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Coalition tax policy and economic package: reaction from ACOSS

PETER THOMPSON: Welfare is a key target for reductions in public spending under the Coalition's plan. The Liberals want to slash spending on social security by $2.4 billion, but there'll be a separate compensation package for those still on welfare to make up for the inflationary impact of the consumption tax. Julian Disney, who is an economic spokesman for the Australian Council of Social Service, ACOSS, joins me now in our Sydney studio. Who are going to be the winners and losers under the Coalition's plan?

JULIAN DISNEY: Well, it's an extraordinarily complicated plan - that's the first thing to emphasise. I think it's surprising in some ways for people who've been very critical of the complexity and the social engineering, as they call it, of the present system, but this is extraordinarily complicated. There are, for example, the order of 10 extra income tests that would be introduced of various kinds. There are tax credits and tax rebates. It's a highly sort of computer-driven approach. So it's going to need a lot of analysis to work out in detail who the winners and losers are.

PETER THOMPSON: So is it too early to say?

JULIAN DISNEY: On some things it certainly is. But first I should emphasise some of the good things in it, because I think it's important to take a long term view about the impact of the package, both in looking at its good things and its bad things. There are some good things in relation to its impact on encouraging savings. Some things we've called for there in savings and superannuation areas may be beneficial, an increased corporate tax rate and aligning it with the top marginal rate; decentralisation of some elements of the bureaucracy and some other things. Those are things which, although the detail will need further analysis, hold the potential for useful developments.

But of course the other side is, I'm afraid, very bad, and overwhelms those good things. A goods and services tax is inevitably, I think it's agreed by all, bad for low income people; it hurts them very heavily. The question then is, firstly, whether they're compensated adequately. The judgment here depends on what can be no more than a guess as to the impact to this package on prices.

PETER THOMPSON: What is your guess, then?

JULIAN DISNEY: Well, the Coalition guesses - and it really is no more than that - 4.4 per cent. Now, it could be anywhere between 3 and 8, and that has a crucial impact on whether the package of direct compensation proposals is adequate. But we've also got to bear in mind the long run, and in almost every country which has introduced a goods and services tax, the rate has subsequently been increased, and in a third of the developed countries at the moment the rate is 20 per cent or above. So one has to be realistic in saying that whatever promises may be given now, this is likely to be increased later.

PETER THOMPSON: To be fair to the Coalition, they could have gone for a lower consumption tax rate, which may have appeared more politically attractive, but they have gone for a high one, haven't they?

JULIAN DISNEY: Well, that may get marks for some degree of courage, but one has to bear in mind there that other countries, if we're to be concerned about them, have certainly, in recent years, some of them have pitched at much lower - Canada went for seven, Japan for six. But there are also problems about compensation for the unusual person, the person who, for example, has higher than average needs to spend on food because they may have some health problem which requires special food. Those people can't be adequately compensated.

PETER THOMPSON: Are you saying they can't be fine tuned?

JULIAN DISNEY: No. I mean, that's too much of an individual matter. It would require even more intrusive playing around with schemes to help them. But, of course, the spending cuts are a matter of major concern to us. I must say that, to some extent, I think they're just unachievable. And, for example, one's looking at an approach towards unemployment which is going to lead to 10 or 20 million bits of paper from employers having to be submitted every year. People are going to have to go around and get two certificates from employers every two weeks to say they've been looking for work. Now, that's ludicrous, frankly. And some of the changes in relation to health are likely, in fact, to create a blow-out in health costs, rather than the reverse.

PETER THOMPSON: There's going to be a tightening of eligibility for people on sickness and invalid benefits. Is that fair?

JULIAN DISNEY: These things are already very tight. They've been tightened very substantially over the last 10 years or so, and there really isn't any significant more room to move, without the most extraordinarily unfair measures. But perhaps the most important thing to stress about this package is that, although there are, as I've mentioned, some valuable things in the savings area, it doesn't really address the major causes of our economic problems. And, from that point of view, it's very disappointing. Now, of course, the Labor Government hasn't addressed what we regard as the major concerns either, and we're left on that front with no one facing up to the key issues. This is largely playing around on the side with issues which are not central to our economic future and therefore don't hold great promise, in our view, for substantially increasing jobs and reducing the main cause of hardship in the community.

PETER THOMPSON: Thanks for coming in, Julian Disney, from ACOSS, the Australian Council for Social Service.