Mr ROCHER(10.59 a.m.) —One of the major shortcomings of the government's budget for 1996-97—that is, the current budget—was the total absence of initiatives that might have encouraged an increase in private savings. In this way, that budget mirrored successive budgets of the former Labor administration. Despite its election promise to the contrary and at the expense of domestic savings, the Howard government continued to shore up the Treasury's coffers in the 1996-97 financial year by increasing existing taxes and introducing new ones under the guise of levies, surcharges and user pays schemes.

By contrast, this budget incorporates several measures which, for the first time in more than a decade, have the potential to attract meaningful levels of savings back into superannuation and other savings vehicles. Some have argued that the proposed 15 per cent tax rebate on savings is not the most effective means of boosting domestic savings. But the government deserves commendation for engineering a scheme that is generous and easy to administer; that has negligible compliance costs; and which will apply to all taxpayers, regardless of income.

The broad based savings rebate rewards current savers and should promote a greater level of savings in the future. This measure at last gives something back to the people who voted the coalition into office at the last election but who got next to nothing from the new government in its first budget. It is true that the rebate on savings held in banks will mostly benefit higher income earners. But the application of the rebate to the first $3,000 in personal contributions to superannuation means that lower and middle income households will also gain from this initiative. The rebate will have the dual effect of reducing an individual's tax liability in the immediate term, while encouraging more Australians to become self-reliant in the longer term.

The government has suggested that this rebate could be used to help finance private health insurance, and so reverse the trend which is seeing a record number of Australians relying on the public health care system. Hypothetically, this makes good sense. But the reality is that the maximum $450 rebate is insufficient to cover the annual cost of most private health insurance premiums, or even recent increases in those premiums. In some cases, increases in the cost of private health insurance will still exceed the combined benefits of the savings rebate and the new private health insurance rebate.

Twelve years ago, half of all Australians were covered by a private health insurance policy; today that figure has declined to, at best, one in three. Partly as a result, federal government spending on health care has increased by 20 per cent in five years.

Both the savings and health care rebates are welcomed. But they will not, of course, see any significant increase in the number of Australians reverting to the private health care system. So a problem for this and future governments remains.

Despite possible quibbles about some of the measures within it, this budget is a prudent one. It sees the continuation of a long awaited and much needed budgetary reform process that sets out to restore some balance to the nation's finances. Assuming that the figures provided by Treasury are indeed accurate, this budget will see the underlying budget deficit cut to $3.9 billion, or 0.7 per cent of gross domestic product—an improvement of some $3 billion on the current financial year.

In contrast to the budgets of the early 1990s, which bore little or no relationship to Labor Party policy, this budget is consistent with the coalition's election commitments—although by no means comprehensively so. It is the second of a budget trilogy that the government hopes will establish an underlying surplus in 1998-99 somewhere in the vicinity of $1.6 billion, with a zero government borrowing requirement and no further tax increases. If successful, the government should be complimented by all for turning around a chronic budget imbalance in a very short period of time.

By way of further contrast, the Labor Party's approach to fiscal policy was a sham. It refused to acknowledge the need for a broadening of the tax base, and continued to lean hard on personal and business income tax for revenue. In its relentless pursuit of revenue, the previous government did not only introduce new taxation measures, such as the fringe benefits and capital gains taxes; it expanded the scope and rates of the wholesale sales tax as well.

More insidiously, the previous Labor regime brought forward the times by which existing taxes must be paid. Imputation of company dividends, payment of business income tax by quarterly instalments and quarterly instalments of provisional tax payments, and the prescribed payments system, are all cases in point.

Simultaneously, Labor in government used fiscal policy to drive interest rates to historical highs. The effect of its raid on small business cash flows, by expanding the wholesale sales tax regime by new taxes and by the earlier collection of existing taxes, was to force business to either borrow or raise capital by either retaining profits or issuing paper.

