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Big lie about 70% of households being worse off under fightback!



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5%

Peter Reith

DEPUTY LEADER of the OPPOSITION PRESS RELEASE SHADOW TREASURER

BIG UE ABOUT 70% OF HOUSEHOLDS BEING WORSE OFF UNDER FIGHTBACK!

Mr Keating's claim that Fightback! would cause:

"the decline in living standards of 70 per cent of Australian households" (Hansard, 3 March 1992)

is wrong.

Mr Keating has based his comments on Treasury distributional analysis of Fightback! But what does the Treasury analysis really show?

In short, it shows that the initial Treasury analysis of the Fightback! calculations confirmed that all of the 140 community groups examined would be better off!

In fact, all is revealed in a minute dated 3 December 1991 from Dr Alan Preston, Deputy Secretary in the Treasury Department, to the then Treasurer. What this minute shows is devastating for the credibility of the Government's attack on the Coalition.

But let's go through the analysis step-by-step.

Step 1

The minute of 3 December tells us that the Treasury initially examined the Coalition's Fightback! package and found that our distributional analysis was correct.

To begin with, they found that we had over-estimated the CPI impact of the package (ie rather than being 4.4%, they found it would be 3.9%).

Nonetheless, they then proceeded (wrongly) to add in the effect of the Coalition's proposed increase in tobacco excise to bump up the CPI they used for their distributional tables.

Even with this "boosted" CPI, their distributional analysis showed that the Coalition's package left none of the 140 community groups analysed worse off!

It’s all in the attached Table 1 copied from the 3 December Preston minute - not one community group is worse off!

Step 2

Treasury, and/or the Treasurer's office, must have been non-plussed that the initial Treasury analysis should show the Coalition was correct.

Step 2, therefore, was to estimate the impact of certain spending cuts proposed by the Coalition.

Of course, Treasury ignored its own advice, made in a separate minute to the Treasurer, that it is not correct to only partially analyse the Fightback! proposal.

COMMONWEALTH PARLIAMENTARY LIBRARY Ml CAM

Nonetheless, what the Treasury proceeded to do is "impute" certain expenditure cuts which it considered impacted on the cash position of households. This analysis included lowering the income test threshold for family allowance, various job search allowance changes and the like.

2

The Coalition has argued that it is wrong to do this partial analysis of what are necessary expenditure cuts and to then assign these effects to a distributional analysis which is principally designed to show that the Coalition's compensation for the introduction of a GST is adequate.

Nevertheless, it is interesting to examine the Treasury analysis.

And, unfortunately for the Treasurers office, the answer was - not much!

In fact, as Table 2 copied from the 3 December Preston minute shows, only two of the 140 community groups would be worse off - that's right, only two.

In fact, those two community groupings represent, in all, only 0.68% of the total population covered by the Treasury distributional tables!

Step 3

Step 3 should by now be familiar with all those people who have been following this debate, ie the use of bracket creep in the distributional tables.

As stated elsewhere, the Coalition completely rejects the Treasury's use of bracket creep for the purposes of analysing Fightback! - both for the reason that the Treasury uses incorrect inflation rate assumptions and proceeds to incorrectly assign the burden of that increased taxation and, secondly, because they are applying a test on the Coalition (ie the indexation of tax brackets) which they do not assign to their ALP government masters.

It is only after the use of bracket creep assumption in their calculations that the Treasury is able to produce a table which shows substantial losers.

Table 3 reproduces Attachment 2 from Treasurer Dawkins' speech of 3 March 1991. It is an updated version of a table produced in the 3 December Preston minute. It is worthwhile examining what it shows in detail:

i That, contrary to the rhetoric used by Mr Keating, it is not 70% of households but only 70% of those households of full time wage and salary earners that are supposed to be worse off.

This point is more than just pedantic because the key point is that these are the tax paying households. If they werent paying tax, obviously they wouldnt be subject to any arbitrary bracket creep assumptions of Treasury - and, therefore, if this arbitrary bracket creep assumption was not used, they would be better off under Fightback!

ii This conclusion is supported by the fact that, even with the "loaded dice" of the Treasury assumptions, the Treasury analysis shows in Table 3:

- 100% of age pensioner income categories would be better off under Fightback!

- 100% of unemployed and sickness benefit income categories would be better off under Fightback!

- 90% of sole parent and widow income categories would be better off under Fightback!

3

- 90% of superannuants and self-funded retirees income categories would be better off under Fightback!

And the reason why these people are unambiguously better off, even in this Treasury analysis, is because they are not subject to the arbitrary bracket creep assumptions.

Conclusion

Prime Minister Keating's Treasury analysis has been caught out for the fraud that it is.

The adverse claim that "70 per cent of Australian households are worse o ff under Fightback! is shown to be literally wrong after examining the minute of 3 December 1991.

In fact, it is only by including bracket creep assumptions that 70% of tax paying wage and salary earners are worse off. If the fraudulent bracket creep assumption is taken away, all those groups are better off.

