What we need as a country right now is to grow our economy—to increase the size of the pie, so to speak—because that is the best way to manage the enormous public debt that we now have, thanks first to the excessive spending of the Rudd-Gillard years and then because of our necessary response to a global pandemic over the last couple of years.
We now have a public debt approaching, and soon to be above, $1 trillion. The best way to help manage that, to deal with that, is to grow our economy. By doing so, we’ll have more tax revenue and more wealth to manage that debt. We now have a debt to national income, or GDP, ratio at a level we haven’t seen since the years after World War II. The way we came back from that crushing level of debt in the years after World War II, after defeating the evil of fascism, was to grow our economy. The fifties and sixties was a period of massive economic change and growth in this country that we had not ever seen. It came on the back of the world opening up after the war and the Menzies government of the time keeping an open and vibrant economy. We need to learn those lessons here, after a global pandemic which has not been as devastating as that war but which has left similar consequences of large public debt. We have to keep an open economy. We have to get our tax rates down and be competitive so that people will invest, work and thrive in this country and make more wealth for all of us.
The reality right now is that our tax systems are not competitive with those of the rest of the world, especially our personal income tax system. We have a high corporate tax rate, but what’s often forgotten or not commented upon is that we have a franking credits system that does not double-tax corporate profits, so the actual impact of the corporate tax rate of 30 per cent is not as high as it might seem on a direct comparison with overseas countries, because, when you get dividends, you can also usually get franked credits. If the company has paid taxes on those, you won’t pay the top marginal rate; you’ll pay the difference between the marginal rate and the corporate rate.
But there’s no such equalising factor for those earning income from labour. The workers of this country get slugged at a rate that is much higher than that of the rest of the world. Our top rate of 45 per cent—it’s really 47 per cent when you add the Medicare levy—cutting in at $180,000 a year is one of the highest rates in the developed world, and it cuts in at a level of income that is much lower than where the top rate cuts in in many other countries in the rest of the world. I will give a few examples. At 45 per cent, the top rate in the United Kingdom is about the same as ours, but it doesn’t cut in until someone earns 150,000 pounds. That’s over A$260,000. In the United States, the top rate is just 37 per cent, a full 10 percentage points lower than Australia’s. Even in New Zealand, their top rate is just 39 per cent. So we’re way out of whack with many comparable countries that we would be competing with for talent, especially in a world where borders have opened up and people can move.
We also have high tax rates below that level for middle-income people. What the stage 3 tax cuts are all about is making sure that middle-income people can have the aspiration to become higher-income people, become wealthier and provide a better future for their children, because these tax cuts, the so-called stage 3 tax cuts that come in in 2024-25, will actually provide a tax saving for any Australian who earns over $45,000 a year. That is a lot of people. That’s a lot of Australians. In fact, 95 per cent of Australian taxpayers will benefit from these tax cuts in a few years time.
We hear a lot of rhetoric about these tax cuts being for the rich and benefiting those who are well-to-do. Well, we’ve got to look at the whole series of tax cuts here. These tax cuts will get rid of one whole tax bracket and make our system much simpler and easier for people. The 37c tax bracket will go. The tax rate will be at least 30c in the dollar for anyone earning over $45,000. The top rate will then only kick in at $200,000, which will remain the same. That is a big tax cut for middle Australia.
The stage 3 tax cuts are a tax cut for middle Australia. Those Australians smack dab in the middle class earn income somewhere between that $45,000 a year and $200,000 a year. That is middle Australia. Some of those people at the higher end are very lucky and do very well, but all of them probably have worked hard in their lives to get to that level, and they deserve reward for effort. We want to encourage future Australians to continue that effort, so these tax cuts come at the right time and in the right place for our country.
If we continue to have higher tax rates than the rest of the world, that will punish effort. It will mean that people will think twice about starting a business. Why would you go and work a bit harder to try to get ahead so you can maybe put your kids through school or do something when the tax office is going to take so much of what you earn?
The other point to make here is that already the average tax rate in this country sits at just over 30c or so in the dollar. That’s not the marginal rates but the average rates that people pay. When you think about it, that means that, when most people start work on a Monday, all of Monday is for the tax office. Every bit of work they do on the Monday is for this place. That’s for money to come down here to Canberra. About half of Tuesday, too, for the average taxpayer is also on the Canberra clock, just working for the government down here. It’s not until after smoko on Tuesday afternoon that you actually get to work for yourself. What we’re saying is that maybe we should move that point from lunchtime to morning tea, from big lunch to little lunch, so you can earn a little bit more for yourself and take it home for your family to help them and give them a better future.
I’ve been here a few years now, and I don’t think we spend their money all that well. If we support this motion—
Senator Chisholm interjecting—
Senator CANAVAN: I don’t think you’re going to do any better, Senator Chisholm. I think it’s a disease in this place. A lot of the money that comes here gets wasted. A lot of your money, that work you do on the Monday and on the Tuesday morning, doesn’t always generate the public services that some people like to claim down here. Maybe, if we do have an issue with affording the stage 3 tax cuts, of having to deal at least temporarily with a bit of lower tax revenue, we could look at what is spent here in Canberra and in the bureaucracy to make sure that your money, your hard work, is actually providing value for the Australian people. Every Australian family does that. If, after these tax cuts—I’m hoping to god they get through—middle Australia gets a little more money to take home, I know they’ll spend it very carefully. They’ll think about where that money should go and how it should help their children and their families. I’m not so sure we always do that here. That’s why we can afford these tax cuts. These tax cuts will make for a stronger Australia if they go through.
