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The cost of Labor's programme



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PRESS NO. 158 TREASURER RELEASE B8BA&G® STATEMENT BY THE HON. JOHN HOWARD, M.P., TREASURER

The Cost of Labor's Programme

The Treasurer today said that in spite of every effort by the

Government to clarify Labor's various policy proposals it was still

completely impossible to estimate the total cost of the promises made by Labor during the election campaign.

We have not been told the details of many of the promises nor the

timing of their introduction. .

It is now clear that Mr Whitlam wants it both ways. He desperately craves economic respectability but simply cannot resist the temp­

tation tq· promise more and more in the heat of an election campaign.

His own policy speech is a classic illustration of this dilemma.

It will be recalled that Mr Whitlam went out of his way in his. policy speech to emphasise that "the only additional spending pro­

posed before the 1978 budget" will be $800 million. However, he

went on to provide a shopping list of other proposals presumably to

be undertaken in subsequent years which could cost several thousands

of millions of dollars.

$800 Million Crash Programme

Consider first the "cost" of his $800 million "crash" spending

programme. " . -. .

Mr Whitlam has sought to mislead the electorate by saying that his $800 million programme will cost only $500 million. The claimed net

cost of $500 million through savings of unemployment benefits and

taxation receipts is fictitious. I am informed that if we were to make the extremely generous assumption that this $800 million pro­ gramme led to the employment of 50,000 workers instantaneously - which of course it would not - it

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would save the Government roughly $75 million in unemployment

benefits and increase taxation receipts by about $50 million.

. Therefore, even under these extremely generous assumptions the

$800 million programme is only reduced to a net co6t of

$675 million. We are left to guess where Mr Whitlam has found

his further saving of $175 million.

Mr Hayden has talked of reducing unemployment by one half

per cent with his total programme - that is about 30,000 jobs. Clearly thSn, using Mr Hayden's own figures of the unemployment effects, the net cost of this programme would be little less

than the full $800 million.

It should also be clear that although this programme is committed

for completion, before the 1978-79 budget some elements will

require ongoing expenditure. For example, there is a commit-

mentx to restore expenditure on the national sewerage and growth

centres programmes to levels that operated when Labor left office.

Mr Whitlam should have learned from his previous experiences

that it is not practicable to tUrn off quickly such a large

. programme once it has begun. .

Job Subsidy Scheme , .

In addition to the $800 million programme there is the job

subsidy scheme which Mr Whitlam claimed would have a "slight0 cost. This also is a complete misrepresentation.

There are costs under such a scheme even if it totally fails and no new jobs are created.

At any time in the community some firms are expanding while

others are contracting their workforce..^ .v _ .

Consider a situation where there is no net increase in employment.

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Given that there are approximately four million people in the

workforce, assume the employers of half the workforce reduce staff by 5% (that is by 100,000 persons) while the employers of the other·half increase their workforce by 5%.

Assuming also that the scheme runs for six months, the cost of

the subsidy arising from staff turnover alone would be (100,000

people subsidised for 26 weeks at a rate of $49.30 per week) roughly $128 million. .

Over and above this there are costs for increases in net employment.

These increases will come from the natural growth in the. workforce

as well as from any new jobs that such a subsidy scheme may create.

If employment were to increase by 100,000 during the period for which the scheme was operating the additional cost would be

(100,000-x $49.30 x 26) roughly another $128 million.

If it is assumed that additions to employment are evenly spread over the six months beginning 1 January the job subsidy scheme

(allowing for both turnover and net additions to employment)

could cost as much as $128 million in this financial year.

It should be remembered' that this cost is over and above the cost of the $800 million programme - that is, a total cost of over $900 million in this financial year.

In costing the job subsidy scheme Labor has presumably assumed that these costs will be "slight" because it will be possible

to save on unemployment benefits and by increases in tax revenue. ■ " - T , ‘ ■

They seem to have fallen into the same errors in costing the

job subsidy scheme that they made in costing the $800 million

programme. Additional savings will only arise from the employment of those who would not have-been employed except for the scheme.

the job subsidy scheme will still involve very substantial costs due to staff turnover and natural increases in employment.