Secondly, the claim that the inclusion of expenditure cuts reveals a significant amount of losers is found to be false. In fact, even with the imputation of expenditure cuts, the Treasury analysis finds only 0.68% of the population would be worse off!

Lastly, even using all the loaded assumptions of Treasury, the Treasury analysis shows that 100% of age pensioners and unemployed income categories and 90% of unemployed, sole parent and retiree income categories are all better off under Fightback!

15 March 1992 Somerville

Contact: (059) 777212

TABLE 1

TABLE 9: PERCENTAGE CHANGE IN REAL DISPOSABLE INCOME BY HOUSEHOLD TYPE (%); PARAMETERS USED IN OPPOSITION DOCUMENT

Group

Decile

1 2 3 4 5 6 7 8 9 10 11 12 13 14

1 109 8.52 1.60 5.32 2.26 4.82 6.17 171 t?.to 8.55 6.76 584 7.95 884

2 105 8.00 1.76 2.96 3.11 5.12 5.93 4.87 559 8.45 7.08 4.97 542 67J

3 2.73 7.34 2.33 2.30 3.13 4.52 5.54 7.35 12.84 7.61 6.74 1078 44J 470

4 3.45 6.55 2.41 2.60 2.86 5.13 5.66 577 807 6.78 7.58 7.98 J /J 525

5 342 5.88 2.77 3.04 2 94 588 4.69 518 H70 6.62 6.08 10.26 t.50 84J

6 3.85 5.60 343 4.05 388 3.33 3.48 8.41 8.29 5.99 6.33 9.99 14/ 106

7 4.X 5.70 3.26 3.80 4.51 2.34 3.18 9.19 7.24 4.91 5.23 9.84 /.74 006

8 4.78 6.05 4.03 4.74 4.75 2.98 2.57 848 Π.50 6.53 4.95 8 5 / ax 2 /7

9 4.74 6.74 4.78 4.72 4.41 3.71 2.98 6.25 208 4.82 5.07 865 2 8 / 478

10 5.12 6.85 5.17 6.08 5.47 5.50 4.70 4.26 8.20 4.47 4.51 40.1 459 571

Key to community groups:

Each household Is allocated to a group according to the characteristics ol the head of the household. It Is possible that, while the head does not have children, there wmi M be other persons In the household who do have children. Also, In those groups where no clear statement about the number of children Is made (groups 5 lo 14), these households may or may not have children. 1 Wage and salary earner, lull-Ume, manled, spouse not working, no children. 2 Wage and salary earner, lull-Ume, married, spouse not working, children 3 Wage and salary earner, full-time, married, spouse working, no children.

4 Wage and salary earner, lull-Ume, married, spouse working, children .

5 Wage and salary earner, full-time, single. ·

6 Wage and salary earner, part-time, single or married. 7 Self-employed or farmer. 8 Unemployment or sickness benefits.

9 Not In the labour force, single or married, principal source of Income not government benefits and not Interest income, dividends, rent or superannuation. ^ 10 Not In the labour force, married, principal source ol Income government benefits. 11 Not In the labour force, single, principal source of Income government benefits but not sole parent or widow's pension. 12 Not In the labour force, single, principal source ol Income government benefits sole parent or widow's pension.

13 Not In the labour force, single, principal source of Income Interest, dividends, rent or superannuation. 14 Not In the labour force, married, principal source of Income Interest, dividends, rent or superannuation.

TABLE 2

TABLE 17: PERCENTAGE CHANGE IN REAL DISPOSABLE INCOME BY HOUSEHOLD TYPE (%); IMPUTATION OF CERTAIN EXPENDITURE CUTS__________________________________________________________________

Group

Decile

1 2 3 4 5 6 7 8 9 10 11 12 10 14

1 2.95 5.42 1.44 2.89 1.87 3.45 5.51 J /J !2./0 8.55 6.76 564 7.95 884

2 2.79 3.65 1.76 2.40 2.07 3.06 5.27 4.87 862 8.45 7.08 4.97 542 &7J

3 2.86 4.18 2.50 1.48 2.04 2.94 3.05 7.33 12.0/ 7.61 6.74 10.76 4.4J 4.7/

4 3.05 3.55 1.73 0.29 2.66 3.04 2.40 577 7/5 6.78 7.58 -2.44 J /J 525

5 3.42 4.35 2.56 0.68 223 J7J 2.99 5J6 9.57 6.62 6.08 10.26 /.SO 588

6 3.93 4.85 2.98 2.20 3.08 233 2.61 8.41 &/J 5.99 6.33 9.99 J07 2.99

7 108 5.35 2 6 7 2.25 3.88 1.55 2.50 9.15 7.24 4.91 5.23 9.84 1.71 -0.19

8 J99 4.46 3.67 4.06 4.33 2.10 2.30 80/ J46 6.15 4.83 7.97 0 /6 2.0J

9 190 4.20 4.52 4.13 4 22 2.73 2.41 5.90 2.28 3.95 5.01 6J5 2.74 4.J9

10 4.61 5.96 4.87 5.87 5.20 5.14 4.28 3.75 7.J0 3.95 4.23 J7t J94 528

Key to community groups:

Each household is allocated to a group according to the characteristics ol the head ol the household. It is possible that, while the head does not have children, there could be other persons In the household who do have children. Also, In those groups where no clear statement about the number of children Is made (groups 5 to 14), these households may or may not have children. 1 Wage end salary earner, lull time, married, spouse not working, no children

2 Wage and salary earner, full-time, married, spouse not working, children. 3 Wage and salary earner, full-time, married, spouse working, no children.

