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Problems affecting the national economy



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R 6

■4. A U S T R A L I A ^

TREASURER

e m b ar g o De l i v e r y ^

PRESS RELEASE N O . 1 1 9

SPEECH BY THE TREASURER, THE HON. J . HOWARD, MR, TO THE

SOUTH AUSTRALIAN CHAMBER OF COMMERCE AND INDUSTRY ON

F R ID A Y , NOVEMBER 1 7 , 1 9 7 8

M r . Ch a i r m a n , Your Ex c e l l e n c y , o th er d i s t i n g u i s h e d g u e s t s ,

LADIES AND GENTLEMEN:

I GREATLY VALUE THIS OPPORTUNITY OF ADDRESSING SUCH A BROAD

AND DISTINGUISHED GATHERING REPRESENTING COMMERCE AND INDUSTRY

i n South Au s t r a l i a . .

Tr a d i t i o n a l l y , t h i s p a r t i c u l a r d i n n e r b r i n g s t o g e t h e r many

OF THOSE WHO MAKE A DAILY CONTRIBUTION TO THE COMMERCIAL

V IT A L IT Y OF THIS STATE.

The c o n t i n u i n g concern of a n a t i o n a l g o v er n m en t i n e c o n o m ic

MANAGEMENT IS TO RESPOND TO PROBLEMS AFFECTING THE NATIONAL

ECONOMY AS A WHOLE.

I t MUST EQUALLY BE AWARE OF THE SPECIAL ECONOMIC PROBLEMS OF

PARTICULAR AREAS OF AUSTRALIA. THERE ARE FEATURES OF THE

South Au s t r a l i a n economy w h ic h d i s t i n g u i s h i t from t h e r e s t

of Au s t r a l i a .

2 .

A t t h e r e c e n t L o a n C o u n c i l M e e t i n g , t h e C o m m o n w e a l t h a n d

INDEED A L L STATE GOVERNMENTS RECOGNISED THE PARTICULAR

S I G N I F I C A N C E FOR SOUTH A US T R A L I A OF THE POSSIBLE DEVELOPMENT 1 < · / - ! '

OF T H E R E D C L I F F P R O J E C T , I T I S NOW A M A T T E R F OR C O M M E R C I A L

D E C I S I O N S W H E T H E R OR N O T T H I S P R O J E C T P R O C E E D S ,

T h e C o m m o n w e a l t h G o v e r n m e n t r e c o g n i s e s t h e i m p o r t a n c e t o t h e

S t a t e o f S o u t h A u s t r a l i a o f t h e R e d c l i f f p r o j e c t . B o t h s i d e s

O F P O L I T I C S A T A S T A T E A N D F E D E R A L L E V E L H A V E S T R E S S E D T H E

I M P O R T A N C E T O T H E E C O N O M I C F U T U R E OF S O U T H A U S T R A L I A OF T H I S

P A R T I C U L A R P R O J E C T A N D I N D E E D T H E C O N T R I B U T I O N I T M I G H T MA K E

T O T H E N A T I O N A L E C O N O M Y .

S u f f i c e i t t o s a y t h a t t h e F e d e r a l G o v e r n m e n t h a s f o r s o m e t i m e

R E C O G N I S E D T H E I M P O R T A N C E S E E N I N T H E R E D C L I F F P R O J E C T T O

T H E F U T U R E E C O N O M I C D E V E L O P M E N T OF T H I S S T A T E A N D F OR T H A T

R E A S O N G A V E I T S T R O N G S U P P O R T A T T H E R E C E N T L O A N C O U N C I L

M E E T I N G T O T H E P R O J E C T ' S I N C L U S I O N I N T H E S E R I E S O F I N F R A ­

S T R U C T U R E B O R R O W I N G P R O P O S A L S A P P R O V E D A T T H A T M E E T I N G .

M r , C h a i r m a n , t h e e c o n o m i c g o a l s o f t h i s G o v e r n m e n t a r e

P R O B A B L Y W E L L KNOWN T O T H I S A U D I E N C E .

S i n c e i t s e l e c t i o n i n D e c e m b e r 1 9 7 5 , t h i s Go v e r n m e n t has

STEADILY PURSUED THE GOAL OF LASTING ECONOMIC RECOVERY IN

Au s t r a l i a ,

3 ,

W e h a v e s h u n n e d t h e l u r e of q u i c k s o l u t i o n s t o our e c o n o m i c

D I F F I C U L T I E S BECAUSE OF A FUNDAMENTAL B E L I E F THAT WHERE

IMBALANCES E X I S T IN AN ECONOMY, THEY CANNOT BE REMOVED OTHER

THAN THROUGH THE PERSISTENT A P P L I C A T I O N OF A STRATEGY WHICH

I S DESIGNED TO REMOVE THE B A SI C CAUSES OF THOSE IMBALANCES.

