Mr CREAN (6:01 PM) —On 11 May, Peter Costello handed down his fourth budget, but it was not the real budget. It was based on three shaky assumptions: the full sale of Telstra, the passing of the GST without any further erosion of the budget surplus and the maintenance of high levels of consumption. Since then, the full sale of Telstra has disap peared and the government has abandoned its original GST for the time being and cut a deal with the Democrats, one that eats further into the surplus. In the process, the Democrats, by effectively becoming the wet faction of the Liberal Party, have walked away from their core constituencies—the welfare constituency, the small business constituency, the environmental constituency and the arts constituency. As Peter Garrett said last Friday, `Dirty deals done dirt cheap.'

Make no mistake: in the past few weeks we have witnessed a significant shift in the Australian political landscape. Labor remains opposed to the GST and we will use every argument and every tactic to defeat it. When Senator Harradine made his `I cannot' speech, what he said mattered because Labor had built the coalition of 37 votes that made his vote relevant. By opposing Democrat amendments, we forced them to declare their opposition to the package as it stood.

Up until now, Labor has moved or supported only three non-government amendments to the GST bills: (1) showing the GST on receipts; (2) the wine tax; and (3) responsibility for local government. Now that the Howard-Democrat deal has been done, we must reassess that position. Our decision will be a tactical one—to vote in a way that gives us the best chance to defeat the GST. We will ensure that the Democrats face the choice of voting down measures they have supported in the past, measures their membership supports, such as not taxing books, or voting for these measures and thus breaching their deal with the government. The Democrats cannot have it both ways. They either vote for their principles or they vote for the deal, and there is a vast gulf between the two. Our Senate tactics will put that gulf into sharp relief.

This is a deal that is turning to dust the longer it is exposed to scrutiny. More people are coming to say, `If this is what we end up with, what's the point? Why can't we have tax reform without a GST?' ACOSS, one of the original partners to the great tax adventure, has condemned this new package, saying:

The Senate should not pass this package in its current form.

In response to a question from Laurie Oakes on whether the deal was better than the current system, Michael Raper responded: `No, it is not.' And he repeated it: `No, it is not.' The business partners are also fraying at the edges. As the Australian Society of Certified Practising Accountants recently stated:

The respect and integrity of the entire tax system will be under threat if the resultant anomalies with GST-free food become a reality.

The green groups have condemned the deal. Premier Kennett has called for the government and the Democrats to go back to the negotiating table. The Treasurer has ridiculed his own recipe-ridden deal. The Prime Minister himself has said:

If there is an alternative plan for the reform of the Australian taxation system, then we'd be happy to have a look at it and to debate it.

Labor is meeting the Prime Minister's challenge, not in response to his call but meeting it nonetheless. But first we need to put the great source of division behind us. Labor wants tax reform but tax reform without a GST, Labor wants tax reform that is not at the expense of the surplus and Labor wants tax reform that leads to a fairer, a more efficient and a more competitive society. Labor's approach to framing this budget would have been about securing the surplus, reordering the priorities and, significantly, it would answer the Prime Minister's call for tax reform alternatives.

I want to outline some of these points. Abolishing the GST is not just about fairness; it is also about better securing the surplus. The current budget surplus is built on the tax system which Labor put in place. According to the budget, total revenue as a percentage of GDP is 25.9 per cent. It has not been higher in the past 12 years. Next year it will be a higher proportion still. It is the reforms that Labor put in place in the 1980s and the 1990s that have made the revenue so robust, despite taking out $4 billion per year in tariff revenue. This is hardly the product of a tax system that is broke. It isn't.

The original GST package contained a permanent fiscal loosening totalling $17 billion over three years. The new Howard- Democrats deal adds a further $3 billion. This understates the real cost to the Commonwealth because they have not yet quantified compensation to those outside the tax transfer system. At $20 billion this represents one of the largest examples of discretionary fiscal loosening in recent Australian history, and this from a government that says it is fiscally responsible.

Labor's tax reform proposal at the last election met the fairness test. For most single income families up to $50,000 and two income families up to $60,000 Labor's proposal offered bigger tax cuts than the government's did, and we did it without a GST. These figures were verified by NATSEM, who the Prime Minister was referring to today. But we also did it without touching the surplus. Without the GST now, contemplate how we can build on that base which Labor presented at the last election. The additional tax reforms should continue to focus on fairness and families, and should at least give back the amount of John Howard's bracket creep, estimated at around $2 billion per year by July 2000. For example, for $2.4 billion we could eliminate the 43 per cent marginal tax rate, meaning that the 81 per cent of taxpayers that John Howard talks about would benefit and, again, this without a GST.

Another way to address the Howard bracket creep is through Labor's family tax credit, which delivers much more tax relief than the government's package for low and middle income families. The credit could be made even more generous and/or extended to hundreds of thousands of additional working families earning up to $90,000 per year. These measures involve expenditure of only around 40 per cent of the cut to the surplus in the government's original GST package. So depending on the fiscal position, there could be scope to extend these sorts of measures even further. But importantly, the tax credits are about much more than just tax cuts. They also help reduce unemployment. They encourage the move from welfare to work by widening the gap between welfare payments and after tax wages, and they take pressure off wages by increasing family incomes.