4 Wage and salary earner, full-time, married, spouse working, children.

5 Wage and salary earner, full-time, single. 6 Wage and salary earner, part-time, single or married. 7 Self-employed or farmer. B Unemployment or sickness benefits.

9 Not In the labour force, single or married, principal source of Income not government benefits and not Interest Income, dividends, rent or superannuation. 10 Not In the labour force, married, principal source of Income government benefits. 11 Not In the labour force, single, principal source of Income government benefits but not sole parent or widow’s pension. 12 Not In the labour force, single, principal source of Income government benefits sole parent or widow's pension.

13 Not In the labour force, single, principal source of Income Interest, dividends, rent or superannuation. -14 Not In the labour force, married, principal source ol income Interest, dividends, rent or superannuation.

TABLE 3

ATTACHMENT 2

CHANGE IN REAL DISPOSABLE INCOME BY HOUSEHOLD TYPE ($ PER WEEK) (a)

Group

Decile (b) 1 2 3 4 5 6 7 8 9 10 11 12 13 14

1 J94 7 4 1 8 6 1 -3 69 1 01 4 3 1 7 35 J / / fJ/J 20 14 1 0 3 4 864 9.4/ 19.99

2 S48 7 50 9 33 8 0 9 5 86 6 4 9 10 36 Z/O 10 // 21 56 1 0 8 5 SJ4 I t OS 1904

3 9 92 4 46 8 21 - 1 5 0 8 9 60 5 0 8 0 80 1 5 5 7 J //) 19 86 1 0 3 8 Zt9J 1/66 IS.//

4 8 71 7 00 -16 94 -25 22 6 78 2 74 3 45 I S 9 8 / J / / 1 8 9 0 11 99 i/ S 9Jt λ101

5 6 51 2 89 1 3 6 5 - 2 5 3 8 8 94 SS9 0 24 1/04 X X 1 9 4 5 1 0 2 7 2 4 9 3 40S ZZSJ

6 5 5 3 1 53 11 39 -16 13 4 36 4 05 1 72 27 89 1/ 40 18 66 11 42 /6/4 /4 / 91/

7 i s / 0 63 14 43 - 1 7 2 5 1 57 6 6 7 4 71 3 2 5 4 λJ/J 16 96 8 73 Z96J 01/ 16/0

8 aw 3 94 7 40 0 9 5 2 54 11 10 8 76 JZ/J s/s 23 92 11 61 Z864 n o / J64

9 asj -2 26 4 01 0 6 5 1 05 8 6 9 -11 42 23 80 //Ό 15 84 1 6 5 3 //JO /SO 9 I I

10 21 94 3 2 6 6 2 5 3 4 71 44 15 28 102 98 16 59 1 3 2 4 JOS/ 1 4 9 9 1 3 5 4 1466 1/09 X IU

(a) Numbeis in Italics me qq] statistically significant! and should be Ignored (b) Households are divided Into 10 equal size groups depending on Income Decile I tot any household type refers to Ihe lowest 10% o l households In t ia l household type ranked by income while decile 10 relates to the highest 10 % ol households ranked by income

Key to community groups

Each household Is allocated to e group according to t ie cheraclarlsHcs o l toe head o l toe household II Is possible that, while Ihe head does not have children, there could be other persons In toe household who do have children Also. In toose groups where no dear statement about toe number ol children Is made (groups 5 to 14). these households may or may not have children

1 Wage and salary earner. M dme. married, spouse not wo·king no children 2 Wage and salary earner, fu l tone, married, spouse not working, children 3 Wage and salary earner. M tone, married, spouse working, no children 4 Wage and salary earner, lu l tone, married, spouse working, children 5 Wage and salary earner, lu l tone, single. 6 Wage and salary earner, part time, single or married

7 Sell-employed or farmer 8 Unemployment or sickness benefits 9 Not in toe labour force single or married, principal source ol income not government benefits and not Interest Income, dividends, rent or superannuation to Not In toe labour loice, married, principal source o l Income government benefits

11 Not In toe labour force, single, principal sou· * o l Income government benefits but not sole parent or widow's pension 12 Not In toe labour force, single, principal source ol Income government benefits sole parent or widow's pension 13 Not In toe labour force, single, principal source o l Income Interest, dividends, rent or superannuation 14 Not In toe labour force, married, principal source o l Income fillerest. dividends, rent or superannuation