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Thursday, 13 May 1999
Page: 5381


Mr RUDD (1:11 PM) —I rise to speak in this debate on the government's legislation entitled A New Tax System (Family Assistance) Bill 1999 and the associated legislation entitled A New Tax System (Family Assistance) (Consequential and Related Measures) Bill (No. 1) 1999 . One of the great things about this government is that when we see on the Notice Paper a piece of legislation entitled `family assistance bill' we have come to expect, with a certain inevitability, in the fine tradition of George Orwell and the ministry of truth and doublespeak, that when we read something called `family assistance' what it means in reality is `family burden'.


Mr Sciacca —A fundamental contradiction in terms.


Mr RUDD —As the honourable member for Bowman rightly interjects, it is a fundamental contradiction in terms. I suggest to the shadow minister, when he eventually returns to the chamber, that one of the amendments which we might seek to move to this piece of legislation would go to the title of the bill itself; and that we might change it from the `A New Tax System (Family Assistance) Bill' to the `A New Tax System (Family Burden) Bill' or the `A New Tax System (Income Redistribution) Bill' or the `A New Tax System (Experiment in Social Darwinism) Bill', because these go to the heart of what has been undertaken in this most important piece of legislation in terms of this nation's future.

The really galling thing about this entire ANTS package, of which this legislation is such a significant part, is that it is as macro-economically irresponsible as it is socially regressive.


Mr Anthony —Garbage!


Mr RUDD —The minister at the table suggests that that is garbage. I ask him to review the evidence presented by officers of the Treasury, officers representing various other agencies of the government, and a number of expert bodies from academia on the precise economic impact of this legislation if it is introduced. It fails the tests of both economic efficiency and social justice.

Let us review, for the benefit of the minister at the table, the macro-economic evidence associated with this package. We have, as a result of the recently concluded Senate inquiries, a much more substantial body of evidence and a much more public body of evidence on this matter than we had before. Let us go to the first test—that of economic growth. You would think, if we were about to embark upon an experiment as large as this, that those opposite would have some confidence to be able to predict how much this economy will grow by as a consequence of this package being introduced, as opposed to what would occur under any other circumstances. When Treasury officers were asked this question, they simply said, `We have not been asked to model this.' Therefore, we have embarked upon this voyage of discovery, involving a huge change in the taxation system, without any expert advice from the Treasury to the government as to what increment of growth will be added as a consequence of the introduction of this total package.

Other modellers who have looked at this, beyond the Treasury, have gone on to say that perhaps, in the long term, the most optimistic twist you can put on this is that there may be an additional increase to annual economic growth of 0.2 per cent if you are lucky—if all the variables hang together.

I would suggest that if that is the optimal solution which those opposite are hanging this entire package on then it is an experiment too risky to undertake. It dovetails into the recent debates both in Europe and in Japan about how to engender greater economic growth in those economies—in Japan where growth has stalled completely and in Europe where we have had declining economic growth for some time now.

The debates at present focus on one thing: in Japan on the abolition of a consumption tax and in Europe on the reduction of the rate. Why? Because the conclusion of the expert analysts in those countries, all of which are OECD economies like this one, is that the tax on consumption is having a huge impact on the retardation of growth and in Japan's case on the failure of the economy to kick-start at all.

Mr Sciacca interjecting—


Mr RUDD —When we leave economic growth, as the honourable member for Bowman rightly reminds me, we turn to employment. One logically dovetails with the other. Let us look at the employment projections of the evidence presented to the Senate inquiry. I am sure those opposite have taken time to study evidence rather than the florid phrases of ministerial press releases, which are crafted with as much art as they are science—nil in both cases. I would suggest that those opposite look at the employment projections in terms of the impact on jobs this package would have.

Mr Hardgrave interjecting—


Mr RUDD —One body of evidence presented to the Senate inquiry—and I am sure the member for Moreton would endorse this, given the range of his interjections—is that the impact on services sectors in the state of Queensland would range into the tens of thousands of jobs lost. Why? Because services sectors are not taxed and tourism is not taxed. As the honourable member for Moreton well knows, in his own electorate, which he holds by a margin of 0.5 per cent, there are many people currently employed in that sector whose employment will be subject to some risk as a consequence of the introduction of this package.

On the upside, to present the other side of the story, the most up-beat analysis presented by the expert evidence before the Senate inquiry was that we would have negligible to marginally improved employment growth in the economy as a consequence of ANTS at about the six or seven year point post introduction. I would suggest that this package fails the employment policy test as well.

