of microeconomic reform in 20 years.' He adds the cuts would have created 'a simpler, more efficient tax system that will help boost productivity and promote long-term wage growth'. Economists talk about a dynamic as compared to a comparative static perspective. What we hear from Labor and what we hear from the left is a comparative static perspective. You assume that the income that every Australian has now is cast in stone and the only thing that could change is the tax rate, and that leads to these long tables of winners and losers. But the whole point is the economy is not static; it is dynamic. People change their behaviour in response to incentives. If you face a lower tax rate, you have a stronger incentive to work harder. That is good for individuals and good for the entire economy, because the economy grows. Creating that stronger incentive is what the stage 3 tax cuts are all about. Now, all of that has been torn up and thrown in the bin.

Let me turn secondly to this cynical breach of a promise that we have seen. This is a triumph of crass, short-term political opportunism over the long-term tax reform process. For over three years, Labor consistently said they would honour the stage 3 tax cuts. In July 2021, the then opposition leader, the member for Grayndler, and his Treasury spokesman, the member for Rankin, said:

An Albanese Labor Government will deliver the same legislated tax relief to more than 9 million Australians as the Morrison Government.

Their explanation for why they were going to do this was straightforward:

Labor is providing certainty and clarity to Australian working families after a difficult two years …

Well, they promised certainty and clarity; they delivered the opposite. On more than 100 occasions, the Prime Minister and other senior Labor politicians committed to maintaining the stage 3 tax cuts. They committed to maintaining the tax cuts which are in the legislation now and have been for several years.

This was a promise made repeatedly before the 2022 election, during the 2022 election and after the 2022 election, including numerous times in December 2023 and January 2024, when we know from what has now been revealed, including through Senate estimates, that at the same time that the Prime Minister and the Treasurer were repeatedly saying to Australians, 'We have not changed our position; we remain committed to the stage 3 tax cuts,' in fact they had changed their position. They had directed Treasury to proceed to come up with a changed plan. They assert—this ludicrous proposition—that it was all Treasury's work. The Prime Minister and the Treasurer were just sitting at their desks, twiddling their thumbs, whistling, looking into the middle distance, and all of a sudden, bang! On their desks dropped a new plan that Treasury had worked up all of its own volition.

That is one of the many ludicrous and completely non-credible claims that have been made by the government as they have twisted and turned and danced about trying to justify one of the most egregious breaches of trust ever committed by a Prime Minister against the Australian people. To say more than 100 times, 'We will take this course of action,' knowing that across the country people are listening to him, listening to the government, taking them in good faith and arranging their affairs in reliance on that promise, and then to cynically reverse that position is one of the worst breaches of trust Australians have ever seen from a Prime Minister.

What it means is that Australians cannot believe a word that comes out of the mouth of this Prime Minister, this Treasurer, any Labor minister or any Labor member of parliament. How can you believe a word they say, when they told the Australian people 100 times and more—before the election, during the election, after the election—'We will maintain the stage 3 tax cuts,' and then cynically, deliberately, dumped that promise? They broke their promise. They looked the Australian people in the eye and said: 'Oh, that thing we said 100 times we were going to do? We're not going to do it.' It is hard to think of an example of more disgraceful conduct by a Prime Minister and by a political party than the conduct which has been engaged in by the Prime Minister and by the Treasurer over the last month. After all of that, despite their claims that this is now justified because it will offer relief to Australians from cost-of-living pressures, the sorry truth is it will deliver very little relief at all. The fact is that in Labor's first 18 months of government the amount of personal income tax collected has risen by a record 27 per cent. Headline inflation is more than 1.6 per cent above the midpoint of the RBA's target band. Food, housing, insurance, health and education costs are all growing faster than the headline inflation rate.

What then will be the impact of the measure contained in this bill we're debating today? What we know is that for somebody on the average wage, their net after-tax real disposable income has fallen by $8,000 since Labor came to power just 18 months ago. That's $150 a week that somebody on the average income is worse off compared to 18 months ago. And yet that same person will receive a benefit of just $15 a week from these tax cuts that are now being trumpeted. So you've gone backwards $150 every week thanks to the rank economic incompetence of this government. And now the Prime Minister says: 'Great news! I'm going to deliver you an extra $15 a week.' It is a mere drop in the ocean. The reality is that people are hugely worse off under this government, and the tax cut that the Prime Minister is talking about barely touches the sides.

Let me turn, then, to the rationale for the position the opposition is taking on this bill. The Prime Minister seems frustrated. In question time he's been saying, 'Oh, well, if the opposition were fair dinkum, they would oppose this bill because they campaigned against my rejigged tax scales.' I'm sorry to break it to the Prime Minister: he can decide what his policy his; the opposition will decide what our position is. To use another piece of economic jargon, once the Prime Minister took his decision, we were in a world of second best not first best. The decision for the coalition became, 'What course of action should we now take given the government is going to take roughly $106 billion, the cost of the stage 3 tax cuts, and spend it all on a modified tax scale, different to the one legislated, different to the one they promised to maintain on over 100 occasions.' They won't just spend the $106 billion; indeed, they'll spend an extra $28 billion.

We are now in a world of second best, and this government is using its numbers in the House to ram through this outcome. But if the government of the day is using its numbers to offer a different set of tax cuts, then, if the first best has been removed, the choice for us is do we support the second best. It is the second best, but we've made it plain we will support it. We've also said we'll be responsible, because we're not going to then commit to additional spending unless and until we can be satisfied it can be funded. We've been very clear we're committed to go into the next election with a tax reform package that's in keeping with the stage 3 tax reforms. Our package will deliver lower, simpler and fairer taxes, fight bracket creep and enshrine aspiration in our tax system.

This has been one of the most unedifying breaches of trust by an Australian government for many years. The Prime Minister's standing has been permanently damaged. A valuable long-term reform has been junked. And for years to come we, as a nation, will lament this missed opportunity for reform.