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Monday, 22 October 1984
Page: 2138

Senator Dame MARGARET GUILFOYLE(6.17) —The Appropriation ( Parliamentary Departments) Bill, Appropriation Bill (No. 1) and the Appropriation Bill (No. 2) look to the expenditure of the Government in its Budget which was produced in August this year. It does seem some time since we concentrated our thoughts on the spending proposals of the Government for the forthcoming year and looked to its revenue collections. This is a big spending pre-election Budget and one that, on most commentary, is based on very risky assumptions about revenue. The only reason that the deficit is forecast to fall is that the Government hopes for the biggest ever real increase in revenue of some 10 1/2 per cent, lifting to a record 28 per cent of gross domestic product. This has enabled the Government to finance another excessive increase in government spending on programs following last year's enormous rise.

The Hawke Government's two Budgets have increased government spending in real terms by more than the coalition totalled in seven years of government. Since coming to office it has lifted government spending as a percentage of gross domestic product from 29.9 per cent to a record 31.1 per cent this year, higher even than in the Whitlam years of budgeting. The huge rise in government spending is mainly to be financed through a 23 per cent increase in personal income tax; the highest since the Whitlam Budget years. This was one of the most significant matters of debate following the Budget's release in August. I will make some comparisons a little later on the expenditure of recent years. As a result of the income tax proposals, personal income tax is rising to a record level as a percentage of total receipts, despite the so-called tax cuts which give back only a small part of the extra personal tax imposed by the Hawke Government. The big rise of 15 1/2 per cent in personal income tax after adjusting for inflation is based on an expectation of average weekly earnings rising from 5.2 per cent to around 7 per cent with employment rising over the year by about 2 1/2 per cent. I might say that that rise in employment is not sufficient to reduce significantly the disastrous levels of unemployment because it is assumed by all that unemployment figures go into the next year and beyond at an intolerably high level.

What has been noted with regard to this Budget is that it is a risky Budget in that it is a pre-election Budget. The risk is dramatised by the Department of the Treasury in its Statement No. 2 where it warns against excessive rises in labour costs, particularly from non-wage on-costs such as wider and more generous superannuation cover. That superannuation cover is a continuing argument and is one that is being put very strenuously by the trade union movement as an addition to the indexation under the accord which it has with the Government. Such things as superannuation cover and other changes in wage conditions add to the changes in the indexation of wages under the accord and non-wage on-costs are of considerable concern to those who are looking for improved opportunities for employment generally.

While the Government forecasts continuing economic growth and a recovery in private sector investment, the Treasury papers warn that another year of strong growth in activity and profits might place considerable pressure on both wage restraint and other aspects of the accord which the Government says are central to continuing economic recovery. That is something that was stressed in the Budget Papers by the Treasury and I think it is a matter that we would need to look at if this Government were returned. We would need to look at what would be expected next year and beyond if the proposals that have been put forward by a number of the trade unions were to be seriously considered by the Government in the restructuring of the accord following the election this year. The Treasury says that the accord, which for the first time this year should limit rather than increase wage rises, must be adhered to if a continued fall in inflation is to be achieved. It will take enormous skill for the Government to convince the trade union movement that it has provided any real tax cuts when it is still collecting an extra $5.7 billion in taxes after theoretically giving away $1.3 billion in tax cuts.

The tax figures have been argued about a great deal since the Budget was presented. In fact, the huge personal tax rise stems largely from the full year effect of last year's increased tax rates and the removal of the Fraser Government's tax rebates, along with the failure to increase the tax threshold for the second year in a row. This is why a huge increase in personal taxes has been forecast in the Budget figures. I think the removal of the rebates and the failure to increase the tax threshold have made people receiving their returns this year realise that the tax policy of the past has not continued. Their expectations of a refund have, in some cases not been met. Some have received a reduced refund and others have had to pay extra on the assessments that they have received.

What is also significant in this Budget is the huge rise in total government spending resulting this year in a lift in the total government interest bill to $9.2 billion. The significance is that 64c of every dollar the Government borrows will be required just to meet the interest bill. One feels as though one is on some sort of a treadmill or a merry-go-round when one gets into the situation where one has an increasing indebtedness and one has to borrow to repay the interest to the extent that, for every dollar that is borrowed, 64c will be required just to pay the interest bill this year.

I want to contrast the figures for Government outlays from the Whitlam, Fraser, Hawke years. The three Budgets of the Whitlam Government resulted in an average annual real growth in outlays of 10 per cent. The Fraser Government's seven Budgets resulted in an average annual real growth in outlays of 2.2 per cent. The two Budgets under the Hawke Government show an average annual real growth rate of 6.9 per cent. That, of course, is where some of the problem is. The real growth in expenditure over just two years is almost seven per cent, three times the rate of growth of expenditure under the Fraser Government, and almost as high as that of the Whitlam Government in its three Budgets. It was for this reason that the commentary on the Budget following Budget night was very mixed indeed. The Australian Financial Review said in an article titled 'The perfect Budget that has become a gamble for Hawke':

. . . Hawke Government placed great store in gathering business confidence to underpin a lengthy period in Government.