Let us turn to inflation. We have what can only be described as the heroic assertion by the Treasury and the Treasurer that the total inflationary impact of this package will be 1.9 per cent. There is a stunning silence across the rest of expert commentary, across this nation, across all the economic policy think-tanks, across all the universities, across all the modellers, that this is absolute, unreconstructed codswallop. The mean average projection for the inflationary impact of this package is in the range of four to six per cent. It may even be larger. The government's projections for inflation hinge in large part on an equally heroic assumption about the follow-through effect, the flow-through effect, of the reduction in certain business taxes which occasioned the introduction of the consumption tax.

Mr Anthony interjecting


Mr RUDD —The great assumption, which the parliamentary secretary at the table obviously accepts as well—despite the evidence of the National Farmers Federation, which those opposite would be particularly interested to read in detail—is that there will be a 100 per cent flow-through of business tax reductions. The universal evidence is that there will be nothing like a 100 per cent flow-through of these reductions in business taxes.

What is the government's response to the flow-through problem? It is another piece of hocus pocus. It is called the ACCC, the mob who sit out there in Northbourne Avenue, the extra 40 staff which those opposite have a monumental level of confidence in to prevent any form of price exploitation and, therefore, impact on the inflation levels of the country as a consequence of the introduction of this package. I would like to ask how the government expect 40 extra staff to effectively police the economic transactions of 1.5 million small businesses in this country engaged in something like 100 million-plus economic transactions per day. Their heroic assumption is that there will be no fraudulent activity on the part of anyone in business in failing to pass on the benefit which they would have derived as a consequence of the business tax reductions which occur at the same time as the introduction of a GST. The package fails the test of inflation as well.

Let me come to the other macro-economic test that I think is of equal validity, the national savings policy. If we look at how this package is constructed, we see what is at best at present a cyclical budget surplus derivative of the normal Australian business cycle. Every four years, every eight years, it turns around and we see the frittering away of a budget surplus delivered by the normal budget cycle into a series of tax cuts to the persons in the economy who do not need them, those at the highest end of the income scale. The package does not set aside effective funds for the rainy day which follows when the business cycle eventually turns.

Mr Anthony interjecting


Mr RUDD —I would ask the parliamentary secretary at the table to sit there and express with extreme confidence in one or two years time, when the business cycle does turn and when the government's outlays for such things as unemployment benefits and the like go through the roof, where its residual budget surplus will be to cater for the economic exigencies of that day. It will have expended every last dollar on providing income tax cuts for those at the highest end of the income spectrum where those tax cuts are not required.


Mr Sciacca —You will be stuck with the problem because they will be gone.


Mr RUDD —As the honourable member for Bowman again rightly interjects, others will inherit and have to deal with the legacy which the current government will leave behind. As night follows day, the business cycle will turn. What you will have is a downturn in activity and a high call on public resources to keep up with those difficulties when they arise. You will not have the resources to contend with them.

Let us go to the current account deficit, the great strength of this government's economic performance, which is north of five and heading to six; the Governor of the Reserve Bank has said it could be up to six and beyond. The question I would ask is this: what contribution does this package make to national savings policy vis-a-vis our preparation for a crunch on the current account? The conventional wisdom in the international financial markets to date is that when a current account deficit hits in the order of six per cent you see the beginnings of a reaction from the markets, you see pressure on the Australian dollar. When you see pressure on the Australian dollar you start to see an impact on interest rates. When you see an impact on interest rates you see an impact in turn on activity and employment.

Mr Anthony interjecting


Mr RUDD —What I would suggest to the honourable member at the table, who becomes increasingly excitable at any remote challenge to the logic which is inherent in the package which he so stoutly defends, is that when eventually the current account amber light flashes in the dealing rooms of the world and the government sees pressure brought to bear on the Australian dollar and the consequential effects down through the economic cycle, it is at that point that it is going to need to have husbanded far more effectively the surpluses of government at a time when those surpluses exist to cater for the contingencies of that time. Against national savings policy objectives this package delivers very little indeed. In fact, as time will prove, its net impact on the economy will be negative.

If the parliamentary secretary at the table, given his particular portfolio responsibilities, is so sanguine about the future of exports, is so sanguine about the trumpeting around the globe by the Deputy Prime Minister and Minister for Trade, proclaiming one export triumph for this government after another, why does the balance of trade continue to collapse month after month after month? Why is that in turn cascading into serious problems with our external account, which any serious analyst in the Treasury today will tell you will create pressures on the dollar in the future and which will mean that our public budgetary resources will need to be properly conserved for that day?

