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Fightback : the way to rebuild and reward Australia: executive summary
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CONTENTSPageExecutive Summary 11. Australia at Risk 112. The Roots of National Decline 123. Individual Values & National Goals 234. Framework for Certainty:A New Role for Government 265. The Challenge 306. Meeting the Challenge - An IntegratedStrategy for Jobs and Growth 367. Conclusion 66

PARLIAMENT OF AUSTRALIA

HOUSE OF REPRESENTATIVES

21 November 1991

To All Australians

On behalf of the Liberal and National Parties, we are pleased to present our « FIGHTBACK » PROGRAM for rebuilding and rewarding Australia

This program is based on an honest assessment of Australia's current problems and how we can fulfil our great potential as a country.

It is a program that puts forward bold measures across a wide range of policy issues. It is unprecedented for any Opposition in Australia's history. It is an integrated package of reforms aimed at giving the Australian people greater control over their own lives and a reliable framework of policy to restore their prosperity.

Our reforms defy the conventional wisdom that Oppositions should let Governments lose elections. We believe that the current economic and social crisis in. Australia, which is the most serious since the Great Depression, demands that we do more than just condemn this Government's obvious

failings.

Real national leadership does not lie in exploiting the unpopularity of a failed government, but in addressing national problems in a realistic way and in defining a strategy to overcome them.

We believe that there needs to be a generational change in the direction of public policy, in the role that governments play in people's lives and in community attitudes. To "surprise" the Australian people with our policies after the next election would not only be dishonest, but it would also j eopardise public acceptance of the changes that Australia desperately needs.

By providing a dramatic boost to productivity and economic growth, the reforms set out in this document are designed to provide two million new jobs and halve the unemployment rate by the end of the 1990's. The job-destroying policies of Labor - centralised regulation of the labour market, the

promotion of union power, compulsory levies, high taxes, big spending and government inefficiency - will all be reversed.

Ours is a program which will stabilise and reduce the foreign debt which is making Australia one of the most vulnerable economies in the world.

The Liberal and National Party program is designed to bring about a major change in attitudes which will make these goals possible. It will restore incentives to work and to save. People will once again have a chance for financial independence and be able to break free of dependence on government. They will be able to have a soundly-based confidence in the future.

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The burden of income tax will be greatly reduced, marginal rates will be slashed and the taxation system will be reformed to make it simpler and fairer. There will be an unprecedented attack on government waste and inefficiency, and a program of privatisation will enable the essential services of government to be provided more effectively at less cost.

The role of government will be properly defined, so that government concentrates on providing a fair and certain framework of rules for private activity, protects the weak in the community and concentrates on advancing the public interest rather than just particular favoured interests.

Social objectives are just as important as economic goals. Standards of education and training will be raised to world class levels. The elderly and retired will have more equitable protection than in the past. The unemployed will be given active assistance to get back into the workforce and to upgrade their skills.

At the present time too many Australians are suffering from the blight of joblessness and lack of confidence about their own future and that of their country. For a whole generation, governments have failed by promising more than they have delivered. Government has got us into out current difficulties because it has robbed people of the freedom they need to build the kind of country they want.

There is really only one question which Australians should ask: are you less prosperous and less optimistic now than when the Hawke Government came to power? If so, there is an alternative which is put forward in this document.

It is time for Australians to fight back. It is time for a new generation of leadership in government for our country.

Our program of reform crystallises the choice facing the Australian people.

It is a choice between passing on to our children a country with expanding opportunities or being the first generation in Australia to hand on to the next fewer opportunities and a lower standard of living than they themselves enjoyed.

It is a choice between a tired, divided and paralysed government and one with new optimism and a clear strategy to make our country what we know it can be.

The choice is yours!

DR4OHN HEWSON, MP MR TIM FISCHER, MP

' —i eral Party Leader National Party Leader

Leader of the Federal Opposition

EXECUTIVE SUMMARY

1. THE CHALLENGE THAT FACES AUSTRALIA

Australia, with the quality of its people and the advantages of its great natural resources, should be a nation of expanding economic opportunity, rising living standards and social progress. Yet, over recent years, it is clear that we are being held back from making the most of our opportunities and that many other countries with less natural advantages

are achieving much more.

We can't go on like this.

It's time for Australians to fight back against the Labor Government's economic mismanagement and policy failures that have resulted in the worst recession since the Great Depression.

• Australians have seen their living standards eroded over the last eight years under the pressures of inflation, taxation and unemployment.

