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Tuesday, 16 October 1984
Page: 1757


Senator WATSON(4.14) —The Senate is debating a matter of public importance-the refusal of the Government to disclose its taxation policies before the election. The hip pocket nerve will be significant in electors' minds in determining the composition of the next Federal Parliament, but before debating this matter of public importance I want to refute certain claims made by Senator Jack Evans of the Australian Democrats. He stated that all parties are of the same mind and that there is nothing to distinguish the various political parties on the taxation issue. This is an attempt not only by the Australian Democrats, but also by the Labor Party to put forward grey areas indicating that there is no difference between the various parties. I indicate that there are sharp differences between us. Where are the Australian Democrats' specifics? They are strong on generalities and on motherhood statements. Most of us would have had to agree with the sentiments of Senator Jack Evans today. But to be a credible party they must come up with specifics. How will Senator Jack Evans's ideas affect the hip pocket nerve of the Australian electorate?

It is becoming patently obvious that the Labor Government has failed to deliver a taxation policy because of the imminent election. I also suggest that this election was unnecessary. The Prime Minister (Mr Hawke) has broken a previous election promise that the Government would run its full term. Now that there are difficulties on the horizon and there are problems, not only on the Government's own back bench but also in the future direction of the Australian economy, the Prime Minister feels it is necessary to call an early election. The Government has also used this excuse for its failure to deliver a taxation policy. What is the Government relying on? It says that its taxation policy is dependent on the outcome of a comprehensive review to be finalised early next year. This raises vital questions about the Government's economic competence. The Australian voters are owed a policy, or at least an outline. The Liberal Party is announcing its policy next week. In doing so, it shows an openness that the Australian Labor Party appears reluctant to follow. Now it appears today that the Australian Democrats are also reluctant to follow that course. I think that the Australian electors are entitled to have put before them the views of the three major parties on this very important issue.

This policy omission on the part of the Government has fuelled widespread speculation about future direction of taxation in Australia. This is very much to be regretted. However, there are some realistic predictions that can be made, using economic rationale. There is every indication now that new taxes will be an economic necessity, should the Hawke Labor Government be re-elected in December. Indeed, today we have heard John Stone who has an unequalled insight into this Government's economic philosophy and intent, combined with an intimate knowledge of the Australian economy, supporting the view that there will be a bevy of new taxes raised at the masthead after the next election. Why? John Stone said it would be because 'not much more can be squeezed out of the existing ones.' Revenue derived from personal income taxes is being rapidly exhausted, as we all know. Also, it is common knowledge that government accounts are between 60 and 90 days overdue. The Government has become tardy in the payment of its accounts. We not only have a big deficit and a high spending Government; we also have the highest taxing Government on record. We now find that the Government is tardy in the payment of its accounts. So what alternative will the Government have other than to impose new taxes?

Let us look at some statistics comparing the Fraser Government with the Hawke Labor Government. Average annual growth rate in terms of outlays was 2.2 per cent for the Fraser Government over the course of its seven Budgets. For the Hawke Government it was 6.9 per cent in two annual Budgets. That means the Hawke Government's percentage outlay was three times higher. If we look at personal income tax, we find that the average annual growth rate under the Fraser Government was 3.7 per cent; under the Hawke Government it was 7.6 per cent. It is a high spending, high revenue raising Government, raising that revenue from personal taxation, from the very people that it claims to protect. Real Budget receipts under the Fraser Government were 3.4 per cent compared with 6.1 per cent under the Hawke Government.

All these figures indicate one thing: The Government is in trouble. It is going to an early election without a tax policy. Let us look at some of the figures. The financial year 1983-84 witnessed remarkable revenue growth, principally due to extraordinary circumstances, a repetition of which is highly unlikely. Indeed , much of this is reflected in the substantial bounce back in farm incomes due to the ending of the drought in 1983. We are having a fudge of comparison. We are comparing the performance of the Fraser Government during the worst drought that we have faced and one of the worst international recessions, and the bouncing back with the improvement in the international situation and the benefits that Australia got from that, and the bounce back as a result of the increase in farm incomes due to the ending of the drought. The Government is enjoying a very unfair comparison. It is not comparing its performance with the early years of the Fraser Government, when we had some of the best figures in comparison with the countries of the Organisation for Economic Co-operation and Development.