F o r e m o s t i n t h i s h a s b e e n our p e r s i s t e n t a s s a u l t on A u s t r a l i a ' s

I N F L A T I O N R A T E .

I t I S A MATTER OF RECORD THAT THE AUSTRALI AN I N F L A T I O N RATE

HAS DROPPED SHARPLY OVER THE PAST TWO YEARS. FROM A P OS I T I O N

OF UNFAVOURABLE COMPARISON AMONGST OECD COUNTRIES, AUSTRALIA

IS NOW IN THE POSITION WHERE ITS AVERAGE LEVEL OF INFLATION

IS SLIGHTLY BELOW THAT OF THE AVERAGE LEVEL OF INFLATION

THROUGHOUT THE MEMBERSHIP OF OECD.

Ho w e v e r , i n t h e m i n d of t h i s Go v e r n m e n t such progress i s no

CAUSE FOR COMPLACENCY. I n A WORLD OF SUBDUED TRADING AC TIVITY

AND AT BEST HESITANT ECONOMIC RECOVERY, I T IS SIMPLY NOT

SUFFICIENT FOR AUSTRALIA TO MERELY HOLD ITS OWN. I t IS

IMPERATIVE THAT WE DO BETTER AND THAT MEANS S T IL L LOWER

INFLATION, S T IL L GREATER INTERNATIONAL COMPETITIVENESS FOR

OUR EXPORT AS WELL AS OUR IMPORT COMPETING INDUSTRIES.

I t means c o n t i n u e d wage r e s t r a i n t , m o n e t a r y POLICY WHICH

CONTRIBUTES TO FURTHER REDUCTIONS IN INFLATION WITHOUT

IN H IB IT IN G PRIVATE SECTOR A C T IV IT Y , AND CONTINUED EXPENDITURE

RESTRAINT BY ALL GOVERNMENTS - FEDERAL, STATE AND LOCAL,

4 ,

The e v i d e n c e i s t h e r e t h a t t h i s Go v e r n m e n t ' s p o l i c i e s h a v e

■ · \ .

WOR K E D A N D A R E C O N T I N U I N G T O WO R K . W H I L S T I WO U L D B E T H E

L A S T T O S A Y T H A T A L L OUR E C O N O M I C P R O B L E M S A R E B E H I N D U S ,

t h i s G o v e r n m e n t l o o k s w i t h c o n s i d e r a b l e c o n f i d e n c e t o t h e

F U T U R E OF T H E A U S T R A L I A N E C O N O M Y . I t DRA WS S A T I S F A C T I O N B U T

N O T C O M P L A C E N C Y F ROM OUR S U C C E S S W I T H I N F L A T I O N . I t N O T E S

W I T H S A T I S F A C T I O N T H E C O N T R I B U T I O N T O P R I V A T E S E C T O R

C O N F I D E N C E A N D A C T I V I T Y W H I C H R E C E N T R E D U C T I O N S I N I N T E R E S T

R A T E S I N V O L V E . .

To Be n j a m i n Fr a n k l i n i s a t t r i b u t e d t h e comment t h a t o n ly two

THINGS IN L IF E ARE INEVITABLE, DEATH AND TAXES. I t IS TO

THE LATTER THAT I WISH TO DEVOTE A FEW REMARKS.

Ta x a t i o n p o l i c y i s an i n t e g r a l p a r t of t h e e c o n o m ic weaponry

OF ANY GOVERNMENT. CHANGES IN THE LEVEL, COMPOSITION,

INCIDENCE AND NATURE OF TAXATION HAVE SIG NIFIC AN T ECONOMIC

CONSEQUENCES . .

Sh a r p l y d i v e r g e n t v i e w s e v e n w i t h i n a Common e c o n o m ic p h i l o s o p h y

ARE HELD AS TO THE NATURE OF OUR TAXATION SYSTEM.

I DO NOT THINK ANYONE HERE TONIGHT WOULD DENY THAT THIS .

c o u n t r y ' s t a x a t i o n s y s t e m i s e x t r e m e l y c o m p l i c a t e d . I n a .

RECENT DEBATE IN THE HOUSE OF REPRESENTATIVES, I WAS REMINDED

THAT IN 1 9 3 6 , THE INCOME Ϊ Α Χ ASSESSMENT ACT COMPRISED SOME .