• They have seen nearly 1.5 million Australians unable to find the work they seek and unemployment among our young people at around 30 per cent.

• They have seen Australian families subjected to increasing pressures as a result of economic conditions.

• They have seen Australia's foreign debt soar over the last eight years to the point where we are now one of world's most vulnerable economies.

• They have seen our national productivity growth undermined by Labor's Accord which has kept wages down and has resulted, in the end, in record high unemployment.

• They have seen their tax burden rising over recent years thus destroying any incentive for average Australians to work harder or save more.

• They have seen Government welfare spending become the fastest growing area of the Hawke Government's spending over recent years and a continuing drift to greater dependence on

government welfare. Since 1970, the number on Social Security income support has grown by about one million each decade.

They have seen Australian business weighed down by increasing government regulation,

high taxes, high real interest rates and a centralised wage system resulting in record bankruptcies, falling investment and fewer jobs.

• They have seen our education system and training opportunities failing to keep pace with the standard of the world's best.

• They have seen a Labor Government unable to do what is necessary to modernise our basic national infrastructure - our waterfront, telecommunications, aviation system, land transport and utilities.

• They have seen our health system eroded by Iack of access, lack of choice and financial difficulties.

2. HOW AUSTRALIA CAN MEET THE CHALLENGE - AND FIGHT BACK

The Liberal/National program of reform set out in this document is an honest attempt to face up to Australia's problems and to develop an appropriate strategy to meet them.

We have developed our wide-ranging 20 point reform agenda on the basis of a clear set of priorities. We believe that these priorities are the only basis on which Australia can successfully overcome its

current serious economic and social problems.

• We want to give Australians more incentives and opportunities to get a job, to work harder and be rewarded for it, to save, to invest and to export.

• We want to focus on the wellbeing of the average Australian, particularly the PAYE taxpayer on low to middle incomes who have been taken for granted by the Hawke Government but who are

the real victims of its economic mismanagement.

• We want to give all Australians a right to financial security and self-respect by promoting price stability and full employment as the key objectives of our policies.

• We want to stabilise and then reduce our foreign debt.

• We want to let Australians show how they can match, and beat, the best in the world when the official, the taxman and the regulator get off their backs.

Executive Summary

• We want to

focus on excellence and match best international practice across the board. taxes and introduce a broad based Goods and Services Tax.

• We want to decentralise more responsibilities to local communities rather than concentrating them in Canberra.

• We want to give people the maximum opportunity to take personal responsibility for themselves and their families.

• We want Australians to have access to a world class education and training system to enhance economic growth and genuine quality of opportunity.

• We want to give a clear emphasis to individuals over institutions (eg. in education, industrial relations and other policy areas).

• We want to see Australia develop as the second most important financial centre in the Asia-Pacific Region by the Year 2000.

• We want to see a new role for government -one that is generally in the public interest, and not particular vested interests, one that is less costly, but more effective, small but more

respected, less intrusive but one which ensures equity through equal laws and opportunities.

• We want to see both the Federal Government and the bureaucracy become much more in touch with the people they are supposed to serve.

• We want to ensure that the sick, the old and those genuinely in need receive the assistance they deserve but we want to put an end to the rorts and abuses of such assistance by people who can, and should, provide for themselves.

• We want to ensure streamlined development approval procedures that meet high and clearly administered environmental standards.

3. KEY INITIATIVES IN THE LIBERAL/NATIONAL REFORM _. PACKAGE

To meet the challenge that Australia faces, a Liberal/ National Government will implement an integrated package of major policy reform. It is a strategy for jobs and growth which will produce two million additional jobs by the end of the decade and halve

the current unemployment rate and repay about $13 billion in government debt.

It is also a strategy that requires some difficult decisions (as in reducing government expenditure), and a major reform of the taxation system that will abolish many of our existing and inefficient indirect

These changes are essential if jobs, incentive, opportunity and reward are to be restored to Australians. A Liberal/National Government will have the courage to implement them. We will do so in a way that is equitable and that enables many other reforms that will make our society more

genuinely fair.

