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Wednesday, 9 December 1998
Page: 1693

Mr RUDD (12:19 PM) —The core argument advanced by the government in support of the bills before the house, A New Tax System (Goods and Services Tax) Bill 1998 and related bills, is that a 10 per cent consumption tax equals national economic reform. The component arguments put by the government in support of these bills are equally simple. The first is that if this package of taxation measures is introduced there will be a demonstrable additional increase in economic and employment growth. The second is that any negative distributional impact flowing from the package will be either marginal or irrelevant or, to the extent that it exists, will be readily compensable, and that this compensation can be found elsewhere in the taxation package. The third argument advanced by the government in this proposition is that the package, if introduced, equals a fundamental reform of a rational nature to the structure of Commonwealth-state financial relations.

The problem is that, in the debate which has taken place on these bills and in the question times to which we have been subjected in this parliament over the last four weeks, we have not heard a single shred of evidence to support any of the propositions which have been advanced. Instead, what we have had is what I can only describe as the proclamation of dogma. Dogma, as we know, is not susceptible to rational argument. Dogma contains self-revealed truth and does not yield to any form of logical disputation.

I have sat in this parliament for only four weeks now. I think one of the most remarkable impressions it leaves on a new member is that when we witness day after day the performances, the preenings and, dare I say it, the posturings of the Treasurer of the Commonwealth of Australia, we are not presented with any systematic or logical underpinning of the propositions being advanced. What we have had instead is a daily retinue of theatre—and poor theatre at that. We have had a combination of the amateur dramatic society and the local thespians all rolled into one. It is poor theatre.

What we have had in terms of the performances of the Treasurer of the Commonwealth is the ultimate triumph of form over substance. What we have not had is a simple, systematic exposition of the underlying logic behind these bills. If the government wishes to engage in the most fundamental change of the economic and taxation structure of the country since the war, and in so doing engage in a radical social experiment, then surely the parliament demands such an exposition. If this is supposed to be the government's crowning policy achievement, it would be a rare treat for all of us if the Treasurer were to descend from on high on just one occasion to explain to this parliament why a 10 per cent consumption tax equals national economic reform, QED.

Is it national economic reform to impose a 10 per cent consumption tax without any guarantee of its impact on economic growth? Is it economic reform to introduce a consumption tax without any guarantee of its impact on employment? Is it reform to bring in such a radical set of measures without any guarantee of their impact on inflation or income inequality, or for the proper compensation of the poor or of the compliance costs for small business? Is it economic reform writ large to bring in a package of measures where we blindly assume that the pass-through impact of those tax cuts to producers, wholesalers and retailers will also be passed through to consumers at the checkout? Is it economic reform to blindly assume that the black economy will fade away? Is it economic reform to assume that this somehow represents some rational reform to Commonwealth-state financial relations when the minister at the table knows as well as anyone else in this chamber that this radically regresses the state of vertical fiscal imbalance rather than the reverse?

The uncomfortable truth is that none of these things are reforms. They are regression writ large. Why is it that the government, represented in this chamber by the minister at the table, are so confident about their growth projections? Why is it that, if they are so confident about their growth projections, they are silent about a precise number that will be generated as a consequence of the implementation of this set of measures?

We have had modelling exercises done by Econotech and they have projected a particular number. We have had advice from the Economic Modelling Bureau Australia—not in terms of a growth projection, but they have warned that the inflationary impact of this package could be three times that contained in the official documentation of the government if we assume less than 100 per cent pass through. We have documentation and modelling from the Melbourne Institute, which projects a cumulative growth figure of 1.7 per cent. If you take that over time it would add a princely sum of an additional annual growth figure of not even 0.2 per cent—and that is if you make the most benign assumptions about the growth environment of the period. Other models are also being developed.

But I ask the government, through the minister at the table: where is the government's proud proclamation of what additional quantum of growth will be added to this economy as a result of the introduction of this particular set of taxation measures? The answer to that is that they refuse to provide such a number because they do not wish that measure to be held up against it in the future.

