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Prime minister's deceit-fightback:does not favour the rich



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V7«?t

John Hewson Leader of the Opposition M edia R elease

276/91 7 December 1991

PRIME MINISTER'S DECEIT - FIGHTBACKI DOES NOT FAVOUR THE RICH

The Prime Minister continues to peddle the myth that our reform package benefits only the rich and disadvantaged the poor.

He started peddling this argument long before the FightbackI package was released. To continue with it simply reflects Mr Hawke's utter desperation and frustration at the paucity of the Government's attack on the FightbackI Program.

For example, he said on the "Sunday" program last weeki-"it is the poor, the disadvantaged and the low and middle income people who are going to pay"

That is a bare-faced lie - and the Prime Minister knows it.

In his selective examples, he concentrates solely on the tax reductions for different individuals - ignoring completely the other benefits that flow from our FightbackI package.

However even if we concentrate on the tax cuts themselves, it is important that we recognise a couple of key points.

It is inevitable that those on higher incomes will get larger dollar value tax reductions - they also pay far more tax.

What matters is the marginal tax rate faced by the worker.

As the Tables in Chapter 2 of the FightbackI Tax and

Expenditure document show, the gains from the package introduced under the first stage of the Coalition's tax cuts are principally directed at those in the $20,000 to $50,000 income range. This group will face a marginal tax rate of only 30 cents in the dollar compared to the 38 to 46 cents currently paid by this group under the present Government (see chart on next page).

As a result, many on a low to middle income can more than

double their income without paying a higher rate of tax.

About 95 per cent of taxpayers will face a tax rate no higher than 30 cents in the dollar under our reforms.

C O M M O N W E A L T H

PARLIAMENTARY LIBRARY MICAH

2

MARGINAL TAX RATES HAWKE v s HEWSON MARGINAL TAX RATE 0,5

0,4

0,3

0.2

0,1

0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

INCOME P E R YEAR ( Ό 0 0 )

-----LABOR MARGINAL RATE —^ LIB/NP STAGE I ....... L1B/NP STAGE 11

the main gainers

_i _ i i i I 1 I i i I l I I I I 1 I t

The irony of Mr Hawke's charge is that our tax cuts can be shown to be far better targeted to low to middle income people than he and one of his failed former Treasurers, Mr Keating, introduced in 1987. As the Chart on the next page shows, those on high incomes received far greater percentage

increases in after-tax incomes from the Hawke/Keating 1987 measures than are granted under the Coalition's package.

LABOR AND THE RICH HEWSON v s HAWKE/KEATING TAX CUTS

■ HEWSON stage I HEWSON Stage Π ΕΞ3 HAWKE/KEATING 87

per eeol Increase In efter-tax income

20

15 -

10 -

5 -

- 20

- 15

- 1 0

- 5

7 to 16 20 25 30 35 *0 45 50 55 60 65 70 75 60 65 90 95 1 0 0 t2 5 150175200

INCOME Ό00

3

Moreover, studies undertaken by the Economic and Social Analysis Unit of the Department of Social Security reveal Mr Hawke to be a total humbug. Researchers Ann Harding and John Landt show quite clearly that it is the rich and the welfare

sector who have gained under Mr Hawke and that middle income Australia has been the loser (see Chart below).

R e a l D is p o s a b le I n c o m e 1 9 8 3 - 9 1

S in g le I n c o m e C o u p le

- Two C h ild r e n

per cent change

75% 100% 150% 800% 300% 400% 600%

per cent of AWE

Source:Kardtog & Landt! Dept Social Sec

But the tax benefits must be seen in the wider context of our package.

Most importantly, low and middle income people will benefit from the increased job opportunities which will flow from our labour market and structural reforms and the removal of various anti-business taxes on inputs, employment and exports - all of which are directed to bolstering the

competitive position of our industries.