60 PAGES AND NOW NUMBERS SOME 7 0 0 . :

5 .

T a x a t i o n r e f o r m h a s b e e n a f e a t u r e o f t h i s G o v e r n m e n t ' s

P O L I C I E S SI NCE I T S E L E CT I O N , NOT ONLY HAVE WE INTRODUCED TAX

I NDEXATION WHICH HAS THE VERY DESI RABLE EFFECT OF FORCING

GOVERNMENTS TO OPENLY L E GI S LA T E CHANGES TO THE TAXATION L E VEL S,

BUT I T HAS GREATLY S I M P L I F I E D THE PERSONAL RATE SCALE AND

D E SP ITE THE NECESSI TY TO INCREASE PERSONAL INCOME TAX I N THE

l a s t B u d g e t , h a s p r o v i d e d i n d i r e c t t a x r e d u c t i o n s s u b s t a n t i a l

BE NE FI TS TO I N D I V I D U A L TAXPAYERS. .

T h e v a l u e t o b u s i n e s s a c t i v i t y a n d i n c e n t i v e o f i n v e s t m e n t

ALLOWANCE " WHICH I S CALCULATED TO COST THE REVENUE OVER

$400 M I L L I O N IN 1 9 7 8 /7 9 - AND t h e t r a d i n g s t o c k v a l u a t i o n

ADJUSTMENT HAVE BEEN VERY S I G N I F I C A N T ,

Ot h e r s p e c i f i c t a x i n c e n t i v e s h a v e a l s o b e e n p r o v i d e d to t h e

CORPORATE SECTOR.

De a t h a n d g i f t d u t i e s c o v e r i n g g i f t s a n d b e q u e s t s b e t w e e n

NEAR RELATIVES HAVE ALREADY BEEN ELIMINATED AT A FEDERAL

LEVEL AND THE FEDERAL PARLIAMENT HAS ALREADY PASSED LEGISLATION

WHICH W ILL EFFECTIVELY ABOLISH ALL REMAINING COMMONWEALTH GIFT

AND ESTATE DUTIES FROM 1ST JULY 1 9 7 9 ,

Gi v e n our e c o n o m i c d i f f i c u l t i e s a n d t h e i n e v i t a b l e b u d g e t a r y

PRESSURES UNDER WHICH TH IS GOVERNMENT HAS OPERATED FOR ALMOST

THREE YEARS, TH IS IS AN IMPRESSIVE RECORD OF.REFORM WHICH

HAS MADE A MAJOR CONTRIBUTION TO INCENTIVE IN AU ST RAL IA.

6

Ho w e v e r , I p u t i t to you t h a t t a x a t i o n reform i s not j u s t

ABOUT THE LEVEL OF TAXATION, I t IS ALSO ABOUT THE STRUCTURE

OF OUR TAXATION SYSTEM,

I T WILL PROBABLY BE WELL UNDERSTOOD BY THIS AUDIENCE THAT

Au s t r a l i a r e l i e s v e r y h e a v i l y on p e r s o n a l in c o m e t a x as a

SOURCE OF REVENUE. I N COMPARISON WITH MOST OECD COUNTRIES

WE HAVE HIGH LEVELS OF PERSONAL INCOME TAX AND COMPARATIVELY

LESS RELIANCE ON INDIRECT TAX,

Th e r e a r e no d o u b t many i n t h i s a u d i e n c e who b e l i e v e t h i s to

BE THE PROPER BALANCE. EQUALLY, I SUSPECT THERE ARE MANY WHO

BELIEVE THAT THE MIX OF TAXATION- IN OUR COMMUNITY OUGHT TO BE

CHANGED.AND THAT THERE MIGHT WELL BE REAL BENEFITS IN GREATER

RELIANCE ON INDIRECT TAXATION IN RETURN FOR REDUCED PERSONAL

TAXATION.

A t p r e s e n t , t h e Go v e r n m e n t has an open m i n d on t h i s s u b j e c t .

We do b e l i e v e however t h a t the m a t t e r ought to b e e x a m i n e d and

DEBATED BY THE COMMUNITY, FOR THIS REASON, WE HAVE IN IT IA T E D

AN INQUIRY INTO INDIRECT TAXATION IN AUSTRALIA,

AS PART OF THIS INQUIRY, WE HAVE AUTHORISED THE TAXATION OFFICE

TO HOLD DISCUSSIONS WITH SECTIONS OF AUSTRALIAN INDUSTRY

REGARDING THE PRACTICALITIES OF THE INTRODUCTION OF A BROAD

BASED INDIRECT TAX AT THE RETAIL LEVEL, .