This confidence has now been jeopardised by the Budget that was presented recently. The trust of the business community generally has also been jeopardised by the fact that the Government devoted the extra revenue generated by strong economic growth to additional expenditure rather than to a reduction in the deficit or a further reduction in taxes. The Government has given itself the noteworthy tag of a big spender because it has economic growth and it had revenue coming in but we saw this enormous increase in government expenditure which placed at risk the confidence that business had in it by its statement and rhetoric that it was going to bring the Budget deficit under control.

The Government has muddled any reputation for fiscal responsibility that it had tried to assume on taking office because it could now be said that its future rides almost exclusively on the continued success of the prices and incomes accord in moderating wages growth and keeping down inflation. Other than for that reason it would have to be said that business support is unlikely to stick. Business does not usually stick with a big spending and big taxing government, and I think that has to be regarded as the present situation.

In responding to the Budget in August the Opposition argued that the Government is spending over 31 per cent of gross domestic product and that it clearly intends to increase this in the near future. Mr Peacock said:

A rapidly expanding public sector . . . hardens the economic arteries and lays the foundation for future economic ill health; . . . it builds up long-term commitments that taxpayers will be called on to pay for, not only this year but throughout the future.

Of course the future consequences of the Budget is the area in which the Government is most vulnerable, particularly as it laid down the structure in the Budget which is now before us. The Treasurer (Mr Keating) gave no priority to reducing the structural deficit. This was evident from his conceding that unlike last year this year's Budget Papers gave no structural cyclical breakdown of the deficit. Although the Government provided no basis for discussion of the structural deficit, that has been undertaken by those who have economic expertise. It would be argued at best that there has been no change in the structural deficit. If the projections which will come forward in October of this year are proved to be true, it will be shown that the expectations of revenue in this Budget are very optimistic. It could be argued that the structural deficit, given the situation with regard to revenue, is one that has serious consequences for the future. The Government's position contradicts a statement made by the Prime Minister (Mr Hawke) to last year's Australian Financial Review post Budget dinner, in which he said:

We will continue to re-allocate expenditure in line with the requirements of equity and growth as we reduce the structural Budget deficit in the course of economic recovery.

The Budget itself, and developments since its presentation, indicate that the Australian Labor Party has jettisoned its undertaking to shrink the public sector to make way for private sector recovery. As we have quoted already, the figures with regard to Budget outlays of 31.1 per cent of gross domestic product and receipts of 27.9 per cent I think easily show alone that this is not a government that has any undertaking to shrink the public sector. In fact it is presiding over the largest commandeering of our gross domestic product that we have seen in recent history.

Sitting suspended from 6.30 to 8 p.m.

Senator Dame MARGARET GUILFOYLE — Before the suspension of the sitting for dinner I was discussing the Appropriation Bills that are before the Senate. I had again outlined the outlays which this year are 31.1 per cent of gross domestic product and government receipts which are 27.9 per cent. When looking at this Budget I think it is important to recall that the Prime Minister made an embarrassing mistake on the night after the Budget presentation by disputing an inference to a question from Mr Max Walsh that the Budget saw the Government's command over resources rise. The Prime Minister denied this. He said that receipts, as a proportion of gross domestic product, would fall. As we know it was later revealed that the Prime Minister had to acknowledge that he was wrong in making that assertion. It was claimed that he had been given out of date figures but the fact remains that the Government's command over resources is at an all time high in this Budget.

The Government is caught in a contradiction. It is claiming strong economic growth in the economy but at the same time boosting spending at the expense of the deficit. By not reducing the deficit the Government is implying that it is not confident that there is sufficient strength in the economy to reach the high levels of growth which the Government has forecast. If the growth forecasts are doubtful so are the revenue estimates. Those comments were made in August following the Budget's announcement. It is fair to say now, in October, that the projections with regard to revenue are showing the doubt that was expressed. We have the sort of headlines that one has seen in the Australian on 17 October ' Rural production faces a grim year with 29 pc decline'. Statements were made by the Leader of the Government in the Senate, Senator Button, with regard to the future-next year and the following years-difficulties in casting a Budget because of the revenue that will be received. At the time of the Budget comments were made about the illusory tax cuts and that 'But there are chickens to come home to roost', a comment on the Budget in general in the Australian by Des Keegan. As we are now in an election period we have discussion about the tax review which the Government will undertake and the spectre of capital gains tax, wealth tax, death duties and any other taxes that might arise out of that review .

