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Thursday, 23 August 1984
Page: 260


Senator FOREMAN —My question, which is directed to the Minister representing the Treasurer, refers to the personal income tax cuts announced by the Treasurer in his Budget Speech this week. Can the Minister indicate to the Senate the objectives of those tax cuts and the benefits the Government expects to follow from them?


Senator WALSH —There is a very long list of reasons for, and anticipated benefits from, the tax cuts. I do not propose to canvass them all but there are at least three which stand out very clearly. The first, and I think most important, is that it had been a longstanding part of the accord with the Australian Council of Trade Unions. In the judgment of the Government-I believe a judgment shared by many people outside the Government including, I suspect, a number of members of the Opposition, if their private opinions could be given-tax cuts of the magnitude which have been given and targeted at the income groups at which they have been targeted virtually guarantee that the wages policy will be honoured in its entirety for the next 12 months.

Because of the Medicare effect on the consumer price index and the agreement with the ACTU that wage increases in compensation for the Medicare effect will not be sought, it follows that there will be almost no increase in wages because of indexation when the October or November case comes up, nor will there be any increases of any consequence in April next year. In other words, there will be a full 12 months with virtually no increase in money wages, which obviously will lead to further significant falls in the consumer price index, and in the implicit price deflator. In other words, in the judgment of the Government, it is crucial for the continuation of the amazing economic recovery which has taken place in this country since the discredited former Government was ignominiously removed from office about 18 months ago that the wages policy be maintained and that the tax cuts of the magnitude and type which were provided secure the maintenance of the wages policy. It will also, of course, for much more conventional reasons, provide a stimulus to consumer spending. Although the most recent evidence available clearly shows that consumer confidence is at the highest level it has been for, I think, a decade, further stimulus in consumer spending will obviously add to total demand and, therefore, to growth and employment.

The cuts, targeted in the way that they have been targeted, also provide a significant redistributive element; that is, in percentage terms the lower one goes down the taxable income scale the higher the percentage tax reduction and the higher one goes up the income scale, and especially as one enters the top 10 per cent, the tax cuts, as a proportion, fall away to extremely low levels. The tax cuts which were announced have performed all those three roles.

In summary, again, it will assist very heavily in the maintenance of the incomes accord to stimulate consumer demand and, to some degree, restore to the taxation system the equity and fairness which were eroded under the discredited former Government by both discrete changes to the taxation schedule and, even more importantly probably, by its toleration of massive tax evasion and avoidance.