13 February, 2024
Overwhelmingly, economists, civil society and academics have expressed support for the changes to the stage 3 tax cuts that were legislated by the former coalition government over five years ago. And it's not only experts that support the changes. A Newspoll found that 62 per cent of Australians also believe that the government did the right thing in reworking the tax cuts. The strong support for the changes, as illustrated by these statistics, is certainly interesting in view of the wider integrity issue that surrounded the Albanese government's decision to alter the tax cuts, despite promises to pass it on both before the election and since.
Changing the stage 3 tax cuts did raise a serious ethical conundrum for the government. They had to weigh up whether to go back on an election promise or relentlessly pursue a set of reforms that were no longer appropriate in the much-altered economic context compared to when the tax reforms were devised five years ago, prior to the pandemic. To proceed with the stage 3 tax cuts unaltered would have been to turn a blind eye to the millions of Australians across the country who are struggling right now to simply make ends meet.
In considering the ethical conundrum the PM faced, it is worth reflecting on the depth of the current cost-of-living crisis in this country. According to Dr Ana Gamarra Rondinel from the Faculty of Business and Economics at the University of Melbourne, just before Christmas around 56 per cent of Australians were only just making ends meet or were failing to manage that at all. Over 40 per cent of single parents and people aged between 18 and 24 were reporting high levels of food insecurity. And 12 per cent of women were both eating less and skipping meals to save money.
These cost-of-living pressures often compound to reinforce intergenerational poverty, making it harder for people to climb out of hardship. A study last March into poverty in Australia, conducted by the Australian Council of Social Services and the University of New South Wales, found that 12.5 per cent of Australians live in poverty, including 17 per cent of children; 60 per cent of households reliant on JobSeeker live in poverty; 53 per cent of public housing tenants live in poverty; 34 per cent of sole parents live in poverty; and 25 per cent of people with a disability live in poverty. And this study was conducted before the cost-of-living crisis really hit. Inequality is a growing and serious problem in this country, and the longer we take to address it, the wider the gap and the more entrenched it will become.
So what benefits do the tax changes bring? The crux for me is that people with taxable incomes of less than $146,000, or nearly 90 per cent of all taxpayers, will either get the same or a larger tax cut under the new plan. At the same time, the 10 per cent of people who earn over $200,000 a year will get smaller tax cuts than under the original stage 3, but, importantly, they will still get a significant tax cut. Their tax cuts start at around $4,500 a year and increase proportionately above $200,000.
These are the overall figures, but it's also important to dig a little deeper. The majority of people who earn under $75,000 are women, but women only make up 30 per cent of the people who earn over $170,000 a year. This means that, under the government's changes, women will earn an average tax cut of $1,650, compared with $1,280 under the original plan. Women are better off. Importantly, Treasury modelling also shows that the changes will not impact the inflation outlook. The changes will deliver an adjustment to the distribution of the benefits so that they are better spread across a broader segment of the population, so that every income earner in Australia receives a tax cut this time around, so that those who need the most receive more and, simply put, so that it is fairer.
Since the changes were announced by the government, I have consulted extensively with my electorate of Mackellar. I conducted my own electorate-wide survey and, as always, was impressed by the level of thought and reflection of the respondents. The key takeaways of my survey were these: 47 per cent of respondents who live in Mackellar considered that they would be better off under the original design of the stage 3 tax cuts; however, 76 per cent thought that the redesign was necessary in light of the current cost-of-living crisis, and only seven per cent of respondents to this survey thought that the government should have honoured its promise regardless of the economic circumstances. Further polling conducted last week independent of my office on behalf of the Australia Institute showed that 63 per cent of those surveyed in Mackellar support the redesign and 31 per cent oppose it.
It seems that a clear majority of people both across Australia and from within my electorate of Mackellar support the redesign of the stage 3 tax cuts because it makes them fairer. However, it must be noted that these tax cut changes are only the start of the work that the government should do to alleviate the cost-of-living pressures for the most vulnerable Australians. This is because nearly one-third of Australians will receive no benefit from the changes. One-third of Australian households don't pay tax at all. I'm talking about retirees, people with disability, carers and the unemployed. Obviously, this group of Australians is amongst the most vulnerable in our country, and they are the ones who are doing it toughest of all.
With the budget coming up in the next few months, I urge the government to do what it can to extend a helping hand to the one-third of Australians who need these stage 3 tax cuts the most but will get nothing from them. In short, the cost-of-living crisis needs to be urgently addressed for the millions of Australians who will not benefit from the stage 3 tax cuts, the millions of Australians struggling to get by on government benefits and the millions of Australians living in poverty. In my prebudget submission to the Treasurer, I called for several measures which would help this group of people. These include providing a further increase in rental assistance for recipients of government support, ensuring the ACCC's inquiry into price-gouging by supermarkets is properly funded so it's thorough and impactful, increasing the Medicare rebate to reduce out-of-pocket costs for patients, and ensuring the fall in wholesale energy prices due to the increasing renewable energy input is passed on to consumers and not gobbled up as profit by energy providers.
