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Wednesday, 12 April 1972
Page: 1015


Senator Sir KENNETH ANDERSON (New South Wales) (Minister for , Health) - by leave - Throughout the past year, the basic underlying policy of the Government has been to maintain balanced economic growth, including the provision of employment opportunities for our growing workforce, while at the same time braking the upward pressures on costs and prices. In a period of continually changing economic circumstances, this policy has required an appropriate flexibility of policy.

Honourable senators will recall that in his Budget Speech the Treasurer (Mr Snedden) said that the Government would be keeping the whole situation to which budget policy was directed under very close review throughout the year. The Government's purpose in so doing, he said, was to make any adjustments in policy which might prove to be necessary.

In accordance with this statement we have been taking action, as necessary, to meet changing social and economic circumstances. To recapitulate the highlights, we took action in October and November to increase bank lending and reduce bond rates. In December non-metropolitan employment-creating grants were introduced and the availability of credit was eased substantially. Prior to the Premiers Conference and Loan Council meeting in February we made substantial further reductions in bond rates and in bank lending and deposit rates.

At the Premiers Conference itself we settled upon sizeable increases in the works and housing and the semi-governmental borrowing programmes of the States. At the same time we announced the doubling of the grants to the States for the amelioration of non-metropolitan unemployment, special revenue grants to the States, and substantial increases in unemployment and associated benefits. With a view to boosting confidence, the investment allowance on manufacturing plant and equipment, which had been suspended in February 1971, was restored.

Since those February decisions there have been further reviews of the economy carried out in the Treasury and the Reserve Bank. These reviews were brought to completion 10 days or so ago. After assessment of them the Prime Minister (Mr McMahon) and the Treasurer in consultation, and then the Government, have concluded that further measures directed towards our economic management and social objectives are now warranted.

Before detailing those measures, however, let me briefly sketch in the developing economic situation as the Government sees it.

First, let me deal with the increasingly favourable side of the economic scene. I think it fair to say that the whole tenor of public sentiment about the economy has undergone a very marked improvement. This change in mood is pleasing, confirming as it does the continuing soundness and strength of the economy.

Strengthening confidence reflects, among other things, the objective facts of our economy, which has grown strongly and with only occasional and moderate pauses for over 2 decades. It reflects the improving current economic indicators - for example, the strengthening trend in housing approvals, the more optimistic outlook evidenced recently in the motor vehicle industry, the big export orders secured by the steel industry, the better wool prices recently evident, the general improvement in the rural sector, and so on.

The Government sees these developments as very encouraging. But we have not been completely satisfied that the developing situation is fully matching up to the possibilities. In particular, we have noted the sluggish trend in consumer spending. Retail sales have been notably weak after very moderate growth in the 6 months to November 1971 they actually fell, in seasonally adjusted terms, by one per cent in the following 3 months to February 1972. Although revisions may alter the import of these preliminary figures, and although the figures for February have been rather better than their predecessors, there is no doubt that consumer spending has slowed markedly this financial year. The reviews available to the Government have placed some stress on this fact.

Certainly, the Government considers this trend in consumer spending to be a matter requiring its attention. First, although as we expected unemployment has fallen off fast in absolute terms, we feel that an improvement, in seasonally adjusted terms, is still desirable. Secondly, and as a broad social rather than narrowly economic consideration, the slowing in consumer spending, at least in real terms, in part reflects the fact that price increases have had adverse effects on the purchasing power of those whose incomes depend on social service payments. Thirdly, there is the question of confidence.

I said earlier that there has recently been a heartening resurgence of confidence. It is essential that this development be sustained and nurtured. The Prime Minister and the Treasurer have been considering carefully the far from simple issues of economic management inherent in all this. In doing so they have had in mind that, with consumer spending sluggish, there is an obvious problem in terms of whether demand will expand sufficiently, in the period ahead, to sustain that confidence to which I have already referred and upon the maintenance of which the further steady expansion of total demand depends considerably.

In weighing this demand-supply situation they have had in mind at the same time, the fact that the rise in costs and prices is continuing. As I said at the outset, braking the upward pressures on costs and prices is one of the Government's central economic policy objectives.

