Senator McMULLAN (Minister for the Arts and Administrative Services) (3.10 p.m.) —I am happy to have the opportunity to participate in this debate.

  Opposition senator—Did you seek leave?

Senator McMULLAN —I do not need to do that because I am speaking to a motion which he has moved.

Senator Ian Macdonald —We would give leave to Gareth to do it and have another good laugh.

Senator McMULLAN —I also thank Senator Macdonald for his assistance. In terms of humour around here he is doing well enough just by opening his mouth.

  The situation is that we have people here who are seeking to be profound when unfortunately they are not really on top of the facts that they are dealing with. We have those things which determine the tax to GDP ratio as well as the revenue to GDP ratio, which is clearly the more important factor. If it is not self-evident, I will come to the reason why it is more important in a moment; it would be self-evident to most people but apparently not to everybody here.

  The ratios are determined by more than merely the changes in the tax laws. With absolutely no change in the tax laws, it is possible for the tax to GDP ratio to change depending on the rate of inflation, the rate of growth, what is happening on to wages, what is happening to company profits and on the composition of the GDP between wages and profits, because taxes on profits are different from taxes on wages. In a projection four years out, there is a complex array of factors that determine tax to GDP ratio.

  In the table that Senator Evans has just tabled, which is an extract from the budget papers and shows figures going back to 1953, we find a number of occasions in which there have been major changes in tax to GDP ratio without changes of any significance—and sometimes none at all—to the tax laws of a revenue raising nature. It is possible to have a year in which there are tax cuts, and yet the tax to GDP ratio changes because of other underlying economic factors. Senator Kemp knows that, just as he knows that the tax cuts cost more than the tax measures will raise.

  I am not saying that Senator Kemp sought to mislead, but it is misleadingly simplistic to go four years out and assume that the tax to GDP ratio is solely driven by changes in the tax laws. The data over the years quite clearly proves that that is not the case. Senator Short and other people with any knowledge of, for example, the impact of the change in composition of the GDP, the impact of growth, the impact of inflation on tax to GDP ratio would know that inflation is the most obvious but not the only one. Even at the very low inflation rate that we have there is inevitably some impact on tax to GP ratio. But revenue as a percentage of GDP is a much more important issue than tax as a percentage of GDP.

Senator Kemp —That is what Paul said.

Senator McMULLAN —I have dealt with Senator Kemp's wonderful issue; I am trying to make another point. Revenue as a percentage of GDP is what determines the percentage of resources being produced in the economy and used by the government to fund its measures or to determine the extent of its deficit. That is the case if, as with all previous Liberal governments, it is running at a deficit—unlike the position under this Labor government which is the only one in history to have had some experience in running a surplus.

  The more important criterion is the revenue to GDP. As I tried to explain to Senator Hill on television the other night, that will, over four years, go up by less than one per cent—even with all those other influencing factors that I outlined. I failed, obviously, to explain it adequately to Senator Hill; I am sorry about that. It may be in the teacher's shortcomings, but I think it is more likely the student.

Senator Kemp —That is Evans and he is the student. He didn't learn too well.

Senator McMULLAN —I was not referring to the leader of my party when I spoke about failure to learn. However, the most important point is that the factors determining tax to GDP ratio are much more complex over four years than the simplistic nonsense that Senator Kemp spoke.