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Tuesday, 9 December 1986
Page: 3586

Senator CHILDS —My question is directed to the Minister representing the Treasurer. Has the Minister's attention been drawn to a Press release put out at the weekend by the Leader of the Opposition, John Howard, regarding the Opposition's phantom tax policy? What would be the financial implications if his phantom proposals for lower taxes overall brought about by less government spending, a flatter system of personal income tax, less personal tax with a shift to indirect taxation, a bias in favour of families with dependent children, and the abolition of the fringe benefits tax and the capital gains tax, introduced by Mr Keating, were all implemented?

Senator WALSH —I have already had a question today on the Opposition's policies on expenditure. The Opposition has identified about $30m worth of savings on expenditure and at least $800m worth of increased outlays, even after the Leader of the Opposition repudiated all the previous expenditure promises which assorted members of the Opposition front bench had been making around the country-$600m additional on education for the unemployed, if that policy is still alive, and some $200m-odd for the repeal of the assets test. A flatter personal income tax system, which is a euphemism for a less progressive personal income tax rate scale, for revenue neutrality would, of course, have to impose a higher tax burden on lower income people.

The shift from less personal tax to indirect tax-one needs to be rather careful about the terms used here-means that there would be less income tax, but persons would be paying in aggregate an offsetting amount of tax through a tax on consumption. Again it is not necessarily so but likely that the burden of that tax policy change would be borne more by people on lower incomes than people on higher incomes. In particular, it would be borne by low income families which at present have very little income tax liability, but through wholesale sales tax or any other consumption tax would pay a considerable amount of tax. In other words, it would hurt the very people that the Opposition claims that it is concerned with protecting.

More importantly in the macro-economic sense is that, in the absence of any effective wages policy or, indeed, a wages policy at all, the effect of a movement towards indirect taxation which feeds into the consumer price index would be to further stimulate demands for wage increases and probably set off an accelerating inflationary spiral, which the Opposition fondly believes could be controlled by collective bargaining in the market place. It tried that little experiment back in 1981 and 1982 and we had a wages blow-out of 13 per cent in the first year and 14 per cent in the second year. If it combined its non-wages policy with a major shift to indirect taxation for revenue raising it would probably surpass that record.

The Opposition's formula, if one could dignify it by that title, for the recovery of the Australian economy and the correction of our current account problem is, in short, to bring back the boozy free lunch and the tax deductible Mercedes and pay pensions to millionaires. That is the Opposition's formula for curing Australia's economic problems, although the way in which any of those measures would have any positive impact at all on our problems remains, as it always was, a great mystery. Finally, I should note the comments of Professor John Hewson who, I understand, is an endorsed Liberal Party of Australia candidate for the House of Representatives, or if not endorsed--

Senator Button —He is endorsed.

Senator WALSH —He is endorsed, I am told. As soon as the Liberals can persuade one of the more inert members of its present back bench to get right out of parliament, he will come in, but I do not know whether he is to be a front bencher or a back bencher. Professor Hewson, who is acknowledged as one of the few people in the Liberal Party who have any expertise in economic matters at all, was quoted just over a month ago in the Business Review Weekly as saying:

Having begun to declare its tax policies, the Opposition's credibility on tax will continue to be questioned until it specifies all the detail.

I certainly agree with Professor Hewson about that.