Apart from the more obvious effect that this had on the efficacy of business across the nation, it further emasculated our private sector savings. That might have been all right if the savings were merely transferred to the public sector, but the Labor government spent the takings like a drunken sailor. The two budget surpluses it did manage in 13 years were as much a product of earlier collections of business taxes as of increased and new taxes. Forced as they were to collectively raise tens of billions of dollars instead of relying on cash flow, SMEs were devastated by the high cost of money under Labor.

And all for what? In the cases of taxes collected earlier than before, once-off—at best twice-off—benefit to the budget bottom line. Obviously the affected taxpayers did not pay more tax. What was paid earlier than usual could not be required later—hence the one-off benefit to revenue.

This government, in the fullness of time and perhaps in the lead-up to its next budget, might seriously think about giving the economic powerhouses that SMEs can be the chance to play a leading part in regenerating our national economy. It might reverse Labor's policy of earlier collection of taxes in too many cases payable before the SMEs had themselves been paid by their customers for the goods and services which gave rise to the specific tax obligations.

To do so will not adversely affect the budget bottom line after the first year. It would, however, return much needed working capital to SMEs without changing current tax obligations. Furthermore, such a reversal would eliminate one of the effects of the present regime of early collection of taxes which all too often requires SMEs to lend money to the Commonwealth because the final wash-up of a year's trading reveals refunds of taxes paid in advance are necessary.

It might now be opportune to seek leave of the House to have incorporated in Hansard a table which I have taken the precaution of advising people about.

Leave granted.

The table read as follows—

CANBERRA TAXES IN 1996-97 and 1997-98*

* Source:   Budget Statements 1996-97, Budget Paper No. 1 Page 4-28

            Budget Statements 1997-98, Budget Paper No. 1 Page 5-3

**   Some totals for 1996-97 do not add up, probably because of Treasury's rounding up and down of figures

***   Increase in Medicare levy in 1996-97 influenced by gun buy-back scheme

Mr ROCHER —One of the legacies of the former Labor administration was that Commonwealth general government net debts sat at around 19 per cent of gross domestic product when the coalition took over the reins in 1996. If the coalition's fiscal program delivers the goods it expects, then this compo nent of debt will be reduced by almost half to 10.5 per cent of GDP in the year 2000-01.

The 1997-98 budget is premised on a more responsible fiscal platform, one that recognises that a reduction in the deficit must occur through the control of public expenditure and the encouragement of domestic savings, and not through increased taxes. But, while unemployment levels may be contained in the short term as a result of the government's decision not to increase the levels of income tax, it is no substitute for a sensible and thorough reform of our taxation system.

The decision to reward workers who defer their pensions for up to five years should impact positively on aggregate savings and in a small way improve our balance of payments score sheet. The maximum tax-free lump sum of $21,251 for a single person and $35,450 for a couple is the equivalent of 47 per cent of the pension entitlement over a five-year period. This initiative will cost the Australian taxpayer half of what it would cost to fund a full pension over the same period—a pretty substantial saving.

More than 80 per cent of people over retirement age currently rely on aged or service pensions as their principal source of income, and any easing of that funding burden should be welcomed. It will also mean an increase in compulsory personal superannuation contributions for each additional year of employment. Given that the participation of older men in the work force is undergoing a long-term decline in Australia, the importance of initiatives such as this one should not be underplayed.

In the absence of policies which encourage an extended working life, future generations of taxpayers will have to sustain debilitating levels of pension support. Accordingly, the introduction of the tax-free lump sum payment to those who postpone retirement should be applauded.

In the same way the coalition is right to introduce measures that will see the preservation of retirement savings for retirement purposes. The decision to preserve all superannuation contributions and savings until the increased preservation age of 60 by the year 2025 is an important one, despite the 28-year lead time. This initiative demonstrates an understanding that there needs to be greater integration between social security and retirement income policies to cope with the challenges presented by an ageing population.

