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Tuesday, 31 March 1987
Page: 1517

Senator COOK —Can the Minister represen-ting the Treasurer inform the Senate of the effects of a $21.5 billion reduction in revenues? In what circumstances would such a situation occur?

Senator WALSH —The effect of a $21.5 billion reduction in revenue, minus only $32.5m of expenditure cuts which the Opposition has identified that it would make if it was elected to government, would be a deficit of around $25 billion.

Senator Ryan —How much?

Senator WALSH —A deficit of about $25 billion. That would be close to 10 per cent of gross domestic product, about double the highest defi-cit as a proportion of GDP that has ever been recorded and more than double in dollar terms the prospective deficit left by Mr Howard when he was last Treasurer. The effect of that would be to push interest rates up to levels that I think are beyond the comprehension of most people-certainly 30 or 40 per cent and probably very much higher, so high that they are out of the bounds of any previous experience.

Senator Cook also asked me under what conditions such a reduction in Commonwealth revenue could take place. Very clearly, the conditions under which such a reduction in Commonwealth revenue could take place would be those prevailing if a coalition government were to be elected and it implemented the policies of the National Party, as of course we know the Liberal Party has a record of doing. The Liberal Party in recent times has jumped to the National Party tune.

If I may, I shall flesh out the details of that proposed $21.5 billion reduction in Commonwealth revenue. The main items of cost to revenue of the various resolutions carried by the National Party conference last weekend are as follows: Income splitting, $2,850m; child care rebates, $115m; the repeal of the assets test, $160m to $300m; a wages freeze-that is, the effect on income tax because of wages being frozen, if it actually happened-$500m; repealing the lump sum tax on superannuation, $85m; a 25 per cent flat tax with the existing threshold, $7.5 billion; and increasing the dependent spouse rebate from $830 to $4,000 and the dependent child rebate from a maximum of $200 to $2,000, another $2.5 billion. The abolition of the capital gains tax will mean a reduction of $25m directly; fringe benefits tax and substantiation repeal, $9,000m; quarantining of negative gearing, $100m to $200m; the abolition of the financial institutions duty, as the Opposition calls it, by which I presume it means the bank account debits tax, $300m; and the repeal of the prescribed payments system, $850m. The final item is the abolition of all excise on petroleum products-promised by Mr Hunt in his speech at the National Party conference-$5.6 billion. That adds up to something more than $21.5 billion. That is the policy of the National Party. The National Party calls the tune in the coalition and a coalition Liberal Party in government would of course dance to the tune of the National Party, as it does in Opposition. The consequences of that sort of policy on the macroeconomy I have already spelt out.