Let us look, however, at what economic forecasters are saying about the future and at the reasons for this early election. Let us look at the reasons why this Government has put forward no taxation policy before it goes to the electors in December. Syntec, the economic forecasting group, has confirmed and reported that the present upswing in the business cycle in the Australian economy, though strong, is essentially short term and superficial. Therefore, it would be economically unwise to rely on revenue of this nature to contribute further towards a reduction in the Budget deficit. Thus, the long term effect of the tax cuts, as we shall find, is that the structural component of the Budget deficit will have been allowed to rise during a period of growth, and this is economic negligence. The Government has allowed political pragmatism to prevail, and this almost miraculous opportunity of effectively and substantially reducing the Budget deficit was subordinate to income tax cuts, which are a compulsory element of the prices and incomes accord. Effectively, this accord has lost the Government a potential tax revenue of $1.3 billion for 1984-85, and the loss for 1985-86 is estimated at $2 billion. So the benefits were financed by imposing higher marginal rates on an increasingly large proportion of taxpayers.

The main feature of the last Budget's tax cuts is that although they reduced the tax bill faced by all people at all income levels, they actually increased the marginal tax rates faced by all people earning between $28,000 and $35,789 per year. For those earning between $28,000 and $35,000 per year the marginal rate has increased from 47 per cent to 49 per cent, while for those earning between $35,000 and $35,789 it has increased from 47 per cent to 61 per cent. That is a very significant increase in marginal tax rates; that is the extra tax on every extra dollar earned. The Treasury estimate of a 2.5 per cent growth in consumer spending is optimistic, if not questionable. The prospect that unemployment will decline only very slowly, combined with the fact that pay increases will not come until April next year, are not conditions on which a great deal of consumer confidence will be built.

If the Government does not increase taxes, what will it do? Will it reduce the deficit? It has indicated that there will be further decreases in the deficit. So, what are the options? Reductions in public spending programs are unlikely with a Federal Labor Government. If anything, if the Government is returned at the next election, it will increase its range of programs to satisfy the back bench, so we shall see no reduction in public spending programs. What will happen? We return time and again to the logic that there must be an increase in tax rates on ordinary individuals, who are heavily taxed now-we have some of the highest taxed people in the world-or that new taxes will be introduced. It is not surprising that we find great concern on the part of all and sundry about some of the new tax rates.

How can the Government reduce public spending programs? In only 40 per cent of government sector outlays are there possibilities for real term reductions-and at best only marginal reductions, due to the level and nature of the expenditure . Once a government is locked into social service and defence programs, it cannot opt out of them easily, so there is very little opportunity for reductions. Fixed or indexed proportions of the other 55 per cent preclude expenditure reduction. Furthermore, public debt servicing costs will escalate dramatically. With the increasing proportion of the Budget that is required to finance public sector debt, this is a matter of major concern. We now rank amongst the most highly indebted individuals in the world. It is no wonder that there is concern about business confidence.

What can we anticipate? We can anticipate a capital gains tax, which the Prime Minister has failed to rule out. We can anticipate a wealth tax, the reintroduction of estate duties, or the retention of wholesale sales taxes combined with a broadly-based indirect tax. So again, the Australian people are facing a dilemma in regard to increased taxation if the Labor Government is returned at the next election.

We have already seen attacks on people's ability to save. One of the first things that the present Government did was to attack lump sum superannuation payments. There is also the assets test. It is not surprising that farmers approaching retirement are most concerned about the full implications of the assets test. Also, the relative levels of the disposable incomes of age, invalid and widowed pensioners and unemployment and supporting parent beneficiaries have declined by 10 per cent in comparison with the poverty line over the last 18 months. These are the very people whom the Hawke Government is supposed to assist. Overall, not only have the disadvantaged suffered a decline in living standards but also a further decline is imminent.

Taxation is supposedly the means by which society finances community needs; hence it is a social matter. But one of the problems is the flourishing of the black market economy, to the detriment of low income and middle income earners, which is highly inequitable. The black market economy is expected to turn over $ 3,500m per annum. It has potential as a significant tax collection area, but we have had very little movement from the Government in this matter. The marginal tax rates faced by workers at given proportions of average weekly earnings have increased dramatically under this Government. The incentive not to declare income or to earn non-taxable income is rising all the time. The share of declared income in the higher tax brackets has fallen, despite the actions of the previous Government. The Labor Government tends to put forward the furphy that the Fraser Government was soft on bottom of the harbour tax avoidance. The latest report of the Commissioner of Taxation puts that to rest. The Fraser Government took the necessary action to finish bottom of the harbour schemes.

What is the Government asking for? It is asking for a blank cheque. It has produced an election Budget. After the coming election, we shall find that there will be a massive boost in taxation to satisfy socialist objectives. I support the matter of public importance.