The essence of our overall approach has been to concentrate non-tax benefits on the low to middle income groups and to claw these back as you move up the income scale where income earners get the larger dollar value tax cuts.

Considerations of equity must therefore take account of the other benefits (as clearly set out in our Fightbackl Tax and Expenditure documents) flowing to low income groups and pensioners froms-

- the doubling of the family allowance for families with

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combined incomes below $30000 and the 50 per cent

increase for families with incomes from $30000 to $40000 (page 179) ?

the $300 increase of the annual dependent spouse rebate for families with children (page 180)?

the tax concessions for health insurance specifically directed to low income families (page 184);

the $90 million set aside for increased child care support (page 182);

the first home owners scheme for families earning below $40,000 (pages 183 and 223);

the large increase in funding for education - a large portion of which will flow to low income non-government schools and to TAFE colleges (page 184);

the zero rating for GST purposes of health and education expenses (which will reduce the cost of these services) and the exemption of rent from tax - all of which help to protect the poor (see pages 74 to 87);

the introduction of an innovative refundable GST Tax Credits system which is specifically designed to compensate those with incomes which fall below the post- GST tax-free thresholds and cannot therefore be fully compensated through the existing tax or social security

system. Labor simply ignored these people in its

proposals for a GST in 1985 but our program will assure 2.3 million low income people receive compensation (see Chapter 10, pages 159 to 167 and Chapter 12, page 190);

bulk-billing for visits to the doctor will continue to apply for pensioners, health care card holders, the disabled, veterans and war widows - all up covering about 4 million people - and "safety net" arrangements will

apply to limit the cost to the individuals concerned (see Health Policy paper in Supplementary Document, page 21);

the aged who will be offered generous pension increases, part-pensioners get access to the GST Tax Credit

arrangements, access to pharmaceutical benefits for non­ pension retirees, a deferred pension plan, tax credits and re-insurance subsidies to encourage take-up of private health insurance, and compensation for the impact of the GST on their financial wealth (see Chapter 12 of

the Tax and Expenditure Document and Health Policy paper in Supplementary Document);

the aged will also benefit from simplified reporting arrangements for income test arrangements and a more equitable asset testing arrangements (see page 199);

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r $50 million by way of increased funding of voluntary/non­ government agencies to assist family crisis care (see page 182);

- sole parent, widows and other pensions are increased by 8 per cent and all additional children's allowances are increased by 6 per cent (see page 179);

- far more equitable superannuation arrangements using rebates rather than deductions as a means of directing greater benefits to encourage lower income groups to take out superannuation and use those savings, where they so choose, to help them purchase a home (see pages 116 and

185);

- a new Tax Free Savings schemes (TFS) which will mainly benefit pensioners and lower income groups who save in financial institutions via rebates on interest income (see pages 122);

- with both the superannuation and Tax Free Savings

arrangements there is an additional family bias which will help low and middle income earners. Under both sets of arrangements it will be possible to obtain tax rebates for savings on behalf of a non-working spouse - something

that opens the way for a much needed improvement in the future welfare of those concerned (see Chapter 7 pages 116 and 122);

- improved assistance measures for the unemployed and more flexible training programs, including the availability of training and other labour market programs at the

community level, to help those out of work to get a job (see Chapter 14);

- the small ($3000) capital gains tax exemption will not only simplify tax arrangements for many low to middle income earners, it will allow them to make small

investments on a tax free basis (see page 39);

- similar comments apply to the capital gains tax

exemptions in respect of employee share participation - low to middle income employees may be issued with shares to the value of $5000 with a tax free discount of $500 (see page 44);

- the faster pace of removal of customs duties which

currently have a particularly harsh impact on low income groups (see page 84).

