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"Fightback" - setting the record straight CPI estimates of coalition policy rock-solid



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24 November 1991 Bulletin No. 1

"FIGHTBACK" - SETTING THE RECORD STRAIGHT

CPI ESTIMATES OF COALITION POLICY ROCK-SOLID

It is a complete furphy for some people to be saying that the Coalition has understated the one-off CPI effect of its economic reform package and that it is inflationary.

The package presents a co-ordinated anti-inflation strategy which includes policies that will commit overall economic policy and monetary policy to the medium-term goal of price stability. Elements of the package are:

. ensuring the independence of the Reserve Bank;

. industrial relations reforms;

. tariff cuts;

. structural reforms to reduce costs;

. commitment to return the proceeds of tax bracket creep;

. abolition of the automatic indexation of excises; and

. in relation to the one-off CPI impact of the GST:

more than adequately compensating low and middle income earners;

bolstering the Prices Surveillance Authority;

in the transition to GST, providing credit for WST already paid.

On the Coalition's estimates of the affect of the GST, an article in the 'Australian'(23.11.91) falsely claims that the Coalition has ignored the price effect of its health policy, its roads policy and its proposal to increase tobacco excise.

We have not ignored the issue at all. In fact, as we have done in many other aspects of the package, we have mirrored the

Government's own methodology.

It is simply illogical to propose compensation for some policy reforms. And the press should not adopt double standards on this issue.

Dr Hews on and I have previously pointed out to journalists the CPI effects of the Hawke Governments' Medicare changes,

occupational superannuation levy, the training guarantee levy, and a host of other changes and these have not been reported because they were considered to be "micro economic reforms" which did not need to be compensated for.

Our Medicare changes are micro reform in Health and therefore do not require, and should not receive, compensation. Moreover, we have specifically protected the aged etc for whom bulk billing is to be retained and many of whom will enjoy private insurance.

The tobacco excise decision is also a Health policy decision.

The Coalition's proposed increase in tobacco excise would be a pointless exercise if we were to fully compensate smokers - let alone non smokers (!) - for the price rise. Are people seriously saying that we do that?I

Further, because the Coalition is excluding health services from taxation under the GST, but none the less abolishing sales tax, petrol excise and payroll tax, we believe that the cost of the provision of health services will actually fall.

It is also worth noting what the executive director of the

Australian Supermarket Institute, Bruce Bevan, said on the impact of the GST on food and grocery prices, namely:

"Our initial calculations show that the impact of the Opposition's GST of fifteen (15) percent on the supermarket shopping basket will be an increase in the region of three (3) to five (5) per cent. This may be a surprisingly low

figure, but very few of our customers have realised the impact on food prices of the current wholesale sales tax, which will be abandoned by the Opposition when in

government."

The Coalition strongly stands by its position that the 4.4 per cent one-off CPI effect of its economic reforms are an

overestimate of the possible impact on prices.

As we note in "Fightback", other inflation measures, such as the non-farm GDP deflator - previously lauded by Mr Hawke and Mr Keating as an authoritative measure of inflation - would only rise by 2.2 per centl

For further information:

Peter Reith Ph: 059) 777 212

D127/91