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Wednesday, 3 October 1984
Page: 1100


Senator WALSH (Minister for Resources and Energy)(12.37) —I will comment briefly upon two or three matters of substance which have been raised in the course of the debate. First, Senator Jack Evans and some earlier speakers put forward the argument that the taxation cuts announced in the Budget and now being legislated for here should have been made by way of increasing the tax free threshold of income instead of reducing the rate of tax which is the course the Government has chosen. Superficially that is an attractive argument because it would seem that people who have low taxable incomes are people in need. That, however, is not necessarily the case. We know with certainty that not all people who have low taxable incomes are people in need. That is so for a variety of reasons. The income may be a second income or a part time income in a household. It may be that of a person who has entered the work force only midway through the taxation year and therefore has a low income for the whole year. One could delve into a number of other possibilities. We know for certain that not all people with low taxable incomes are people in need. Therefore, we know that the belief that they are in need is not correct. What we do not know is the degree to which that belief is not correct. Senator Evans made a valid point when he suggested that there ought to be a review of the whole taxation system. I suggest that review should be integrated with the social security system. A case could then be made out for that review. Before rational decisions can be made on such a review or on an alternative policy it would be highly desirable to have a good deal more reliable knowledge and information than we now have.

Other arguments against the suggestion that the threshold of tax free income should have been increased instead of most of the rates in the income spectrum being reduced is that any increase in the threshold of tax free income, other things being equal, provides exactly the same quantitative benefit to all taxpayers regardless of their level of income. To be precise, that would disregard that small range of incomes between the previous tax free threshold and the one which has now been set. The Government regarded that as inequitable. It would have been possible at much the same cost to attain a reduction of the order of $4 to $5 in tax payable by virtually all income tax payers simply by increasing the threshold. It would not in the Government's view have been equitable to have approached the matter in that way.

The policy adopted by the Government was to maximise, within the overall constraint of the amount of income which it was judged could be forgone, the benefits of the tax cuts in the range of incomes between $12,500 and $28,000, that being judged to be the range of incomes through which people were in full time employment and most likely to be dependent on the incomes they earned for their support. They may or may not have had other dependants. That was an equity consideration. Like all judgments based on equity, it is liable to some valid, but more often invalid, criticism. The tax cut throughout the range of incomes between $12,500 and $28,000 is $7.60 a week. The absolute amount reduces at either below $12,500 or above $28,000. That again was the intention of the Government at the lower end of the income range for those below $12,500 for reasons I have stated earlier, and at the upper income range on the ground that people with taxable incomes above $28,000 are clearly not in need of tax cuts of the magnitude provided throughout the lower and middle income range. That was an equity decision.

The Government's decision was also closely related to the need to cement the prices and incomes accord and the representations that were being made by the Australian Council of Trade Unions to have substantial reductions in income tax throughout the range of incomes covering people in full time employment as, if you like, a trade-off for not attempting to recover through the wage indexation system the effect on the consumer price index of the Medicare levy. I make no apology for that policy in either a personal sense or as a representative of the Government. As a result of that policy the accord has now been cemented and there is a guarantee that there will be no increase in award wages between April 1984 and April 1985. Because of that it follows inexorably that the rate of inflation which has already been brought down by some 40 per cent since this Government came into office will continue to fall and that the significant but moderate reduction in interest rates which has so far taken place will continue, other things being equal, sooner or later commensurate with the fall in inflation rates.

Because of the interaction between the level of the tax cuts and the target area, the area of incomes in which they were targeted, and the cementing of the accord, we can now be confident that inflation will continue to fall. this will assist in a vital way the continuation of the sorts of rates of economic growth which are required to restore full employment. I submit that ultimately the restoration of full employment provides the best chance of relieving poverty whether it be the poverty of the unemployed or the need of other social security recipients. The restoration of full employment brings a consequent increase in the national product. Therefore, the amount which is available for redistribution is increased and in that way those people's needs can most effectively be met.

Sitting suspended from 12.45 to 2 p.m.