Labor also supports business tax reform without a GST. We are willing to uncouple the business tax reform carriage from the GST train. If the GST is defeated, we need not insist on revenue neutrality for business tax reform, provided those reforms meet the test of competitiveness and fairness. But if we are to have a GST, Labor will hold the government to its promise of revenue neutrality for business taxation reform. Labor cannot accept a reduction in business taxation at the expense of individuals and families who will be bearing the brunt of a GST. We have to make our business tax regime more competitive.

But instead of just looking to the models adopted by Europe, why not look at the model adopted by the powerhouse of world economic growth—the United States? We should be looking more closely at the features of the federal US tax system to determine its significance in making for a competitive economy. Clearly there are differences between the Australian and US economies, including size and cultural differences, but I think we can learn some valuable lessons from Australia's running mate at the head of the growth pack.

Labor has also written to the Ralph committee to investigate proposals to boost research and development, venture capital, start-ups and infrastructure because these are areas where market failure is most likely to occur, particularly in research and development. Our research and development has suffered greatly over the past few years. The recent disastrous fall in industrial research and development can be traced directly to this government's abolition of the 150 per cent tax concession. What sort of clever country are we creating with this mindless obsession to cut at all costs?

I have also urged the Ralph committee to consider initiatives to encourage start-ups and venture capital, in particular, through capital gain tax exemption of US pension funds in partnership with Australian investors through an approved vehicle. That way we get access not just to the funds but to the expertise. I have urged the Ralph committee to consider lifting the cap and widening the definition of infrastructure for purposes of access to the infrastructure rebate, particularly for regional development. These issues and the plan to scrap accelerated depreciation and to introduce deferred company taxation are serious issues and proposals that go fundamentally to the nation's competitiveness. They are issues on which Labor would be prepared to enter, constructively, further discussion, and get bipartisanship on.

In relation to Commonwealth-state relations, the states are now being made to wear the cost of the government's deal with the Democrats. This is not tax reform because most of the state taxes originally proposed to be abolished remain. If this package gets up, the only state taxes to be abolished on day one are bed taxes in Sydney and in the Northern Territory. The financial institutions duty and stamp duty on marketable securities do not go until 1 July 2001, although there is now some talk of extending that deadline for the FID. The debits tax does not go until 1 July 2005, and six state taxes remain forever. They collect around $2 billion in today's dollars. The states will continue to collect these in addition to the GST—a tax which will collect $29 billion compared to the wholesale sales tax at $15 billion, a tax that is collected at every retail outlet around the country, 1.6 million of them. The GST will worsen vertical fiscal imbalance and remove the elements of real per capita certainty for the states.

Under the GST, state finances will become more vulnerable to the economic cycle. Labor would give the states real certainty. Labor would, at a minimum, legislate to permanently provide the states with the current level of financial assistance grants indexed to both population growth and inflation. Labor would guarantee that specific purpose payments will not fall, as they inevitably will under the GST plan.

Taxation is but one part of the approach to the budget. It is not an end in itself but a means by which we build a fairer society and a more competitive economy. There are also expenditure priorities that should be addressed—that can be addressed and still secure the surplus if we junk the GST. Today the trend household savings ratio is at its lowest, while foreign debt and the current account deficit are at their highest. The budget ignores all of this, and the economy has been dumbed down by this government.

Statistics revealed on Friday show that business investment in research and development has fallen yet again under this government and in real terms is now 11 per cent below when Labor left office. So much for the clever country. The cuts to research and development spending by this government are flowing through to a less clever, less able society. These were cuts that the Treasurer described as `paying a parking fine to get off a murder charge'. This is not the way to improve an economy's long run growth potential.

But the budget's biggest failing is on employment. The government has no vision to reduce unemployment and, hence, no strategy. Reducing unemployment is a Labor imperative. Labor would use the budget to entrench our commitment to the five per cent or better unemployment target as the nation's imperative. We would commission the work force 2010 study as we did for the 2005 study—as a road map, a policy framework. We would develop the micro-dimension of the macro-target. Labor understands that to reduce unemployment and sustain the reduction you need more than just economic growth. Tax credits, education, ongoing skills development and real work experience form part of Labor's employment strategy. By obsessing over the GST, the government has forgotten that tax reform is a means, not an end, and that the budget is about the nation's priorities.

So this is a false budget. It is a budget of lost opportunities. It is a lost opportunity because of the Howard-Democrats GST. Labor will do everything to prevent this regressive, unfair tax from passing into law. We will vote strategically in the Senate. We will insist that the full details of the new package—recipes and all—be made public in time for a thorough analysis of its impact. We will push for a new agreement with the premiers and chief ministers. Labor believes that the Howard-Democrats GST is fundamentally unfair, inefficient and complex. It wastes too much of our national resources.

Because Labor's priority is not the GST, there is a significant additional opportunity to address those priorities that Labor holds firm. Without a GST, we can have tax reform which gives greater benefits to all Australian families. We can have tax reform which boosts the employment effort. We can have tax reform which makes our businesses more competitive. We can have tax reform which gives certainty to the states and empowers regional Australia. And we can focus the budget on the investment needs of the economy—in the drivers of economic growth, in education, in skills, in training, in innovation.

Budgets are about the nation. They are about our priorities and our capacity to fund them. Labor is committed to securing the surplus—make no mistake about that—but we are also committed to tax reform without a GST because that is in the nation's interests. I urge the Prime Minister to put the divisiveness of the GST behind us and take up his own challenge. Look at the alternatives and work with us for real tax reform that benefits the nation, tax reform without a GST.