Higher Medicare threshold to benefit low-income earners

Mr HOGAN (Page) (17:28): I will digress in a minute, because we seem to be talking about a lot of things that are not in the Tax and Super Laws Amendment (2014 Measures No. 2) Bill. I will come to those in a minute. An important aspect of this bill is that we are going to increase the Medicare levy low-income threshold for families for the 2013-14 financial year to be in line with movements in the consumer price index. This will ensure that the thresholds keep pace with consumer prices and that low-income families who did not pay the Medicare levy in 2012-13 will continue not to pay it in 2013-14 if their incomes have increased in line with or by less than the CPI. This is very important because, as you know, if you do not index those types of thresholds, with bracket creep you can start to get people who are affected by that.

The low-income threshold for couples and families will increase by $674 to $34,367, and the phase-in threshold will increase by $793 to $40,431. The amount added for each dependent child will also increase by $62 to $3,156. This will put money back into the wallets of low-income earners. And, as the Parliamentary Secretary to the Minister for Finance noted earlier in this debate, this bill is also about restoring integrity—and, might I add, certainty—to the Australian tax system.

Just to digress, though: the other side have been speaking a lot about things that are not even in this bill. Can I just comment on the Medicare co-payment and talk about what that is going to fund. That is going to fund the Australian Medical Research Future Fund. Earlier speakers on the other side were talking about things like preventative health and other issues. This fund will do more for preventative health and do more for the prevention of disease than anything that the history of this country has ever seen. On this side of the chamber, we are builders. We build things. We are about making this country better, stronger and, in this context, more healthy. We want this fund to be a world leader in medical research. How exciting is that for every citizen of this country?

I heard the member for Fraser talk earlier about how it is a trick. I think that is what he said. I think his words were that it is a trick like the Future Fund, which Peter Costello started. Well, if it is anywhere near as successful as the Future Fund, bring it on. The Future Fund, as we know, was—again—this side of politics building something. It was this side of politics looking into the future and wanting things to be sustainable. We saw that we had public servants who were going to retire, and there was nothing put away for the obligations that the government had for their superannuation, so that fund was started by this side of politics because we ran a responsible budget. We put $50 billion into it, and over the last six or seven years that has grown—I am not sure of the exact number—to be about double what it was. So there we have now a $100 billion fund which is sitting there because we built it, which has every public servant’s superannuation obligation funded. That is what the medical research fund is like. If the medical research fund is nearly as successful in getting results for preventing disease and for improving the health of this country, that will be absolutely fantastic.

As the Parliamentary Secretary to the Minister for Finance also noted, we were elected, and we were confronted with a backlog of 92 announced but not enacted tax and superannuation measures, one of them dating back as far as March 2001. Again I come back to the point of sustainability. The one thing that tax systems have to have is certainty so that the investing public and businesses know what is in the tax system and there are not any surprises there. The tax system—unfortunately, as some people may think—has to be not only certain but competitive. I know that you know this, Mr Deputy Speaker Kelly. You have a business background. You have business experience, and you know that companies now can move. Companies are not always confined by geography. There have been examples where countries have lowered the corporate tax rate and—guess what?—they have collected more money. So our tax system not only has to be about certainty, which this bill certainly is, but also has to be competitive.

The backlog that this bill is dealing with had created considerable uncertainty for many taxpayers in the business community. The government has taken decisive action to resolve this backlog. We quickly moved to announce our support for 28 of these measures and a disposition not to proceed with the remaining 64, subject to consultation. We do not make decisions like those the member for Wentworth continually tells us about—decisions about NBN on the back of beer coasters—or irresponsibly. We make decisions because we consult. We go to people in the real world, in the real business world or the real tax world. We go through; we analyse it, and we make responsible and—dare I say it—adult decisions. That is what this bill is about with these tax measures.

Following the discussions that we had with the community, we said we would not proceed with 48 of those measures. However, in deciding not to go ahead, the government had to resolve how to deal with those taxpayers who had, in good faith, anticipated these changes before they were enacted. So again, as adults, being responsible, we said that because they had acted in good faith it was incumbent upon us also to act in good faith, and those protections would be measures in this bill.

