House of Representatives

Tax Laws Amendment (Temporary Budget Repair Levy) Bill 2014

Second Reading Speech

The Government has introduced a Budget that will redirect taxpayers' dollars from unaffordable consumption today to productive investment for tomorrow. It will do this while supporting the most vulnerable, and taking significant steps towards ensuring that government can live within its means. It will move Australia towards greater equality of opportunity.

The underlying cash deficit is projected to be $60 billion over the four years to 2017-18, compared to $123 billion over the four years to 2016-17 at the 2013-14 Mid-Year Economic and iscal Outlook. Instead of the $667 billion of debt by 2023-24, we will now have debt of $389 billion.

This substantial improvement is built off a significant reduction in payments growth. At the 2013-14 Mid-Year Economic and Fiscal Outlook, average real growth in payments over the four years to 2016-17 was 2.6 per cent. The average over the four years to 2017-18 is now 0.8 per cent.

The 2014-15 Budget is the first step in our action plan to return the Budget to a more sustainable footing.

We will invest in a stronger economy by redirecting Government spending to measures that will boost productivity and workforce participation. This includes the Infrastructure Growth Package - the Asset Recycling Initiative and other new investments in infrastructure - to which we have committed nearly $11.6 billion in this Budget. It includes building a new Medical Research Future Fund - the largest of its kind in the world - within the next six years, with a guaranteed stream of support. And in education, we will provide direct financial support to all students studying higher education diplomas, advanced diplomas and associate degree courses, as well as those studying bachelor degrees, at all approved higher education institutions.

Through the measures announced in the 2014-15 Budget, we are also eliminating waste and targeting government assistance to those who need it most.

This accords with our plan to reduce theGovernment's share of the economy over time, which in turn will free up resources for private investment. It will see payments as a percentage of GOP fall over time. And it will allow us to pay down public debt. Every generation before us has helped to build the quality of life that we enjoy, and we can do no less for future generations.

We have taken structural reforms to improve the sustainability of the Budget in the longer term.

We are making the Age Pension system more sustainable into the future and targeted to those who need it most with some long-term changes. We are also tightening the eligibility criteria for unemployment benefits, so that people under the age of 30 are encouraged to earn, or learn or work for the dole.

In the health sphere, we're introducing new patient contributions and increasing medicine co-payments. We are also bringing the excessive growth of public hospitals funding under control while ensuring real funding increases every year.

Alone, these measures are not enough. They will take time to generate the necessary savings over the longer term. That is why we are also introducing a range of temporary savings measures to help with the immediate task of budget repair. We will pause the indexation of certain government payment eligibility thresholds, and will also be keeping the fortnightly payment rates of family tax benefit at current levels for two years.

For the Age Pension, we're pausing means test thresholds and resetting the deeming thresholds in 2017-18, to ensure our pension system can handle an ageing population. We're asking self-funded retirees to do their bit by ceasing payment of the seniors supplement and including untaxed superannuation in the means test for the Commonwealth Seniors Health Card.

These measures are part of a sensible way forward that balances the need for budget repair with an economic recovery that is still in its early stages-asking those on low and middle incomes to bear the full burden of the consolidation would be unfair and bad for the economy.

All Australians - from households to businesses and the public sector - will contribute to getting the budget back on track.

It is in this context, the context of the immediate task of budget repair, that we are introducing the Temporary Budget Repair Levy.

The Temporary Budget Repair Levy will start from 1 July 2014, and remain in place until 30 June 2017.

It is progressive and will apply at a rate of 2 per cent on individuals' annual personal taxable income above $180,000.

This measure will raise $3.1 billion over the forward estimates period.

It will help to ensure that all Australians - households, businesses and those in the public sector - will contribute to getting the Budget back on track.

All of us have to contribute to the heavy lifting required to repair the Budget in one form or another, because in the longer term, everyone will benefit from the effort we all put in now.

In the broader scheme of the Budget, this is not a large tax increase. It is not a permanent tax increase. And it is not an unprecedented tax increase - governments of both sides have in the past introduced or increased levies as a way of responsibly funding particular public needs. For example, we have had temporary levies in the past to pay for the gun buyback in the late 1990s, and for flood and cyclone reconstruction.

Recently, and also commencing from 1 July 2014, the former government legislated an increase to the Medicare levy to go towards funding DisabilityCare Australia.

The Temporary Budget Repair Levy has been designed so that it will not impact directly on the average worker.

In 2014-15, around 400,000 taxpayers - less than 4 per cent of taxpayers - will directly incur the Temporary Budget Repair Levy on their personal taxable income.

This includes members of Parliament.

Importantly, the threshold of $180,000 has been chosen so that almost none of the people affected by expenditure cuts to direct assistance, such as pensions and family payments, directly incur the Temporary Budget Repair Levy.

It is a simple and reasonable measure that will help to ensure that those on the highest incomes contribute to the budget repair task based on their ability to pay.

Without the Temporary Budget Repair Levy, the cost of repairing the Budget in the medium term would be borne by low and middle-income households alone.

The expenditure savings that we have announced in this Budget need to be supported by longer term, structural reforms to the tax system. This is the only way to ensure that the Government's call on resources is sustainable.

