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"Fightback" - setting the record straight Professor John Head's supposed critisisms



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d F p UTY*lS lDER of the OPPOSITION SHADOW TREASURER DEPUTY LEADER of the OPPOSITION PRESS RELEASE SHADOW TREASURER

26 November 1991 Bulletin No. 15

"FIGHTBACK" - SETTING THE RECORD STRAIGHT

PROFESSOR JOHN HEAD'S SUPPOSED CRITICISMS

With all the massive resources of Treasury and Finance at his disposal the best critique of the Coalition's tax package the Prime Minister could come up with today was a "reading" from the latest sermon (in today's AFR) by Professor John Head who, it is worth recalling, strongly backed the present Government's

proposal for a tax mix switch at the 1985 Tax Summit.

And what was his "criticism"?

Simply that

"the alleged benefits of the package are greatly exaggerated and totally unproved. The economic management risks involved and the likely economic dislocation in the transition period would far outweigh any likely benefits as I would understand them"

(underlining added).

As a tax specialist he thinks we have overstated the benefits of the package. He is entitled to his opinion (though he admits it is not supported by any economic modelling). But that opinion must be set against the opinion of others such as the Business

Council who think the overall benefits of the package, including labour market and other reforms which Head has ignored, are potentially huge.

But it should be noted that Head, while sceptical, did not deny some benefit from our package.

Indeed, a careful reading of his piece shows why the Prime

Minister read only the first and last paragraphs into Hansard in his feeble attack on the Coalition today.

Look at the favourable comments Head had to make.

. "There would certainly be no argument among public

finance economists that replacement of the present distorting and discriminatory wholesale tax by a broadly based GST is long overdue and would contribute usefully to equity and efficiency."

"The reforms proposed for the superannuation tax concessions have, nevertheless, some considerable merits and would reduce some inequities and abuses."

"I can see some merit in the modest annual exclusion (from CGT) in order to simplify compliance."

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"The new personal income tax scale is, however,

politically very attractive with more sensible cut-in points and a generally responsible pattern of marginal tax rate reductions and effective tax cuts across the income tax scale. The largest proportionate reductions

are targeted towards the lower end of the scale to

avoid a sharp regressive redistribution as a result of the switch to G S T ." '

. The alignment in the top marginal and company tax rate is also seen as removing "tax avoidance problems which had re-emerged following the reduction in the company tax rate in 1988-89.."

. "Considerable efforts have been made in the package to ensure that those who stand to lose, notably

welfare recipients and others, are fully compensated."

Notwithstanding his scepticism he is also prepared to concede that the tax mix switch would have a "small" impact on saving.

Finally, we may note that even the good Professor seems to be guilty of misreading the documents. We do not assume that revenue from the Black Economy is $4 billion as he asserts.

Canberra

D144/91

Contacts David Turnbull 06 277 4277