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Dawkins' timing problem



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DAWKINS' TIMING PROBLEM

Treasurer Dawkins' claim in Parliamentary Question Time today that he had discovered "another" $1.5 billion hole in Fightback! is ridiculous.

Mr Dawkins has not discovered a hole in Fightback!. He has simply raised one aspect of the timing and transitional issues which will be associated with the implementation of ...... Fightback!.

Obviously, this involves many policy areas which will impact upon the collection and receipt of over $30 billion worth of ingoings and outgoings - all of which will have timing implications. Some of these are under study by the Cole Committee and some will provide positive cash flows to the Government.

We therefore concede nothing to Mr Dawkins.

Even using Mr Dawkins' own figures - which the Coalition does not accept - the so-called $1.5 billion "hole" is, in fact, no more than $5 million in foregone cash flow/public debt interest benefit to the Commonwealth.

Mr Dawkins' specific claim is that, for the 1994-95 financial year, Fightback! has miscalculated the revenue take from GST (to be introduced on 1 October 1994) because the GST return periods would mean that there would be actually only 8 months of GST collections in that financial year, rather jthan

9 months. ~ -

Mr Dawkins calculates that GST collections would be $1.5 billion less than claimed in Fightback! and that this would cause fiscal policy to blow out by that amount in the 1994-95 financial year.

This is faulty macroeconomic analysis.

Firstly, the $1.5 billion would be much less, given that Mr Dawkins, while taking account of administratively lagged sales tax collections that would come in after the introduction of the GST, has failed to take account of the

similar circumstance for payroll tax and petrol tax.

Nonetheless, of much more importance is that Mr Dawkins has highlighted a transitional issue only. To take his figure - the $1.5 billion is not money that the Government will not collect. It is $1.5 billion in revenue that is simply deferred by one month from being paid to the Government.

Therefore, in economists' terms, if Mr Dawkins' $1.5 billion figure is correct, what it would mean is that the Government, crossing the jump from financial year 1994-95 to financial year 1995-96, would lose $1.5 billion at effectively one month's interest (say 8% per annum divided by 12 months) or

$10 million.

However, because it would not, in fact, be a full month's receipts of $1.5 billion but an average of half that for a full month (ie GST collections by business occur throughout each day of the month - they are not all collected on the

first day of the month) to which the interest rate was effectively foregone, the loss to-revenue would be closer to $5 million rather than $10 million.

Further, because Mr Dawkins' $1.5 billion figure is only a one-off transitional issue in the first year of implementation of GST, it is easily covered by the $3,597 million in privatisation proceeds for 1994-95 identified in Fightback! Chapter 18. This $3.6 billion in privatisation proceeds has not been separately identified by the Coalition for any ongoing, or other, spending initiatives and thus there would be no budget blowout in that financial year.

This is a legitimate financing technique that is used by the present Government and has not been previously questioned by Treasury in its Fightback! analysis in regard to wealth compensation, for example.

Indeed, compared with the One Nation forecasts of a $600 million budget deficit in 1994-95, Fightback! would produce a $2,226 million budget surplus in 1994-95, even with Mr Dawkins' $1.5 billion GST transition issue.

Indeed, what Mr Dawkins' Question Time Dorothy Dixer has highlighted is that, on his calculations, the cash flow benefit to Australian business of the GST is something approaching $1.5 billion.

Thank you for pointing this out, Mr Dawkins.

5 May 1992 Canberra

Contact: David Turnbull (06) 2774277 D70/92