Our specific policy initiatives include the following:

• the largest personal income tax cuts in Australian history (a 30 per cent reduction of around $13 billion):

• tax rates will be slashed across the board;

• 95 per cent of taxpayers will face a marginal rate of tax of 30 cents or less;

• taxpayers will be able to earn $75,000 and pay a lower marginal rate of tax than they now pay if they earn above $20,700;

• abolition of seven taxes;

• the wholesale sales tax;

• payroll tax;

• petroleum products excise;

• superannuation lump sum tax;

• customs duties (to be phased out by the Year 2000);

• training guarantee levy;

• coal export duty;

• significant cuts in capital gains tax and fringe benefits tax;

• changes to the capital gains tax to provide significant tax relief, incentives and retirement benefits for small business people, farmers and small investors;

• introduction of a 15 per cent Goods and Services Tax (with specific items zero-rated or exempt) that will:

reform and simplify Australia's grossly inefficient taxation system;

• boost our national productivity and savings;

enable greater international competitiveness by slashing taxes on business inputs and -exports;

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•

assist in reducing marginal tax rates and thus increase incentives to work, save and invest;

• make the tax system fairer by reducing avoidance and evasion;

• we will adequately compensate Australians for the net one-off price effect of the Goods and Services Tax package;

• establishment of a full-time Goods and Services Tax Planning and Co-ordination Office with Sir William Cole as. its Chairman.

• reduction in cost disadvantages to business by 20-50 per cent as a result of our reform package;

• a co-ordinated anti-inflation strategy built on a commitment to medium-term price stability, competitive labour market arrangements, more than adequate compensation to low and middle income earners for the one-off CPI impact of the Goods and Services Tax, and a new role for the Prices Surveillance Authority;

• gross reductions of $10 billion (net $4 billion) in wasteful and unnecessary government spending;

• a major program of privatising Commonwealth authorities which undertake essentially business functions and contracting out of particular government services;

• a new national savings strategy built on:

• tax concessions for long term savings through a new voluntary and fairer superannuation scheme that will encourage Australians, particularly those on lower incomes, to make provision for their own retirement in either superannuation funds or other financial institutions, co-operation with their employer;

• incentives for shorter-term savings through a new Tax Free Savings (TFS) scheme;

• labour market reform to return negotiations over wages and conditions to the workplace and thus to make enterprises more productive and rewarding;

• major new programs in education and training which will boost spending in those areas by $3 billion over the rest of this decade;

• new initiatives for the unemployed which include restoring job growth, expanding education and training programs, and enabling earlier access for the unemployed to programs that combine employment and training;

• a new private health insurance tax credit system targeted at low and middle income

earners and the elderly, together with a new surcharge on high income earners who do not take out private health insurance;

• a new superannuation rebate scheme to give low and middle income earners an added incentive to provide for their own retirement;

• a new GST Tax Credit system to assist low income earners with taxable incomes below the post-GST tax free threshold of $7000 and part pensioners and beneficiaries who cannot be fully

compensated either through the tax or social security systems;

• a new GST wealth compensation scheme to compensate retirees over 60 for the GST effect on their savings;

• a family assistance package, targeted at low and middle income earners that includes:

• a doubling of family allowances to eligible families and significant increases for many others;

• an increased Dependent Spouse Rebate for families with children on incomes up to $75,000;

• new incentives for low to middle income earners and the elderly to take out private health insurance;

• increases in the Family Assistance Supplement;

• wide-ranging proposals to increase assistance to pensioners and retirees through:

• significant income tax cuts for taxpaying retirees;

• eight per cent increase in pensions to over 28 per cent of average weekly earnings;

• access to the GST tax credit and wealth compensation schemes;

• access to the Private Health Insurance Tax Credit which will cover the cost of private health insurance for pensioners with incomes below $12,000 (single) and $14,500

(married);

• changes in the capital gains tax particularly in relation to lower marginal rates and sales of businesses by retirees;

• access to the Tax Free Savings scheme;

• the Coalition's commitment to end age discrimination and compulsory retirement through the deferred pension plan;

Executive Summary 3

•

simpler reporting procedures for pensioners and beneficiaries;

• access to pharmaceutical benefits for non-pensioner retirees with incomes up to $40,000 (single) and $50,000 (married);

• the lower cost of petrol.

• a new First Home Owners Scheme;

• a more realistic immigration program;

• a new approach to Commonwealth-State financial relations, particularly in relation to revenue sharing arrangements.