As far as higher income earners are concerned, the prime Minister's analysis seems to ignore our measures toi-- recast the superannuation arrangements (Chapter 7 and page 99 of Document) to eliminate what Professor John

Head (who the Prime Minister is fond of quoting) called

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"some inequities and abuses" exploited by high income earners ;

- cut off family allowance and dependent spouse rebates to high income earners (see page 178 and 180);

- there is no wealth compensation for the "rich";

- the capital gains tax continues to apply with the

concessions for goodwill, roll-overs, and retirement benefit all capped to target the benefits to small businessmen and farming families (Chapter 4);

- oblige high income earners to take out private health insurance (see page 21);

- lift the company tax rate to 42 per cent from 39 per cent thereby closing off a major source of tax avoidance exploited by high income earners who have had the

capacity to incorporate (see pages 30 and 98); and

- the existing incentive to structure remuneration packages to take advantage of the difference between the existing fringe benefits tax rate (48,5 per cent) and existing the company tax rate (39 per cent) will be effectively

removed by our decision to lower the fringe benefit tax rate and bring it more into line with the top corporate tax rate (see page 98);

- redefine the definition of income to cover the total remuneration package of executives in defining the eligibility for various family assistance payments (see page 18); and

- close off artificially devised arrangements to gain access to the R&D tax concessions by financially engineered syndicates through tough anti-avoidance schemes (see page 99).

The charts attached show the impact of our first phase tax/compensation measures on various types of people and income deciles with each group (taken from Chapter 17 of our Main Document). The calculations cover the net impact of the

income tax cuts, the imposition of a GST, abolition of wholesale sales tax, and petrol excises, the health tax rebates and additional levy, and the basic compensation measures including pension adjustments, dependent spouse and

family allowances.

Taking overall adult household weights (see chart 1) the program is unambiguously progressive. And as one looks at other groups (charts 2 to 7) it is clear there is no handout to the rich. While the distribution of benefits differ for

different groups, all groups show gains in real disposable income. And these analyses do not capture other changes such as the superannuation amendments or the Tax Free Savings

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scheme which would favour low to middle income groups relative to the rich over time.

Although some claim the GST to be a regressive tax because it includes food and other items regarded as necessities, these critics neglect to acknowledge that the wealthy tend to buy more expensive food and clothing items than those on lower

incomes. By including these items in our tax net we have funds available to provide compensation and assistance to those on lower income.

Moreover, critics of the GST should recall that it will replace very narrowly based taxes such as the Wholesale Sales Tax which excludes all services and a number of goods used in greater proportion by the rich such as holidays, hotel

accommodation and restaurants, luxury foodstuffs etc (see Chapters 7 and 17). In that sense the GST is a fairer tax.

Furthermore, the GST will spread the "net" to more effectively tax the spending of those who earn undeclared cash incomes and avoid their fair share of income tax. This fiscal dividend can then be made available to help finance our overall package

including income tax cuts and compensation measures to those on low incomes (see Chapter 6, page 96).

The GST will also catch spending in Australia by foreign tourists who use our infrastructure and have not previously contributed substantially to their cost (see page 73).

We do not resile from the probability that some of our

government expenditure reductions will affect some people adversely, at least for a time.

Some public servants will have to leave the public sector and work in the private sector. Some programs will be changed to target spending more effectively. For example, our labour market programs reject Labor's passive approach to managing

employment and will instead pursue an active employment strategy - a strategy demands commitment from the unemployed and participation by community organisations.

The bottom line is that we are not content to accept the Labor approach of simply providing welfare to the unemployed and disadvantaged. We will seek to get these individuals back into the workforce so that they may support themselves with pride and dignity. A job is better than a welfare cheque to most people.

But those who do not satisfy the work test will not and should not get benefits.

It is therefore simply not correct to characterise the package as a "handout to the rich" - as the Prime Minister has

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deceitfully sought to label it for purely partisan political reasons.

The fact is that the greatest threat to low income people in Australia flows from this Government's policy paralysis which is stopping it from making the changes necessary to make Australia competitive again and thereby generate jobs for

average Australians.