Th i s d e c i s i o n does not mean t h a t the Go v e r n m e n t h as c o m m it t e d

ITSELF TO A FUNDAMENTAL CHANGE IN THE AUSTRALIAN TAXATION

SYSTEM, I t DOES NOT MEAN THAT THE GOVERNMENT HAS ALREADY

TAKEN A DECISION TO INTRODUCE A BROAD BASED INDIRECT TAX,

7.

I t s im p l y means t h a t t h e Government w is h e s to be in a p o s i t i o n

TO TAKE AN INFORMED DECISION ON WHETHER OR NOT THE BASIC MIX

OF TAXATION IN AUSTRALIA AT THE PRESENT TIME SHALL CONTINUE

OR WHETHER IN FACT THERE ARE NET BENEFITS IN BRINGING ABOUT

A CHANGE IN THE STRUCTURE OF OUR TAXATION SYSTEM,

I BELIEVE THAT THIS OVERALL EXAMINATION IS AN IMPORTANT ONE,

I t i s e s s e n t i a l t h a t we have an o b j e c t i v e and s e n s ib l e

CONSIDERATION OF DIFFERENT METHODS OF RAISING REVENUE,

I BELIEVE WE OUGHT TO ASSESS THE EFFECT ON INCENTIVE OF HIGH

PERSONAL INCOME TAX, EQUALLY, WE OUGHT TO ASSESS THE POSSIBLE

IMPACT ON CONSUMER EXPECTATIONS OF GREATER INDIRECT TAXATION.

These are not easy matters to r es o lv e and they w i l l c e r t a i n l y

NOT BE RESOLVED IN THE RIGHT DIRECTION UNLESS CONSTRUCTIVE AND

OBJECTIVE CONTRIBUTIONS ARE MADE TO THE PUBLIC DEBATE ON THE

SUBJECT.

Un f o r t u n a t e l y , some of the comments on the Go v e r n m e n t ' s

EXAMINATION HAVE BEEN LESS THAN OBJECTIVE. I t DOES NO CREDIT

TO THOSE IN THE COMMUNITY WHO MIGHT OPPOSE THE CONCEPT OF A

RETAIL TURNOVER TAX TO ALLEGE THAT THE GOVERNMENT HAS ALREADY

DECIDED TO INTRODUCE SUCH A TAX WHEN DEMONSTRATIVELY NO SUCH

INDICATION CAN BE GLEANED FROM ANY PUBLIC STATEMENT MADE BY

OR ON BEHALF OF THE GOVERNMENT,

Ta x a t io n p o l i c y i s not s o m e t h in g w h ic h should s im p l y c o n s is t of

FINE TUNING OF TAXATION LEVELS AT BUDGET TIME BUT OUGHT ALSO TO

RECEIVE EXAMINATION AND CONSIDERATION FREE OF THE IMMEDIATE

PRESSURES OF REVENUE CONSIDERATIONS. .

8 .

■V

NOT ONLY DOES A T A X A T I O N SYSTEM PRODUCE REVENUE BUT BY I T S

NATURE AND C O MP O S I T I O N FROM T I M E TO T I M E I NF L U E N CE S ECONOMIC

D E C I S I O N S AND E I T H E R ENCOURAGES OR DI SCOURAGES EXTRA EFFORT

A T THE I N D I V I D U A L OR CORPORATE L E V E L .

I t is out of a concern to ensure that not only Are the levels

OF TAXATION IN AUSTRALIA CONSISTENT WITH THE TYPE OF ECONOMIC

CLIMATE WE WISH TO CREATE BUT ALSO THE STRUCTURE OF OUR SYSTEM

WHICH HAS PROMPTED THIS GOVERNMENT TO ASK THE FUNDAMENTAL

QUESTION OF WHETHER THE PRESENT BALANCE BETWEEN DIRECT AND

IN DIR E CT TAX OUGHT TO BE MAINTA INED .

AS I HAVE ALREADY INDICATED I F , AFTER THE GOVERNMENT HAS

RECEIVED THE RESULTS OF THE TAXATION OFFICE IN Q U IR Y , I T

PROPOSES TO TAKE THE MATTER FURTHER, I T W IL L RELEASE A

DISCUSSION PAPER ON THE WHOLE ISSUE AND ONLY AFTER PUBLIC

RESPONSE AND COMMENT ON THAT DISCUSSION PAPER HAS BEEN

RECEIVED WOULD A DECISION BE TAKEN.

Let me repeat that no decision has been taken and that the

Government does retain a completely open mind on the subject.

17 NOVEMBER · 1978