To those who argue that this initiative will encourage older Australians to remain active in the paid work force at the expense of employment for younger Australians, a recent publication from the Chamber of Commerce and Industry in Western Australia, the CCIWA, on the factors affecting youth employment give that supposition some perspective. The CCIWA makes it clear that conversations about youth unemployment figures are often based on misinformation. It shows that not only have the number and percentage of young people looking for full-time work in 1996 decreased from 1981, but that 40 per cent of all 15- to 19-year-olds who were unemployed in August 1996 were in full-time education and looking for part-time work.

Given that an individual can qualify for the new pension rebate by working for 25 hours each week, this initiative should see the creation of many part-time positions sought after by these full-time students. However, it is not contended that this initiative will solve our national unemployment problem—far from it. Nor, for that matter, will the work for the dole pilot scheme or the billion dollar Federation Fund.

The only solution to the perennial curse of unemployment is to improve national savings, reduce the budget deficit and foster business growth and investment while keeping inflation in check. A reduction in unemployment will only come about through a commitment to a policy line which might involve short-term pain but is necessary to produce longer term benefits.

The government has indicated that it favours stronger economic growth to improve employment opportunities rather than policies specifically geared towards resolving the unemployment problem. There is a growth dividend in prospect, which promises to alleviate strain on the next and possibly ensuing budgets. It is banking on a strengthening of economic growth to 3.75 per cent in 1997-98 to maintain unemployment levels for that year. The government's claimed commitment to industrial relations reform and to reducing the budget deficit indicates that it knows the right path on which to travel to secure a longer term turnaround in unemployment.

It may be that a growth rate of less than four per cent will prevent unemployment levels from worsening, and it does seem unlikely that economic growth will do much more than preserve the status quo in the foreseeable future. However, economic growth, combined with mainly conservative estimates in this budget, will open up opportunities to ease the pressure of high unemployment in the future.

It is questionable whether this budget will facilitate adequate levels of business investment to stimulate longer term employment opportunities. Admittedly, industry has escaped the savaging it copped last year from the departments of Treasury and Finance.

But while industry might breathe a sigh of relief that assistance programs have not been further slashed, there is little in this budget that will directly promote a greater level of business investment. Take, for example, the infrastructure borrowing scheme. While the scheme has been maintained by the government, at least for the 1997-98 financial year, its eligibility criteria are now so narrow that less than 10 per cent of the projects currently in the pipeline would now qualify for the tax concessions.

There is a consensus amongst economists that a nation's rate of investment impacts directly on how quickly an economy can grow. There is clear evidence to suggest that declining levels in infrastructure investment over the last three decades have led to a decline in a sustainable rate of economic growth in this country.

An injection of investment expenditure is necessary to help reverse unemployment and the decline in public sector savings that became a long-term structural problem under Labor. Further, the government should encourage revenue earning, productive investment. The government's estimates show that it anticipates total business investment will increase by eight per cent in the four quarters to June 1998. This figure represents less than half that experienced in the current year and may yet prove to be an unduly conservative estimate.

The decision to simplify and rationalise withholding tax obligations for some small businesses is good policy. Small businesses that qualify for this relief will see the number of their transactions with the Australian Taxation Office reduced to a third of the present level. This in turn should see the reduction in compliance costs for a number of small businesses.

The government stated in Budget Paper No 2 that this measure represents `a significant first step towards simplifying the range of withholding tax systems imposed on small business.' This would warm the soul of any small business proprietor.

The coalition professes to believe that small to medium sized enterprises—SMEs—provide the engine to economic growth and employment. The government is arguably correct in that assumption. Although it has claimed that small business has benefited or will benefit under its governance, it is far from universally agreed. Polls of SMEs would indicate the opposite—that, indeed, the government has a long way to go before its deeds match its rhetoric.

Except when called on to defend the election undertaking to reduce the incidence of red tape affecting the operations of small businesses by 50 per cent, the coalition no longer makes any pretence of meeting that goal. It will, however, not embark on reform of the taxation system as required by this country.