We are committed to the longer term task of tax reform. We have committed to produce a comprehensive White Paper on tax reform which will identify those longer-term structural tax reforms that can improve sustainability and reduce the costs to the economy. And we will take any proposals from the White Paper to the Australian people.

In the medium term, the Temporary Budget Repair Levy is a reasonable and responsible measure that will help to ensure the task of budget repair is shared by all Australians.

The Tax Laws Amendment (Temporary Budget Repair Levy) Bill 2014, which is part of a package including fourteen additional supporting Bills, will introduce a Temporary Budget Repair Levy from 1 July 2014 until 30 June 2017.

As I have said, the Temporary Budget Repair Levy will apply at a marginal rate of 2 per cent on individuals' annual taxable income in excess of $180,000.

In addition to the introduction of the levy itself, the package of supporting Bills contains important consequential amendments that will maintain the integrity and fairness of the tax system, and minimise the opportunities for taxpayers to avoid the levy during the three years that it is in place.

These consequential amendments will, among other things, amend the rate of fringe benefits tax. Over the same period, we will increase the caps that apply to certain not-for-profit organisations, as well as increasing the fringe benefits rebate rate. This will maintain the cash value of benefits under the cap to employees of those not-for-profit organisations while the higher fringe benefit tax rate is in place.

This package of Bills will also make consequential amendments to rates in a number of other Acts, to ensure that tax rates set by reference to the top personal marginal tax rate, or by calculations comprising that rate, also reflect the introduction of the Temporary Budget Repair Levy.

For example, the top marginal tax rate is currently applied as a flat rate to no tax-file number withholding, and the taxation of the unearned income of minors, certain trustees and certain non-complying retirement funds. These rates will be increased to reflect the introduction of the Temporary Budget Repair Levy.

In addition, a number of other rates in the tax system are also set by reference to the top personal marginal tax rate, or by calculations comprising that rate. These rates are in place to encourage compliance and to limit opportunities for tax minimisation.

These rates will also be amended to reflect the introduction of the Temporary Budget Repair Levy. They are rates for family trust distribution tax, income tax (bearer debentures), first home saver accounts misuse tax, no tax file number withholding tax for employee share schemes, departing Australia superannuation payments tax, excess non-concessional contributions tax, excess untaxed roll-over amounts tax, trustee beneficiary non-disclosure tax, interest on non-resident trust distributions, corporate untainting tax, and trust recoupment tax.

I will speak to these consequential amendments when I come to introducing the rest of the Bills contained in this package.

For now, I turn to the detail of the Tax Laws Amendment (Temporary Budget Repair Levy) Bill 2014.

Schedule 1 to this Bill will amend the Income Tax (Transitional Provisions) Act 1997to introduce the Temporary Budget Repair Levy on individuals with a personal taxable income exceeding $180,000.

This Schedule defines the 'Temporary Budget Repair Levy years' as being the 2014-15, 2015-16 and 2016-17 financial years.

This Schedule also sets out the method for determining an individual's Temporary Budget Repair Levy liability.

It clarifies that the amount of Temporary Budget Repair Levy that a person must pay cannot be reduced by their eligibility for non-refundable personal income tax offsets, with the exception of the foreign income tax offset.

Schedule 2 to this Bill will define the 'Temporary Budget Repair Levy years', in relation to the consequential amendments to the fringe benefits tax concessions, as the 2015-16 and 2016-17 FBT years. To minimise the administrative burden on employers, these amendments were aligned with the FBT tax year, which starts on 1 April.

Schedule 2 will further amend the Fringe Benefits Tax Assessment Act 1986 to align the fringe benefits rebate rate to the fringe benefits tax rate from 1 April 2015 onward.

Schedule 2 to this Bill will further amend the Fringe Benefits Tax Assessment Act 1986to maintain the cash value of benefits under the cap that can be provided to employees of not-for-profit organisations while the higher fringe benefits tax rate is in place. This is done by increasing the annual caps.

Finally, Schedule 3 to this Bill will amend the Taxation Administration Regulations 1976 to allow the Commissioner of Taxation to increase the highest withholding rate for certain payments where no TFN or ABN has been quoted by 2 percentage points. This will reflect the introduction of the Temporary Budget Repair Levy from 1 July 2014.

Together with the other measures announced in our Budget, the Temporary Budget Repair Levy will begin the task of repairing the fiscal circumstances that we have inherited. Further, it will help to ensure that everybody shares some of the burden of the repair task, and that those on the highest incomes contribute based on their ability to pay.

Without these actions the budget would have been in deficit for at least the next decade -a total of 16 consecutive years of deficits.

This would have left Australia in a vulnerable position, ill-equipped to cope with an ageing population, and increasingly reliant on future generations to pay off our debt. Instead, the totality of measures contained in the Budget the Treasurer has announced tonight will reduce the forecast gross debt to $389 billion over the next decade, rather than nearly two-thirds of a trillion dollars in 2023-24 as projected at last Mid-Year Economic and Fiscal Outlook.

Full details of the measure are contained in the explanatory memorandum.