Other Definite Commitments

Apart from the $800 million programme and the job creation scheme the Labor Party has produced a lengthy list of other

promises and programmes in the last few weeks, but it has not

indicated the cost of these proposals. However there is sufficient

detail for the Government to estimate what some of these programmes

may cost.

Let us consider a few examples. . .

In his election policy speech Mr Whitlam stated "We are committed

to the restoration of Medibank ". Mr Hayden, has subsequently

clarified this (ABC radio 1.12.77) to some extent by stating that it is a commitment to re-introduce "the original concept of

Medibank". Assuming that the "Hayden" scheme is re-introduced within three years the full year cost would be over $600 million.

With respect to housing Mr Whitlam said among other things "We shall restore our original scheme for the tax deductability

of mortgage interest". This would cost between $60 and $80

million per year depending on movements in interest rates, etc.

Mr Whitlam promised "to protect pensions

against inflation and to ensure that pensioners share in national

prosperity". Subsequently, Senator Grimes, Shadow Minister for Social Security, clarified this commitment (Policymakers, ABC radio 29.11.77) when he said "We are looking at a social security index which takes into account both CPI, average weekly

earnings and increases in productivity to try and get a more

fair measure" . To adjust pensions for a modest increase in

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productivity of 2% per year would cost roughly $100 million

per year. .

Over and above these few programmes however there are a host of definite promises, literally dozens which if implemented could cost many thousands of millions of dollars.

Unfortunately sufficient information has not been provided to

enable the Government to estimate the cost of many of these proposals, but they span virtually all areas of government

expenditure. - -

These include take-over of local government debt; take-over of

rural railways; export incentives,v assistance ^to. .manufacturing

industry; age persons housing; Australian Assistance Plan; growth

centres; national sewerage scheme; assistance to the rural industry

(including dairying, fisheries, f o r e s trybeef, wool > grapegrowing,

cut. -Mowers) ; telephone charges; an annuity scheme for primary

producers; petrol price equalisation; technical training; Department

Of Children's Services; migrant education centres and ethnic radio

and television stations; grants to Land Commission; rural industry

research; special treatment to primary producers and their children in remote and isolated areas; farm resettlement scheme; national animal health laboratory. The list, goes on and on and grows by the day. ....

I would re-emphasise however that these and many others not mentioned are said to be definite commitments to be undertaken by

a Labor Government. . . . .

Vie also have of course the commitments t b . investigate and pre- ' sumably to return to some of the grand schemes of the last Labor

Government; in particular the commitment to begin the preparation

of a National Superannuation Scheme. If such a scheme is intro­ duced in accordance with the. Hancock recommendations the cost would be about two billion dollars. ■ ’ ’ . .

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It is in the context of this immense expenditure programme that the question of the funding of the abolition of payroll tax remains unanswered. This unanswered question is of particular importance.

In spite of Mr Hawke's comments last week this proposal presumably remains the central plank of Labor's electoral platform whilst

no effort is being made by Mr Whitlam and his colleagues to .

seriously cost this proposal it can be estimated, on reasonable

assumptions, to cost between $1700 and $1900 million next financial

year. We are told that- this will be paid for by abolition of the Government's personal tax cuts to be effective from 1st February.

However, it has already been established that there is still a

shortfall of as much as $400 or $500 million in a full year which we

believe would be met by the abolition of tax indexation.

It is not enough to claim in vague terms that this additional

revenue can be obtained from abolition of investment allowances,

the introduction of ah excess profits tax and so on. We all know that these sorts of revenue measures cannot be quickly implemented and will not represent substantial sources of additional revenue

in the short term. In view of the importance of this proposal to

the Labor Party platform it is imperative that they offer a detailed costing as we have done.

Against these expenditure proposals and the shortfall from the

financing from the end of payroll tax we have been given no

indication of where increased revenue will be obtained. The .

electorate is left with the unpalatable prospect of higher deficits, increased interest charges, higher inflation and perhaps new and

unstated taxes, to raise the money needed to fund this programme.

It is clear that the Labor Party does not have the confidence in . ' * * ,

the electorate to admit the cost that we all will pay for the

re-election of the Whitlam Government. That lack of confidence

will not be forgotten by the electorate on December 10.

7 DBC98MBBR 1977