Australians are a patriotic lot. They are prepared to cop a bit of pain. They will do so if they believe that the introduction of radical measures such as these are worth it in terms of the national economic and social gain. But this government, in confronting the people of Australia, refuse to provide an undertaking which says, `If you introduce this set of measures the economy will grow by X per cent.' And they refuse to do that because they have no confidence at all that it will result in any additional growth of any consequence.

Look at the international experience. As the Deputy Leader of the Opposition has said in this chamber, look at our own region, the United States, the People's Republic of China and this country. These are all countries which have registered significant positive periods of economic growth in recent years but none of which possess a consumption tax. Look at Japan and the diabolical state of the domestic Japanese economy. There are calls now to re-inject life into the Japanese economy. The measure most advanced in Tokyo today is the abolition of Japan's five per cent consumption tax. The bottom line is that neither the minister at the table nor the Treasurer, when he deigns to provide us with his presence in this chamber, have advanced one single piece of proof as to why the macro-economy of this nation will benefit and growth and employment will increase as a consequence of the introduction of these measures.

We are asked to accept that it is national economic reform to embark upon this set of measures and to believe at the same time that tax avoidance and tax minimisation in this country will somehow disappear down the drain. We have no answer from the government at all regarding the international experience, particularly that in Europe, and why the introduction of this tax has led to a monumental increase in tax avoidance. We have 40 per cent tax avoidance on this particular taxation measure in Italy. We have total tax avoidance across continental Europe of an order of magnitude in dollar terms equal to that of the gross domestic product of the United Kingdom. What will happen with tax avoidance when you move from 70,000 taxation points with the wholesale sales tax to 1.2 million taxation points with the goods and services tax?

We are also asked to believe that there will be a full pass through of the economic benefit of these taxation measures to the consumer. The government's response is: `Trust us, believe in competition, believe in Adam Smith's invisible hand, Bob's your uncle, it will be all okay in the morning. And if the magic hand of competition does not work we will bring in the competition police.' Poor old Allan Fels out there in Northbourne Avenue, Dickson, is going to become the competition policeman of Australia—monitoring the tens of millions of economic transactions which occur in this country every day. It is a palpable logical nonsense to assume that anyone, any instrument of the state or any element of bureaucracy could possibly manage such an undertaking.

Finally, there is the important question of Commonwealth-state relations. The government has advanced a set of proposals to the states. In the first instance, its major deficiency has been to radically underestimate the transition costs which will flow to the states as a consequence of this package. Originally the degree of underestimation was $3.2 billion. After some fiddling we now have that figure down to $1.6 billion. But the states, in terms of their budget sector, are collectively worse off as a consequence of this set of measures.

Secondly, there is the question of vertical fiscal imbalance. All states historically have said that VFI is the cornerstone of meaningful and rational Commonwealth-state financial reform. At present the states are collectively 58 per cent self-reliant in terms of their revenue as measured against their expenditure responsibilities. After this package it will reduce to 42 per cent. If you regard that as reform then the government's definition of the term is one that is radically alien to that which is contained in the Concise Oxford Dictionary.

But the crowning glory of Commonwealth-state relations is the principles document agreed to by the Prime Minister and some of the Premiers. On the question of specific purpose payments: $15 billion of $74 billion of total state outlays come from specific purpose payments. What guarantee have we obtained in this document, which was signed off by the Prime Minister and some of the premiers, that the Commonwealth will continue to provide SPPs to the states and territories and `has no intention' of cutting aggregate SPPs as part of this reform because to do so would `defeat the objective of the states and territories being better off under these new arrangements'?

You can drive a Mack truck through that language. Any state bureaucrat or Treasury official with any sense of professional self-respect should not have worn the language `has no intention of cutting SPPs'. They should go back to state bureaucratic training school. The bottom line is that that undertaking to the states, in terms of the future integrity of SPPs, is not worth the paper that it is written on.

In conclusion, Mr Deputy Speaker, this set of taxation reforms contains within it a series of propositions which fail fundamental tests of logic. It fails the test of logic in terms of economic growth, employment growth, social equity and Commonwealth-state financial reform. Forget the politics, Minister, as you depart the chamber. It fails the test of policy integrity. Politics is, in fact, an ancillary consideration to the fundamental policy deficiency of this overall document. This is not a package of taxation reform or national economic reform; this is a package of national economic and social regression.