We turn to the social compensation factor. Senator Harradine knows this. The expert commentators appearing before the Senate committee know this. Professor Warren, Professor Harding, Professor FitzGerald and others know that the compensation package offered in this package for those who are going to be affected by it at the low and lower middle income ends of the spectrum is inadequate, and woefully so. But I will come back to that in greater detail in a minute. If you round off the aggregation of economic evidence about the impact of this package, it fails the economic growth test, it fails the employment test, it fails the inflation test, it fails the national savings test and it fails the compensation test. So why are we doing it?

The answer lies in a very simple proposition. This is a wealth redistribution tax. This is the Robin Hood tax in reverse. This is the Sheriff of Nottingham tax. This is the tax that robs from the poor and gives to the rich. It does this in three ways. The GST, first of all, is a flat tax on consumption, on food, on elements of education—significant elements of education, such as books—on parts of health, on housing, and on other areas of basic expenditure. It is a tax on the necessities of life, uniformly at 10 per cent, irrespective of the income capacity of the families concerned. Secondly, the impact of the redistributional dimensions of the ANTS package is demonstrated through the withdrawal of government services which has occurred at the same time as this package is being introduced. A series of coalition budgets has seen the government withdraw from such fundamental areas of responsibility as education, hospitals, child care and social security.

The budget surplus, which the Treasurer dances about so fondly on when he appears in question time, doesn't exist out of magic; it exists as a consequence of the fact that the government has withdrawn itself fundamentally from key areas of social responsibility. It has imposed $1 billion in higher education cuts. The member for Moreton, presumably, went to university at a time when those sorts of cuts were not imposed. He benefited from a time when university education was much more freely available than it is today. A pity about those who would follow.

There are $800 million worth of hospital cuts, $1 billion in child-care cuts and cuts across the social security system—most notoriously, the common youth allowance. Where do all these burdens then fall? They do not simply evaporate into space; they fall in the direction of individual working families.

We had the absolutely unprecedented audacity of the member for Hinkler in here before saying that the Leader of the Opposition was somehow not supportive of families. If you deconstruct the elements of this package in terms of what it does as a flat tax and the government's withdrawal from key areas of social responsibility, which transfers that burden back to average working families, not to mention the disproportionate impact of the income tax cuts themselves, it is transparent when you put all that together that what you have with this package is the most anti-family set of policies which could be imagined.

On the third dimension, as to how income is redistributed from poor people to richer people, it needs to be noted again for the record that 50 per cent of the income tax cuts on offer under ANTS go to the top 20 per cent of income earners. Why are politicians such as us, such as the member for Richmond, such as the member for Moreton and such as the member for Fisher deserving of income tax cuts of the order of magnitude conceived of in this package, when plainly we do not need them?

The member for Hinkler challenged us before to look at comparisons between the tax package which is presented here and what we, the Labor Party, stand for. Those comparisons are most stark indeed. If you look at the tax credit proposal which the Labor Party put at the last election, it is quite clear that there is a fundamental contrast. For a single income family on $30,000 a year with one child the effective tax cut under Labor is $3,000 per annum. Under the Liberal Party's ANTS package it is $2,000 per annum. Under Labor there is $57.69 per week in effective tax cuts and, under the Liberals, $38.25 per week. A single income family on $40,000 with three children under Labor would receive effective tax cuts each year of $4,670 and under the Liberals' ANTS package, $3,900. That is $90 per week under Labor and $75 per week under the conservatives.

Labor's tax credits delivered higher effective tax-free thresholds without a GST. Again, for a single income family on an average wage with one child under five, there was, under Labor, an effective tax-free threshold of $20,400 per year. Under the Liberals, it is $13,000 per year. Labor's tax credits also delivered lower effective marginal taxation rates without a GST. For a single income family earning below $30,000 with one child, Labor reduced EMTRs by 10 cents in the dollar. ANTS, under this government, reduces EMTRs by only 3 cents in the dollar. The contrast is clear indeed.

If you put the evidence together, if you amalgamate the macro-economic evidence with the social impact and the redistributional impact of this overall tax package, we have an exercise in fundamental inequity. It is derivative of an overall economic philosophy on the part of this government which says that it is right to maximise income inequality through the tax system and it is right to reduce the social function of government by withdrawing activities of government through the budget. This policy approach is not appropriate for 21st century Australia. This policy approach is at home and alive in the 19th century social Darwinism of an age long past.