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Fightback I - setting the record straight



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16 December 1991 Bulletin No. 36

FIGHTBACK! - SETTING THE RECORD STRAIGHT

WILLIS GST ATTACK PART 2 - FAILURE

Mr Willis had to admit at his Press Conference today on the

Coalition's Fightback! Package that he was running on mere assertions and not by analysis produced by the Treasury

Department.

Mr Willis tried to manufacture an attack on the Fightback! Package to the effect that it would boost inflation and that it would boost interest rates and that this would cause misery for the Australian people.

However, cornered by members of the press during today's Press Conference, Mr Willis had to admit that these were his own

assertions, not backed up by Treasury.

Mr Willis, in a major faux pas, said:

Journalist:

"Mr Willis that's just ... obviously that's just your

assertion. Couldn't you give us some idea, or couldn't you ask your Department what they think would happen to macro policy, what would happen to interest rates?"

"No, I've not had a detailed economic discussion with my Department about this matter".

Willis:

Well, I'm quite certain what the advice would be ...

Journalist:

... I mean, have they told you?

Willis:

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So much for the Government waiting for an objective briefing from the Treasury Department to abolish the Fightback! Package. Indeed, on page 2 of the minute from Mr Tony Cole, Secretary to the Treasury (released today by the Treasurer) it states:

"Treasury/ATO costings were similar or the same as the Opposition's costings in most areas".

What a disappointment for Mr Willis. No wonder poor Mr Kerin conceded that the Package could not be faulted on arithmetic.

However, Mr Willis maintains that the Opposition has overstated the revenue gains of the Fightback! Package by $1.1 billion. The Coalition completely rejects his assertions.

Black Economy

Mr Willis's analysis asserts that the Coalition has completely over-estimated any additional revenue from the black economy. However, it is just nonsense to claim that no black economy exists.

Indeed, what the Treasury states in its minute is not that the black economy does not exist, but:

"... any estimate of additional GST revenue from the black economy must be purely speculative".

Obviously the Coalition has had to make an assumption about how large it considers the black economy is. However, equally we maintain that there is a black economy and that it is up to the Government to prove the case to the contrary. As we say in the

Fightback! Package, page 67:

"Although there is strong evidence that suggests that the size of the black economy in Australia is around 10 per cent, we have chosen a conservative black economy figure of around five per cent and assume a degree of

income tax revenue clawback that would result from the need for Goods and Services Tax registration pushing tax cheats into the income tax net".

In addition, we note that the Treasury is wrong when it claims that the Coalition has made no allowance for any avoidance or evasion of the GST. While we think that the Treasury's estimate of 5 per cent for avoidance or evasion of the GST is a high

figure, we have, indeed, included a small allowance for such avoidance or evasion in our GST estimates.

GST Base

The Treasury's claims that the Coalition's figuring over-states the potential GST base by approximately $4 billion (1990-91 values), and that this causes a $0.6 billion shortfall in revenue

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collections. It hardly needs to be said that the Coalition rejects this assertion, especially given that it is backed up by absolutely no evidence or figuring of any kind.

Superannuation

Treasury's analysis of the Coalition' superannuation policy appears to be based on incorrect and quite fanciful assumptions.

Treasury has stated that according to ABS data, there is $5.8 billion in member financed contributions and have assumed that virtually all these contributions will receive the 25 per cent rebate.

Similarly, in regard to employer contributions, Treasury appears to assume that all such contributions will be eligible for the 25 per cent rebate.

What Treasury has failed to take into account is that the 25 per cent rebate will only be available on the first $6,000 of total contributions.

This oversight alone would more than wipe out the claimed $215 million "hole".

Treasury's estimate of the revenue gain from increasing the tax on fund earnings from 15 per cent to 25 per cent is, again,

highly questionable as it provides no basis for which the

calculation was made.

According to ABS data, which is used by Treasury in other

sections of their superannuation costings, there is now over $130 billion held in superannuation funds, rollovers and Approved Deposit Funds.

Treasury's estimate appears not to be based on this actual figure.

Consumer Price Index

It is noteworthy that the Treasury sums released today by Mr Willis make no mention of the CPI impact on the Coalition's Fightback! Package. There is no reference in the Treasury minute, signed by Mr Tony Cole, of the CPI effects.

This appears to be either an amazing omission from what is

supposed to be a thorough-going analysis of the Fightback! Package or it is simply tacit acceptance of the Coalition's calculations of 4.4 per cent CPI effect.

The Treasurer may be waiting for a later day to produce any

Treasury sums which technically analyse the Coalition's 4.4 per cent estimate. However,if not, this is amazing and a welcome admission from the Government.

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Other Tax Costings

The Treasury and Mr Willis assert that the Coalition have overĀ­ estimated the cost to revenue of a number of tax initiatives outlined in the Fightback! Package.

The Coalition also rejects these costings.

The Treasury have given no details on how they arrived at their costings and, given their appalling record in recent years for budgetary estimates, can anybody blame us for not agreeing with

their numbers?

Conclusion

To reiterate, the Coalition does not accept the Treasurer's assertions on the macro-economic effects of the Fightback! Package, nor does it accept the assumptions that the Treasury uses for its costings.

We reject assertions that the CPI effect of 4.4 per cent caused by the Coalition's taxation reforms will be anything but one off. Therefore, they will not translate into higher on-going inflation and they will not therefore raise inflationary expectations or general interest rates.

Mr Willis can assert from now until the election that we are

wrong on inflation and on interest rates, but we have the weight of overwhelming evidence from overseas experience that shows that the CPI effects of the introduction of our taxation reform would only be a one-off phenomenon.

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