Job prospects will always better under the Coalition, interest rates will always be lower under the Coalition, and

individuals have a better chance to lift the standard of living of themselves and their families and keep more of what they earn.

Our program is designed to give incentives and assistance to average Australians to build a better life. Those who are willing to work hard, and to take their chances and adapt to the changing international environment in which we and our

children will have to live in the future will prosper.

Meantime, those who are in genuine need will be protected and actively assisted both through public programs and assistance by voluntary agencies. Indeed, we have increased the assistance to levels above that required to compensate them

for changes in the tax package.

FOR FURTHER INFORMATION CONTACT 06 277 4022

CHART 1 GAIN IN REAL DISPOSABLE INCOME IMPACT OF TAX/COMPENSATION MEASURES ON TOTAL HOUSEHOLDS

12

% N E T i m p a c t o f t a x / c o m p o p a c k a g e a f t e r a l l o w a n c e FOR G ST

10 -

8

6 -

4 -

2 -

9v6

*5.4 5.74.63.4 ..........3:4 ...... .....373 ............35

i p ^ ill

4.9

115 157 186 228 277 329 394 475

WEEKLY INCOME 1 9 9 0 / 9 1

I I

589 918

12

- 10

8

- 6

- 4

FIGURES SHOWN FOR ADULT EQUIVALENTS

CHART 2 GAINS IN REAL DISPOSABLE INCOME IMPACT OF TA X /C O M PE N SA T IO N M EA SUR ES ON

SING LE INCOME FAMILIES WITH CHILDREN

427 502 558 617 692 767 855 973 1148 1886

w e e k ly i n c o m e 1 9 9 0 / 9 1

all households

CHART 3 GAINS IN REAL DISPOSABLE INCOME IMPACT OF TAX/COMPENSATION MEASURES ON DOUBLE INCOME FAMILIES WITH CHILDREN

582 752 843 926 1018 1107 1218 1360 1571 2326

w e e k ly i n c o m e 1 9 9 0 / 9 1

ALL HOUSEHOLDS

CHART 4 CHANGE IN REAL DISPOSABLE INCOME IMPACT OF TA X /C O M PE N SA T IO N M EA SU R ES ON

SINGLE P E R SO N H O USEH OLDS

% N E T IMPACT OF T A X /C O M P O PACKAGE 12 ----------------------------------------------

10 -........................-........ -....

A FT E R ALLOWANCE FOR G ST -------- ------------------- r 12

- 10

8 - - 8

337 446 508 566 628 705 817 999 1119 1752

w e e k ly i n c o m e s 1 9 9 0 / 9 1

ALL HOUSEHOLDS

CHART 5 GAIN IN REAL DISPOSABLE INCOME IMPACT OF T A X /C O M PE N SA T IO N M EA SU R ES ON

SING LE P E N S IO N E R S

% N E T IM PACT OF T A X /C O M P O PACKAGE A FT E R ALLOWANCE FO R G ST 1 2 π----------------------------------------------------------r 12

10 - - 10

0 i i | | | j | | j J i n | i i o

134 148 149 153 160 169 180 208 261 384

w e e k ly i n c o m e s 1 9 9 0 / 9 1

ALL H O USEH O LDS

CHART 6 GAIN IN REAL DISPOSABLE INCOME IM PACT OF TA X /C O M PE N SA T IO N M E A SU R E S ON MARRIED P E N S IO N E R S

ALL HOUSEHOLDS

w e e k ly i n c o m e 1 9 9 0 / 9 1

CHART 7 GAINS IN REAL DISPOSABLE INCOME IMPACT OF T A X /C O M PE N SA T IO N M EA SU R ES ON

S E L F -E M P L O Y E D /F A R M E R S

% N E T IMPACT OF T A X /C O M P O PACKAGE A FT E R ALLOWANCE FOR G ST

140 234 318 411 516 634 746 889 1132 1930

w e e k ly i n c o m e 1 9 9 0 / 9 1

ALL H O USEHOLDS