Before talking any more about tax I want to refer just briefly to the Westpac Banking Corporation Review of September in which a serious discussion was undertaken of the accord and the Budget. This matter has been referred to earlier and was referred to by me in a question I raised with Senator Button last week. The bank talked about the difficulties of the Budget. Part of the Budget cost of holding together the prices and incomes accord is $1.3 billion in government tax revenue forgone in 1984-85 and more than $2 billion will be foregone in 1985-86. The comment is made in this publication that the cost of higher Budget deficits each year will be less as tax cuts will generate some increase in economic activity. Other comments made regarding the accord are along the lines of questioning what will be the basis of its restructuring following the election and for the future. It was stated that many trade unionists have an incentive to keep the accord the way it is in 1985. It will be recalled that there are CPI-linked wage increases and these could be lucrative for trade union members with Medicare excised from the calculation. A productivity hearing and the prospect of benefiting from non-wage bargaining in such areas as national superannuation could also prove an inducement to ossify the accord. That, of course, is the big fear of those who are looking at employment prospects. If there is to be some review of the accord, it would be hoped by those with responsibility for employment opportunities that there would be some change and not a continuation of a CPI-linked wage increase with Medicare excised from those calculations, because that would simply institutionalise unemployment, and in particular youth unemployment, well into the future.

The Government was overconfident about the Budget. In the weeks preceding its delivery the impression was given that senior Ministers believed they had produced the perfect Budget. yet the reaction was subdued, the media reaction was critical and probably the large increase in receipts and spending provoked the comment that the Government could have given more in tax cuts or had a lower deficit. However, it became clear that the Government's approach was in an election context and it wished to claim that on 1 November this year there would be tax cuts. It is not new for it to be said that this was simply an illusory tax cut, one that reduced what would have been an increase in taxes of something like 23 per cent in the Budget and certainly one that has put people into the 47 per cent tax bracket, even though they may be receiving below average weekly earnings. The tax measures in the Budget were not of relief, they were of an increase in collection. They have been recognised in the community as being a reduction in the tax creep that was being allowed to occur.

I wish to say something about the coalition's tax policy and make the general comment that the overall tax burden can only be reduced by a combination of spending restraint and economic growth. That is something to which all governments should feel committed as we go into the future with this enormous control over the resources of this country in the hands of government in the present Budget.

It will be the coalition's aim during its first term in government to achieve reductions in both expenditure and tax as a share of the gross domestic product. It is part of the current debate on tax that Australia relies far too heavily on personal income tax as a source of revenue. A coalition government will progressively lighten the burden of personal income tax by a combination of spending restraint, economic growth and broadening the indirect tax base. In reducing the personal income tax burden the Opposition is committed to give priority to helping families with dependent children. Remember that I have said that we are looking for a lightening of the personal income tax burden by a combination of spending restraint, economic growth and broadening the indirect tax base. This will be done by progressively introducing income splitting which will allow married couples with children to divide their aggregate income for tax purposes. This will be of most assistance to one income families and those two-income families in which the incomes are substantially unequal. We will progressively introduce tax rebates for child care expenses for two-income families and for sole parents. Single parent families will be given equivalent assistance in our tax policies.

The coalition in government will ensure that changes in the indirect tax area are gradual, predictable and carried out in an equitable manner, so as not to disadvantage any sector. The coalition has given the firmest of commitments that in government it will not introduce a new capital gains tax or a tax on assets, nor will it reintroduce Federal death duties.

A coalition government will maintain its strong line against tax avoidance practices. The fight against tax evasion will be greatly strengthened by a greater reliance on broad based indirect taxation. Among other taxation measures to which the coalition is committed are the abolition of Labor's 31 per cent tax on lump sum superannuation payments and a move towards providing a differential company tax for small business. I contrast the taxation approach of the Liberal and National parties with that of the Government. We now find that taxes are at record levels. Personal income tax has risen from 14 per cent to almost 15 per cent of gross domestic product under Labor's two Budgets. So we have a very big difference in the Liberal-National Party approach from that of the Labor Party. In the debate in the weeks to come, those differences will become very clear.

These Appropriation Bills are Bills which deal with the spending of the Government for this year. They deal with the Government's programs for this year and with the Government's approach to expenditure and to government priorities in the coming year. In looking at the Bills we need to look at the Government's intrusion into the gross domestic product, the percentage of our resources which are now in the Government's hands for its priorities, and the requirements upon individuals in Australia through their taxes and charges to meet these priorities of government.

On this Budget the Government will be judged. Whether government is to continue to take such a large percentage of this country's resources and to put into effect programs that leave little room for people to exercise their own choices, is something on which we will find judgment will be made by Australians on 1 December. These Appropriation Bills will be discussed at the Committee stage and a number of matters arising from the Senate Estimates committees will need to be discussed at that time. With these general comments, I think I have shown that the increase in spending and the increase in revenue collected mean that this is a big spending government and a big taxing government, and the judgment of Australians will be shown on those matters.