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Wednesday, 18 March 1987
Page: 884


Senator McKIERNAN —My question is directed to the Minister representing the Treasurer. In the Bulletin magazine of 10 March 1987 there appeared a table of statistics indicating the estimated impact of what was termed the `Bulletin Version of Howard's Scheme'. This scheme included an 8 per cent value added tax and a 4 per cent increase in rebates, benefit amounts and thresholds. I ask the Minister: Would a 4 per cent increase in social security benefits be sufficient to compensate low income Australians for the cost of living increases brought about by the introduction of an 8 per cent value added tax?


Senator WALSH —There are two relevant considerations. The first is: By how much would the consumer price index be increased if an 8 per cent VAT were introduced? The second is whether a 4 per cent increase in rebates, benefit amounts and thresholds would be adequate compensation for that. At the margin the effect on the CPI of an 8 per cent VAT is arguable. However, there is little doubt that the CPI would be increased by more than 6 per cent, were an 8 per cent VAT to be introduced. Therefore, it follows that a 4 per cent increase in rebates, benefits and thresholds would not compensate for the higher CPI induced by the introduction of an 8 per cent VAT, with the possible exception of the tax-free threshold for people whose incomes were just above the tax-free threshold. It would provide compensation there, but it would not provide compensation for other rebates or for benefits. If Mr Howard were willing to give us more details of the specific VAT he plans to introduce, we could perhaps give Senator McKiernan more precise estimates of the CPI--


Senator Chaney —Mr President, I take a point of order. I did not object to the original question because I think that in the end the actual question asked was in order. It related quite specifically to whether a specific figure would cover a particular adjustment to the tax system. I suggest, however, that the Minister is now making comments on what he is suggesting might be the tax policy of the Opposition. That seems to me to be quite outside the range of the question that was specifically put to him. In accordance with previous rulings that you have made, Mr President, had a question been asked in those terms you would have ruled it out of order.


The PRESIDENT —The original question was in order; but I have noticed that the Minister is getting into the area of the hypothetical, saying `if a policy is this, if a policy is something else'. I ask him to direct his reply to the original question.


Senator WALSH —Certainly, Mr President. I will not deal with the tax policy of the Opposition, which has now been vetoed by the National Party. I will deal with the question in the terms in which Senator McKiernan asked it: Would a 4 per cent increase in allowances be sufficient to compensate people for a VAT at an 8 per cent rate? The answer to that clearly is no. Many low income Australians who are dependent on private sources of income would be badly affected, as well as those who receive allowances. This category includes a widow bringing up children on life assurance money from her husband's death, a disabled worker or traffic accident victim living off the proceeds of a compensation claim, a retired worker with a pension from a private superannuation scheme and a retired self-employed couple living off the lump sum realised from selling the family business. These people are not welfare beneficiaries. The effect on them of an 8 per cent VAT would be equivalent to a 6 per cent or 6 per cent-plus capital levy.

That is something which those, such as the Opposition Leader, who purport to be concerned about what Menzies once described as the forgotten people ought to take into account. For those who are on social security pensions and benefits, a 4 per cent increase in benefits would not offset the effect of an 8 per cent VAT which would have the effect of imposing a 6 per cent straight capital levy on a widow bringing up her children on life assurance money, a disabled worker or traffic accident victim living off--


Senator Walters —Ha, ha!


Senator WALSH —Let us note for the record that Senator Walters thinks it is very funny that a widow bringing up children on the lump sum which may have been granted as compensation following her husband's death should be subjected to a 6 per cent capital levy. Senator Walters thinks that is a laughing matter. Likewise, a 6 per cent-plus capital levy would be the effect, on a retired worker on a pension from a private superannuation scheme or a retired self-employed couple living off the proceeds of the sale of their business, of an 8 per cent VAT.