I rise to talk about the Treasury Laws Amendment (Personal Income Tax Plan) Bill 2018. I do so with eagerness because this bill allows us to talk about the centrepiece of the government's hopeless and already discredited budget and the philosophical underpinnings of that budget. The philosophical underpinnings of this budget are twofold. First, it's a reaffirmation of the discredited 1980s economic theory of trickle-down economics. Secondly, it is a bizarre commitment to an arbitrary limit on the size of government at 23.9 per cent. That is not grounded in any analysis other than the Treasurer plucking a figure out of the air.
I will go to the first one, which is trickle-down economics. That's the premise of these tax cuts: you give tax cuts to the rich, and somehow they will spend the money in the economy and low- and middle-income earners will receive some benefits down the road to stimulate the economy. This was tried by Reagan and Thatcher in the 1980s and it failed . It absolutely failed then and it will fail now. As the saying goes, something trickles down, but it's not money, that's for sure! I will go to the income distribution of this a bit later. If you want to stimulate the economy, you're much better off targeting tax cuts at low- and middle-income earners rather than the wealthy.
The second part of the philosophical underpinnings for this bill and this budget is a commitment to keep the size of the government at 23.9 per cent of the economy. Why they've plucked 23.9 per cent out of the air I don't know. I don't know why they didn't plump for 23 per cent or 24½ per cent. It just seems incredibly arbitrary and seems to be premised on a view, a very mistaken view, that we're a high-taxing nation.
I want to inject some facts into the debate that were absent from the member for Dunkley's contribution. I'm going to start with regard to whether we are a high-taxing nation. Look at OECD nations, our comparator countries. It's fair to measure us against OECD nations. There are currently 39 members of the OECD. Where would we rank in terms of gross government revenue as a percentage of the economy? If you believe the Treasurer, we'd up the far end, next to socialist nirvanas like Denmark or France. We rank 11th lowest out of 39 countries, barely above countries such as Colombia, Mexico, Indonesia, Costa Rica, Lithuania and the United States. And, if the Treasurer gets his way, we'll move further down to the left and be amongst the countries like Mexico and Indonesia on the size of the government compared to the size of the economy. There is no reason for this. Taxes are good or bad depending on how they work and what you use the money for. I would submit that it doesn't matter particularly whether the size of government is 23½ per cent of the economy or 27½ per cent of the economy; it's how you raise the money and then how you spend it.
Labor's alternative approach is to give more targeted tax cuts and greater tax cuts to low- and middle-income earners where they're needed, to reinvest in services and to pay down the debt and deficit more rapidly. Look at the government's budget. How are they paying for these tax cuts we're talking about right now? They're paying for them through $17 billion of cuts to schools, which is having a direct impact in my electorate. My electorate will lose $33 million in schools funding over the next two years, and that's a great tragedy. I've some of the most resource needy schools in the country. One school—St Pius X Primary School in Windale—draws its student population from the lowest-SES grouping in the entire state. One way of saying it is that St Pius X is the poorest school in the entire state, and it's in greatest need of needs based funding. They've done phenomenal work with the early years in needs based funding, as the latest NAPLAN results show. They came first in the country in their cohort in key tests around mathematics, writing and reading. And they did this because they used their early-years funding to invest in more teachers.
The budget and these income tax cuts are based also on: $700 million in cuts to hospitals, including $37 million in cuts to hospitals in my area; $2.2 billion in cuts to university funding, announced in December last year; a $270 million cut to TAFE; an $84 million cut to the ABC; and cutting infrastructure funding against the long-term average by a third. The 10-year historical average of Commonwealth infrastructure funding across the Howard and then the Labor governments was 1.5 per cent of GDP. Over the four-year average of this government, that's fallen to one per cent—that is, cutting Commonwealth infrastructure funding by a third.
This budget also confirms the government will cut and abolish the energy supplement for new pensioners, costing a new pensioner couple $550 a year, and they will increase the pension age to 70, the highest in the western world. All this is to pay for these personal income tax cuts, some of which are justified, particularly stage 1, but I would submit stage 3 is completely unjustified and certainly not justified when you look at the impact of it.
The median worker in Shortland earns $47,300, according to ABS statistics. That worker will receive a tax cut of $9.80 a week or $509 per annum. I will repeat that. The median worker in Shortland—if you lined up every single worker in the electorate, 50 per cent earn less and 50 per cent earn more—earns $47,300. They will get a $9.80 a week tax cut under this miserly government. In contrast, a lawyer living in my electorate earning $200,000 a year will get $7,225 in tax cuts in stage 3. Let me repeat that. The typical worker gets $500, the $200,000 lawyer gets $7,225. How is that fair? The answer is it's not. When you look at the impact of that, my typical worker will see an increase in their disposable income of 1.3 per cent whereas someone on $200,000 will increase their income, courtesy of this tax cut, by 5.4 per cent. Sixty-two per cent of the income tax cut goes to the top two million taxpayers.
Another way of looking at this is through changes in the share of income tax paid by each income decile. By 2024, if all these tax cuts are legislated, for the people in the third-lowest income decile—the decile in our economy between 20 and 30 per cent—their share of income tax paid in this country will increase by 75 per cent, a full three-quarters increase in the share of income tax paid by the 20 per cent to 30 per cent decile. In fact, every decile between decile 3 and decile 8 would increase their share of income tax paid in this country.
