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Friday, 10 May 1985
Page: 1751


Senator Dame MARGARET GUILFOYLE —Does the Minister for Finance agree with the proposition of his factional convener, Senator Peter Cook, that the introduction of a broadbased consumer tax could mean an inflation rate as high as 20 per cent by late 1987? Further, what is the Minister's view about Senator Cook's suggestion that it might be preferable to broaden the direct tax base, including a capital gains tax, to avoid problems of compensation and the effect on prices of indirect taxation?


Senator WALSH —I have not read all of Senator Cook's speech and I am not sure, in the context, how 'inflation rate' was defined. However, he and I know very well that if there is a major increase in indirect taxes the consumer price index rises. Whether that ought to be regarded as an increase in inflation or not is open to some argument. My own view is that provided it does not feed through it should not be regarded as an increase in inflation. When the previous Government made that sort of change in the late 1970s it did so without any assurance at all that the CPI effects would not flow through into wages. Indeed, in the end it had no wages policy at all. Therefore, the substantial movement to indirect taxation by the Fraser Government, principally by way of the crude oil levy, caused an increase in the CPI which was then transformed into a new and higher threshold of inflation. That, of course, was one of the major policy failures of the Fraser Government.

I have a copy of Senator Cook's speech, which I have glanced over. My own view concurs entirely with what he said in the last paragraph of his speech, which states:

It is premature to close off options before the tax summit. The process of consultation with the community would be best served if both the indirect tax and direct tax routes to tax reform were canvassed at the tax summit without the Government giving any prior commitment to either approach.