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Tuesday, 23 October 1973
Page: 2542

Mr WENTWORTH (Mackellar) - I do not intend to take up the time of the House for long in regard to this measure but there are a couple of propositions which I think should be put. I am not sure that they will be altogether pleasing to either side of the House.

I think that the Liberal Party might perhaps be considering some of the basic financial propositions which underlie budget control. It seems to me that it is time we acknowledged some of our past errors and looked forward to some kind of new policy because, after all, I am sure that when we get back into power, which will not be long, it will be necessary for us to have a different kind of financial policy in some, though not all, respects.

The legislation that is before the House relates to capital advances and in order to put this into perspective I should like to say something about the Federal Budget and the capital advance content of the Federal Budget. I believe this is quite crucial because it embodies an error which has been intensified by the present Government but which was I think inherent in the financial policies which have been developed over the years. It was said in this House earlier that when the Government spent, it was different from private capital spending because if the Government created a deficit it would be adding to the inflationary fires in that it would be adding to the amount of money in circulation. This is an obvious truism. But what is not realised is that if the Government raises a loan it reduces the money in circulation in exactly the same way as if it imposes and collects a tax. In relation to the amount of money in circulation, the raising of a loan is equally efficacious to the collection of a tax in reducing the total quantum of money supply. Therefore, if the Federal Government raises a loan it reduces the money supply in exactly the same way as if it collects a tax.

What has happened over past years has been that Federal governments have been paying for capital works out of taxation. They have been collecting taxation and using that money to pay for capital works, very largely through advances to the States. This has meant that in order to maintain financial equilibrium, the Federal governments have either to raise loans, which they have not done, or to impose extra taxation. I put it as a major proposition that the incidence of taxation in Australia very largely has been determined by the failure of governments to raise adequate loans to cover the capital works program.

The extent of this is not always realised but it is easy to make a first approximation of this from the figures which are published in the Budget papers. I think that the amount of revenue which has been used for capital works can be reasonably ascertained in the following way: Firstly, we add together the capital works in the Federal Budget as shown in the Budget; secondly, we add to that the grants to the States for specified capital purposes as shown in the Budget papers; and, thirdly, we add the net capital advances to States and other bodies as shown in the Budget papers, all coming from Federal revenue. We take from that I think we should the Budget deficit as shown in the Budget papers. This will give us the amount of taxation which is allocated to capital purposes. It is an approximation because the result probably understates the position due firstly to the excess provision of sinking fund and, secondly, to the lack of allowance for capital appreciation of Commonwealth assets. There are also a number of minor adjustments but

I do not think they would affect the general picture.

Using the official figures as I have pointed out, I have compiled from the Budget papers a table showing the development of this practice in the last 20 years and particularly the very big advance which was made in the amount of the allocation for capital works in the last year, as shown in the Budget papers. It is not usually realised that the net amount allocated in the Budget papers of this year for capital works is $2,062m - a very big proportion of our income tax. In other words, if we reverted to the normal principles of finance which we should be following we could reduce income tax very significantly or, alternatively, we could reduce excise or one of the other taxes, if and only if we could raise this additional amount by loan and thus reduce taxation without adding to the net monetary supply. I should like permission to incorporate in Hansard a table showing these details.

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