The middle of the Australian tax paying population is being hit by this tax cut. And why are they being hit? They are being hit to cut the share of income taxes paid by the top decile. The highest 10 per cent of income earners in this country will end up paying five per cent less in their share of income tax paid by the entire tax paying population. And who bears the brunt of this? Services and low- and middle-income taxpayers. It's clearly inequitable.
NATSEM, who are, according to the former Prime Minister, the member for Warringah, the premier economic modelling outfit in this country, found the median household in my electorate earns $65,000 a year in income—again, line up every household in my electorate; 50 per cent earn less, 50 per cent earn more. Their increase in disposable income because of these tax cuts will be 1.3 per cent. For a household on $300,000, their increase in disposable income will be five per cent so a four-fold increase in disposable income against my particular median household. It underlines the fallacy behind this entire budget, which is: if we're going to stimulate the economy, we need to give the tax cuts in this particular way. It rejects conventional economic theory where, when you talk about the marginal propensity to consume—a term pioneered by John Maynard Keynes—you give tax cuts, you increase the income of low- and middle-income families. Why do you do that? Because they struggle to save a single dollar. If you give them additional income, they will have to spend that money to keep clothes on their kids' backs, to keep the lights on and to stock the fridge. That immediately injects money into the economy. It circles around and employs more people. It injects more money into the economy. If you give the same amount of money to a high-income family or household, they're as likely to save their money because they don't have to spend every cent they earn to survive. Therefore, money will actually be withdrawn from the economy, and the economic impact will be much lesser. If you opposite are serious about stimulating the economy, even leaving aside the equity aspect I talked about previously, you would give the tax cuts to low- and middle-income earners.
What's the cost of all this? We don't quite know. This is the fallacy, the ridiculousness of this debate. The government is asking the Parliament of Australia to vote to approve their seven-year tax plan across all three stages, without giving us annual breakdowns of the figures over all seven years and without giving us a breakdown between stages 1, 2, and 3. That is lunacy. That is an abrogation of the government's responsibility. In fact, they're asking the parliament to abrogate our responsibility to steward the Commonwealth's resources as finely as we can. How can we vote for something when we don't know what the finite costs are? It's a complete disgrace that the government is approaching this way. They're happy to talk about the cumulative impact of all the tax cuts. We hear government members trying to bulk up the moderate tax cut for typical workers to try to counteract the $7,000 figure for those on $200,000. So they talk about the cumulative impact, but they won't give us the proper cumulative impact of each stage of these tax cuts.
Luckily, other independent think tanks have had a go at it. Grattan Institute is a middle-of-the-road economic think tank. They're often critical of Labor's policies; they're not in alliance with the Labor Party. They estimate that when these tax cuts mature in stage 3, the annual cost of these tax cuts will be $25 billion per annum. Of that, $20 billion will be for tax cuts for those earning over $90,000—double the median income in my electorate—and $15 billion will go to the top 20 per cent of income tax payers in this country. That is an incredible amount. That is an absolutely extraordinary amount.
Labor has got an alternative. I can proudly go to the next election and say there is a clear choice. No-one can claim the two major parties are the same. There is a clear choice being proposed for the Australian people. On one hand is the government, the triumph of trickle-down economics, the triumph of small government, the triumph of giving tax cuts to those who need them the least. On the other hand is Labor's approach, which is about almost doubling the tax cut for low- and middle-income earners who need that cost of living relief and who are suffering from stagnant wage growth in this government. The median worker in my electorate on $47,000 won't receive a $509 tax cut; they'll receive a $928 tax cut—an increase of $398 compared to the plan of those opposite.
Secondly, we'll reinject money in vital government services, with an extra $17 billion for schools, $2.8 billion for hospitals, $2.2 billion for universities, $80 million for MRI, maintaining the energy supplement, rejecting lifting in the pension age, and paying down debt and deficit faster. How can we do all that? Because we have made brave and visionary decisions to cut down on loopholes in the taxation system. No longer will we cop tax minimisation using family trusts, where lawyers or surgeons will employ adult children or spouses and funnel money through them to minimise tax. No longer will we allow negative gearing and capital gains tax to be used to prop up a property bubble. Instead, we'll restrict negative gearing to new property, where it'll add to housing supply, while grandfathering proper arrangements. No longer will we cop corporations paying zero tax on their profits, which is what you have when you have cash refunds for dividend imputation. No longer will we cop other loopholes in the corporate system, such as multinational tax evasion. All of those are brave moves—it's brave for an opposition to put forward such a concrete plan—mean that we can afford greater tax cuts for those who need it most, retire debt and deficit faster and invest in vital services.
So this is a really good opportunity, in this debate and in the year ahead, to have a debate about what Australians want. Do they want an economy ruled by the top, where trickle-down economics is par for the course, or do they want to invest in services? Do they want to invest in the Australian people through increasing human capital? Do they want to get debt under control—because we had a debt emergency in 2014, but it's disappeared, very conveniently, now that the government's been in power for five years—and give real tax cuts to low- and middle-income earners? That's the debate that we're having right now. It behoves the government to split this bill, to get stage 1 quickly through parliament because they have strong support for that, and to park the other stages until we have a proper debate. I'm proud to stand for an alternative, fairer approach to the budget that rewards low- and middle-income earners as well as restoring vital services.