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Wednesday, 13 June 1984
Page: 2913


Senator MAGUIRE —I ask the Minister representing the Treasurer whether he has seen the editorial in today's Australian Financial Review which states:

. . . the single greatest cause for optimism about the future of the Australian economy is the astonishing success of the accord so far.

I ask the Minister: What further information can be provided on the forthcoming personal income tax cuts to honour the Government's commitment to the prices and incomes accord? What gross weekly money wage rises would correspond with a hypothetical tax cut of $5 a week? Should employers support the proposals for reductions in personal income tax in the Budget?


Senator WALSH —It is not surprising that the jealous people in the Opposition did not like Senator Maguire's question and in particular did not like his quoting from the Australian Financial Review editorial which stated:

. . . the single greatest cause for optimism about the future of the Australian economy is the astonishing success of the accord so far.

The previous Government, in its dying years, had no wages policy for a considerable period because the Prime Minister of the day thought it was more important to jump on a 707 and go to London for the royal wedding than to have a wages policy. That was the state of the previous Government's wages policy, or wages non-policy, in May 1981. At the end of 1981, in desperation, the previous Government produced this stunt which it called a wages freeze.


Senator Lajovic —It is still operative.


Senator WALSH —It is not still operative. It has not been operative for about six or eight months. Of course the wages freeze had some value but it failed to address completely the question of a longer term wages policy.

It is the Government's intention that there should be reductions in taxation in the forthcoming Budget to compensate for earnings reductions attributable to the Medicare effect on the consumer price index and, therefore, on wage indexation. Because of the Medicare effect the next wage indexation increase will be negligible. The Government believed it was necessary to compensate wage earners for that effect in order to sustain the prices and incomes accord-a view, incidentally, which has been fully endorsed by the employers at the most recent Economic Planning Advisory Council meeting.

The further benign effect of Medicare, which some of the more numerate members of the Opposition, if there are any, might care to contemplate-it does not seem to have got through to them yet-is that although the effect of Medicare on the CPI is a one off effect, because it is transmitted to wage indexation, it establishes a new and lower threshold of inflation. It is something which will be particularly beneficial-and it is worth noting particularly today when the Premiers are meeting the Prime Minister and the Treasurer-for the States because wages comprise an extraordinarily high proportion of State Government expenditure. With a negligible increase in wages in the next six-monthly adjustment it means that for nine months of the next financial year there will be a negligible increase in wages paid by the States above that level which is being paid now. The importance of that should not be overlooked.

Senator Maguire asked specifically what gross increase in wages would be equivalent to a hypothetical tax cut of $5 a week. The answer in round figures is that for somebody presently on average weekly earnings the gross income increase equivalent to a $5 a week tax cut is $9.30, and for someone on the lower marginal rate of income tax the gross wages increase equivalent of a $5 a week tax cut is $7.20.