The measures being proposed aim at a moderate increase in demand which we now judge to be, within the productive capacity of the economy. They should not, therefore, create strains leading to rising costs. Moreover, the increases in disposable incomes which will follow from them' will not add to costs - in contrast to increases in money wages. When the Commonwealth Conciliation and Arbitration Commission brings down its judgment in the national wage case, we shall see whether our hopes of some easing of wage pressures on costs and prices are to be realised. The Commonwealth has, of course, argued before the Commission for an outcome which would be consistent with those hopes, but the decision is now in the hands of the Commission. Meanwhile, it becomes every day more necessary to consider the plight of those members of the community who are largely defenceless against the erosion of their real incomes resulting in the main from wage inflation.

In considering these and other aspects of the matter in relation to what might be done about them now, we have also looked ahead a little towards the financial year ahead of us. It is as yet far too early to be considering in detail what may prove to be the shape of the Budget we shall bring down for 1972-73. It is apparent to us, however, that we will be able to take positive action in the Budget on both the revenue and expenditure sides. Obviously in any budget a basic problem is reconciliation of priorities. After full examination, in consultation with the Prime Minister, the Treasurer concluded that the measures shortly to be announced would in any event, merit the highest priority in the, forthcoming Budget context and would certainly not go beyond the range of prudent possibilities. Of course, the taking of measures now will re.duce the scope available to us in the Budget. What capacity will remain at that time in the policy areas now to be announced remains to be determined.

In bringing forward now what would otherwise be Budget measures, we have in mind several considerations. First, it will reinforce the recent resurgence, of confidence. We want it to strengthen further and we see the. measures proposed as being, among other things, a measured response to this end. Secondly, the measures proposed will support consumer spending while, at the same time, bearing on the complex of social and other considerations I have mentioned earlier. Thirdly, the measures proposed are all measures which, in the normal course, we would have been including in our Budget for 1972-73. The effect of bringing their announcement forward will therefore chiefly be to bring into earlier operation policy decisions which would have been made anyway. It is our considered judgment that, in these particular circumstances, the change in timing for certain measures is feasible and I now outline them.

Personal Income Taxation

In the 1971-72 Budget the levy on personal income tax was increased from 2i per cent to 5 per cent. The rapid increases in the level of money incomes has led to a large rise in effective tax rates and there has been a big increase in the. overall weight of taxation on individuals.

In the light of the consideration I have already outlined, it is proposed to reduce the levy on personal income tax from 5 per cent to 2i per cent. New payasyouearn deductions will be applied as from the earliest practicable pay-day. That is, the levy will be reduced, on an on-going basis, from the present rate of 5 per cent to 2i per cent. In the absence of further action, the rate of levy will thus remain at 2i per cent for the 1972-73 income year. The cost to revenue in 1972-73 will be $117m.

As to the current financial year, the new and lower pay-as-you-earn deductions will be applied, as I have said, as soon as practicable. In assessing incomes for the 1971- 72 financial year we propose to proceed as though, notionally, the reduced rate of levy had been effective for the last quarter of the year - that is, the rate of levy for 1971-72 as a whole will be 44 per cent. The cost to revenue in 1971-72 will be $12m, although I should add that some part of the benefit to taxpayers in respect of income year 1971-72 will accrue to them in 1972-73 in the form of greater refunds - the estimate of a cost to revenue of $117m in 1972-73 includes the effect of such increased refunds. Appropriate arrangements will be made to deal with the position of provisional taxpayers, including those who have already paid provisional taxation on the basis of the 5 per cent levy. The necessary legislation to reduce the levy will be introduced forthwith.

The Government proposes also to vary the operation of section 26 (a) of the Income Tax Assessment Act which provides that the assessable income of a taxpayer includes profits arising from the sale of any property acquired by him for the purpose of profit-making by sale. There has been much said about the operation of this section recently. The Government has decided that the basic principle of section 26 (a) is proper and that it should be maintained. However, in order to provide greater certainly on the part of people having stock exchange transactions in shares it is proposed to amend the law so that profits or losses arising from the sale of snares which have been held lor 18 months or more will not be taken into account for taxation purposes. The amendment will not, however, apply in the case of transactions in shares which are part of, or incidental to, a business being carried on. Nor will it apply in respect of transactions which have been the subject of notification under section 52 of the Act. Transactions in shares falling within the 18- month period will continue to be treated on the basis of the current provisions of the law. Further details will be announced when the legislation is introduced.

Pensions

The Government also proposes measures to increase pensions. As regards age, invalid, widows' and repatriation service pensions, it is proposed to increase by $1 per week the standard rate and by 75c per week the married rate from the earliest possible date. The corresponding rates of tuberculosis allowances, long-term sickness benefits and sheltered employment allowances will also be appropriately increased. The estimated cost of this proposal in a full year would be $53m. On the assumption that the increased rates will be paid as from the first pension pay-day in May, the estimated cost in 1971-72 is $l lm.