The protection provision will protect and provide ongoing certainty for taxpayers who have self-assessed on the basis of the particular announced taxation measures that the government has decided not to proceed with. The commissioner’s usual amendment and recovery powers apply in circumstances where the conditions for protection are not met. The measure does not apply more generally to measures that are not listed or to those that may not proceed as a result of future decisions.

The third aspect is related to dividend washing. Every sector of the economy and every sector of our world certainly has its own language, and ‘dividend washing’ is obviously very specific to the finance world. A lot of people get very confused about it. This is also referred to as ‘distribution washing’. It allows an entity basically—Mr Deputy Speaker Kelly, you may well understand this and have dealt with this—to obtain multiple franking credit entitlements in respect of a single underlying shareholding. Common sense tells you that that should not happen.

To dividend wash, an entity sells shares shortly after becoming entitled to receive the franked dividend in respect of those shares, then shortly afterwards the entity purchases a new and substantially identical set of shares that also provides an entitlement to another fully franked dividend. This dividend washing enables sophisticated shareholders to effectively trade their franking credits to each other, with some shareholders receiving two sets of franking credits for the same parcel of shares. This practice can allow foreign shareholders who cannot use franking credits to sell their franking credits to domestic investors who can use them.

This measure amends the tax law to deny the benefits of any additional franking credits received as a result of dividend washing. The measure is targeted at sophisticated taxpayers who are exploiting a loophole in the existing provisions. Investors operating within the intent of the existing law will not have anything to worry about. Since this measure was announced, dividend washing already has been significantly curtailed.

This is a tax bill. As a country we need certainty in our tax laws and we need our tax laws to be competitive. As a government we look at the two sides of the equation: one side is spending; the other side is income, which is tax collection. What the budget and this bill are about, as we say in this chamber every day, is for our spending to be sustainable. For people who rely on the age pension, on the public health system, on the public education system or on any other welfare spending of this government, we want that to be sustainable. And for that to be sustainable the spending has to be responsible. On the tax side of the equation, that has to be competitive and certain. When you get both of those right, people can live in a system and know that they have comfort.

Unfortunately, a lot of governments and a lot of countries around the world do not get this right. It is very easy for a politician when they are in government—dare I point over there, Mr Deputy Speaker—to walk around throwing money around. That is very easy and it is lovely—there is nothing like walking into a group of people and splashing some money around because you might well feel like a hero. When politicians do that too often—there are many countries in Europe, and I would put the United States in the same category, where politicians do too much of that—without being responsible, they get themselves into trouble.

As a country we had the best set of books. Six years ago, when the coalition left government, we left this country with the best books in the world. We had a $20 billion surplus in the last year we were in government and we had put $50 billion aside into the Future Fund. We had a great set of figures. We were able to fund the welfare programs, health and infrastructure with certainty because we were being responsible. In six years we went from having the best set of figures in the Western world to having the fastest-growing debt of any country in the Western world. The result, in just that short space of time, is that we are now spending $1 billion a month in interest. That rolls off the tongue too easily, but that is $12 billion a year. What could we spend that on? One of the biggest infrastructure projects in my electorate, Mr Deputy Speaker Kelly, is also a major infrastructure project in the country: the duplication of the Pacific Highway. Do you know how much it is to do that? Do you know how much federal money is going into that? It is $5 billion to $6 billion. It has been a massive infrastructure project that is taking us decades to build and $5 billion or $6 billion worth is left to do. That is a lot of money. That is half of our interest bill in one year. The sad thing about that, Mr Deputy Speaker—and you know this because you have been a businessman—is that we will have that interest bill again, next month, next year. We have not repaid the debt; that is just the interest on the debt.

This bill with its taxation measures are about certainty. They are about businesses being able to function in this economy efficiently, effectively and with certainty so that as a government we can fund the essential services like health, education and welfare, as we should. I commend this bill to the House.