In the longer term, as my crossbench colleague, the member for Wentworth, has been advocating for since her election, a broader tax reform debate must be put squarely on the table in order to drive greater productivity in the future and to address growing intergenerational inequality in this country. In recent decades, both the major parties have only tinkered around the edges of tax reform, each side fearful of being wedged by the other and, so, stuck playing short-term politics on tax reform. But broader tax reform is required so that we may prosper into the future and so as to address a number of critical issues that our country and our citizens are facing.
The first of these is Australia's overreliance on income tax as our primary source of revenue. This must be addressed. Why? It is because personal income tax dampens productivity. Also, very importantly, if we do actually look ahead, beyond the next election cycle, as Australia's population ages, a smaller and smaller proportion of income earners will be responsible for carrying the ever-growing burden of Commonwealth costs. We are already facing burgeoning budgetary demands in many areas, such as defence, health, the NDIS, the energy system transition, aged care and disaster recovery following unnatural weather events of increasing frequency. It would be extremely short-sighted to imagine that a declining proportion of our population will be able to adequately shoulder these rapidly increasing costs.
Multinational tax and the petroleum resource rent tax are two of the most important areas where reform is required. It's good to see that the issue of multinationals paying no tax in Australia is finally being addressed. This is long overdue, as overseas companies have made a practice of shifting profits overseas to low-tax havens to avoid paying tax in Australia. But the paltry state of the petroleum resource rent tax that is collected for offshore oil and gas projects in this country must also be addressed. Australia's PRRT is amongst the most generous to industry in the world. The government's timid changes to the PRRT in the May 2023 budget were disappointing to say the least. The increase was a minuscule $600,000 each year for four years.
Let's compare Australia's PRRT to what is happening in other countries around the world. Qatar is a country that exports an amount of gas similar to the amount exported by Australia, yet Qatar collects 20 times the amount of revenue from it that Australia does. Then there's Norway. Norway has been taxing the export profits of its oil and gas industry at 78 per cent since 1996—and, no, despite the fearmongering it did not dampen investment in that country in that sector. With this revenue, the Norwegian government has built a public sovereign wealth fund which is now worth over $2 trillion, or $1.5 million for every Norwegian family of four. The Norwegian Ministry of Finance estimates that total government revenue from oil and gas will be $194 billion in 2023 alone.
On the other hand, here in Australia, over the past 30 years oil and gas tax revenues have been whittled away to almost nothing, as the industry has successfully lobbied governments to water down the PRRT multiple times. In 1992 the amount the government received from the PRRT was 19 per cent of the total oil and gas sector revenue. By 2020 it had dropped to just one per cent. In 1996 corporate tax paid by the sector was 16 per cent of total revenue. By 2020 corporate tax had dropped to just two per cent of total revenue. To quote an economist who is the director of the Australia Institute, the Australian government 'collects more revenue from HECS fees than it gets from the petroleum resource rent tax'. Thank you, children. You're the backbone of our economy.
Then, of course, there's the $11 billion that flows each year as subsidies to the fossil fuel industry. In the face of the Commonwealth government having to pay out billions in the future to clean up after climate-driven weather disasters, these anachronistic subsidies should be abolished and invested elsewhere, such as into growing advanced manufacturing capacity for green technologies in our country that will see our country prosper into the future and not be left behind as the rest of the world is transitioning away from fossil fuels.
Tax reform must also address intergenerational inequality in this country. There is a concerning trend of homeownership being concentrated in the hands of fewer and fewer people. When it comes to how much of an annual salary it takes to buy a home, gen Z has it worst. On average, gen Z must pay up to 11 times their annual salary for the total cost of a home mortgage and 139 per cent of their average annual salary for a 20 per cent deposit. Compare that to how it was between 1959 and 1989. During this time, people had to fork out just four times their average annual salary to pay their mortgages and 35 per cent of their annual salary for a deposit. And let's not forget stamp duty. In 1985 new homeowners paid an average of $1,360 in stamp duty. In 2020 the average amount of stamp duty on a home was $23,600. That's 17.3 times higher than it was in 1985, despite the average house value increasing only 7.4 times in comparison. While the changes to the stage 3 tax cuts are fairer and respond to the current cost-of-living crisis, there is much more that needs to be done to address growing poverty and intergenerational inequality in this country and also to grow productivity. There needs to be a serious debate in this country about broader tax reform that sets our country up for a more prosperous and fairer future.