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Keating tax cuts in jeopardy



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PRESS STATEMENT BY THE HON. JIM CARLTON M.P. S H A D O W T R E A S U R E R

KEATING TAX CUTS IN JEOPARDY

The dramatic fall in the Australian dollar in recent days raises severe doubts as to whether Treasurer Keating will be able to deliver the cuts in marginal tax rates he has promised for 1986 and 1987.

Mr Keating's ability to meet the tax cut promises in his September 19 Statement depends on his high risk, high growth strategy surviving despite the scepticism of the international financial community.

All depends on whether Mr Keating can keep the $A propped up through high interest rates until such time as the Australian economy responds to the incentive effects of devaluation.

There are now worrying signs that this risky strategy is falling apart.

In response to last Monday's wage decision granting full indexation of wages against the CPI, and continuing bad news on the balance of payments front, the Australian dollar has fallen to a record low against the currencies of our trading partners.

Should the $A not recover, the Government will have no option but to revert to the more orthodox economic strategy of deflating the economy to prevent the severe inflation that would otherwise result from further devaluation.

Such a contraction in the economy would deny the Government the taxation revenues it needs to meet its tax promises.

Each 1% reduction in economic growth adds a net $750m to budget costs. .

Unless such costs are added to the budget deficit,. they must be recovered through reductions in promised tax cuts.

Australian taxpayers therefore have good cause to watch the Australian dollar anxiously, as they will be directly affected by a further fall.

CANBERRA 6 NOVEMBER 1985 Enquiries (062) 726623