I should emphasise that these proposed pension increases will not be restricted, as in the case of the April 1971 and the October 1971 increases, to pensioners receiving pensions at or near the maximum rate of pension. We have also decided that as from the date of effect of the general increases now proposed those pensioners who did not participate or who participated only partly in the April and October 1971 pension increases will receive additional increases in their weekly pensions assessed by reference to the new maximum rates of pension.

As a result of these proposals, the limits of means-as-assessed for pension eligibility purposes under the 'tapered' means test will .rise from the points at which they were frozen in April 1971 to $46.50 and $81, expressed in weekly terms, for single persons and married pensioner, couples respectively. The estimated cost of unfreezing the taper and granting eligibility for the 1971 pension increases is. $23m in a full year and $4m in 1971-72, on .the basis that the increases become payable from the first pension pay-day in May. . .

Increases are also proposed in war pensions - $2 in the special rate payable to a totally and permanently incapacitated war pensioner and $1 in the intermediate rate and war widows' pensions. There will be some consequential adjustments in other repatriation benefits. These war pension proposals will cost about $0.9m in 1971-72 if payable from the first pay-day in May and $5. 3m in a full year. The appropriate legislation will be introduced as soon as possible by the Minister for Social Services (Mr Wentworth) and the Minister for Repatriation (Mr Holten). . .

People whose eligibility for pension arises solely from the application of the tapered means test will not qualify in conformity with the decision taken when the tapered means test was first introduced, for Commonwealth fringe benefits. It is not proposed to make any variations in the age allowance for income taxation purposes at this time - this question will be brought forward for consideration in the context of the next Budget.

Inquiry into the Taxation System

I turn now to a more general subject. Australia's taxation system is- becoming more and more the subject of contentious debate. All taxes - personal income tax, company tax, indirect taxes - are subject to criticism, often severe criticism, for their effects on equity, incentives, or on the grounds of anomalies. There is a consensus that what is wanted is tax reform. That, however, is as far as the consensus goes. Views in the community on the direction that such reform should desirably take are very much divided.

The Government has decided, therefore, to set up a high level expert body to conduct a full-scale public inquiry into the taxation system. The inquiry will have broad terms of reference and it will be expected to hear evidence on and conduct studies and investigations into the overall operation of the taxation system. The inquiry will thus permit a thorough public examination into the taxation system and put the Government in a position to have an overall look at tax policy. The precise terms of reference for this inquiry will be announced at an early date.

Because an inquiry of this wide-ranging nature may take a little time to bring to full fruition, I should perhaps say that, as a matter of practicality, the Government will of course not regard the establishment of a public inquiry into the tax system as precluding it from any action it may consider necessary in the period during which the inquiry is proceeding.

Conclusion 1 come back now to the context in which we set these various measures. Leaving aside the proposals regarding the taxing of profits on share transactions, and for a public inquiry into the taxation system, I direct myself to the other matters I have set forward. First, the proposed increase in benefits to pensioners will, we believe, relieve the worst hardships which, during the period since the Budget, the rapid inflation of costs and prices has imposed upon them. That is desirable in itself; but given the nature of the expenditure patterns involved, increases in these benefits should have a direct impact, some few months earlier than otherwise, on the level of consumer spending. For reasons I outlined at the outset, we believe this would be desirable.

The effects of this first measure will, we think, be reinforced by the second, namely the proposal to reduce the on-going levy on personal income tax from 5 per cent to 2i per cent. This too will have, we think, a useful impact in consolidating, at this time, the recent resurgence of confidence to which 1 earlier referred. Its significance, however, as we see it, goes wider than that For one thing, it will have the direct effect of increasing somewhat the level of take-home pay from existing wage and salary levels. It is therefore to be seen not merely as a fiscal measure in its own right but also as being consistent with our wider approach to wages policy. Because of that, and because as I noted earlier we believe that the increase in demand flowing from these measures will not now create strains upon the economy's resources, we see them as fully consistent with our continuing aim of curbing cost and price pressures. The measures I have outlined will come as a surprise to many. Certainly they are not conventional as to their timing, but we have given the most careful consideration to this question of timing and we think that what we propose is right at this time in terms both of our economic and of our social objectives. Our confidence in the essential strength of the economy is firm. We therefore believe that these measures, taken now, will be to the benefit of the economy, as well as being just in terms of social needs.







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