4. KEY DECISIONS IN MORE DETAIL

4.1 Personal Income Tax

A Liberal/National Government will:

• implement the largest personal tax cuts in Australian history:

• we will slash personal income tax by about 30 per cent - that is, by $13 billion;

• we will raise the tax free threshold from $5,400 to $7,000 with the result that at least another 320,000 low income earners will now pay no tax;

• we will cut marginal tax rates across the board, especially targeted at middle income earners;

• 95 per cent of taxpayers will face a marginal rate of 30 cents or less: under Labor, over a half of all taxpayers face a rate of 38 cents or more, up to 47 cents;

• average Australians will be able to double their taxable income and still pay a marginal tax rate of 30 cents;

• when our reforms are implemented, taxpayers will be able to earn up to $75,000 and pay a lower rate of marginal tax than they currently pay if they earn more than $20,700;

•. implement a new Tax Free Savings (TFS) scheme whereby interest income on all new savings, up to a limit of $1,000 a year for single taxpayers and $2,000 a year for married couples,

will attract a rebate of 30 cents in the dollar, whatever their income;

• increase the corporate tax rate to 42 cents to align it with the significantly reduced top marginal personal income tax rate, and thus eliminate tax avoidance through incorporation;

• guarantee the return of revenue from tax bracket creep to taxpayers;

• provide tax credits from $100 to $400 for low to middle income earners who take out private health insurance;

• provide additional tax credits for persons over 65 who earn up to $30,000. For those earning less than $12,000 (single) and $14,500 (married), the tax credits will effectively cover the full cost of private health insurance which entitles access to private beds and the doctor of choice;

• encourage higher income earners to take out private health insurance by adding a surcharge to the Medicare levy for families with incomes above $50,000 and singles above $40,000 who

do not have private health insurance;

• increase the Dependent Spouse Rebate for eligible families with children to $1,679;

• implement a major new initiative to ensure that low income earners are more than compensated for the impact of the Goods and Services Tax through a Goods and Services Tax Credit system;

• adjust specific thresholds and allowances under the Income Tax Act for the impact of the Goods and Services Tax;

• increase Zone Rebates by at least 25 per cent;

• implement a range of other changes affecting personal tax such as a new superannuation tax rebate and the abolition of the lump sum tax, a new tax free personal savings scheme, a lower

and revised capital gains tax, and a reduced fringe benefits tax.

4.2 Taxes On Business

The business sector will benefit directly from the tax measures in the Liberal/National reform package. Taxes on business will be cut by at least $20 billion. Most importantly, we will:

• abolish the $9.4 billion wholesale sales tax;

• abolish the $5.8 billion payroll tax;

abolish the $6.6 billion excise on petroleum products (about 55 per cent of which falls on business);

4 Executive Summary

• abolish effectively all $3.3 billion of customs

duties;

• rebate Goods and Services Tax paid on most business inputs, including businesses competing with imports;

• reduce the tax on exports by $1.7 billion.

In addition, the Liberal and National Parties propose to implement a range of other measures to reduce cost disadvantages to the business sector:

• our overall reform package dramatically lowers many business costs by 20 to 50 per cent;

• the revised and lower capital gains tax system will permit greater access to rollover relief and make additional allowance for goodwill;

• the coal export duty will be abolished;

• the training guarantee levy, which is in effect an extra tax on employers, will be abolished;

• the level of compulsory employer contributions to employee superannuation, in place at the time of the next election, will be retained but there will be no further compulsory increases. Further increases will be on the basis of choice and incentive, rather than Labor's compulsion;

• the present depreciation arrangements will be reviewed to help Australian business to be able to match best international practice;

• company tax deductions for research and development costs will continue from July 1993 at 125 percent, but we will ensure strict measures to guard against abuse and we will promote new R&D links between industry and universities;

• the fringe benefits tax will be reduced significantly and loop holes eliminated through the alignment of the corporate and top personal tax rate.

These tax changes are also to be seen against the background of the other elements of our reform agenda designed to reduce or eliminate major cost disadvantages to business (e.g. on the waterfront, in utilities, telecommunications, aviation, shipping, land transport, development approval processes,

training and others).

As with other sectors, the business sector will be expected to contribute to, as well as benefit from, the reform process under a Liberal/National Government. We are also committed to bringing the corporate tax rate into alignment with the top

personal marginal tax rate at 42 per cent. .

4.3 Capital Gains Tax

The Liberal/National reform package will make major changes to the capital gains tax system to provide significant tax relief, incentive, and

retirement benefits for small business people, farmers and small investors. We will do so in the following ways.

• capital gains tax will continue to apply, but at the significantly lower marginal income tax rates, to real capital gains on assets bought after 19 September 1985.

• to reduce paperwork and simplify the system, there will be an option to pay capital gains tax at a flat rate of 30 per cent on nominal gains on assets held for five years or longer.

• capital gains of less than $3,000 made by an adult individual in each year are to be exempt from tax.

• relief from capital gains tax on the sale of goodwill will be provided at the following rates: 50 per cent relief up to $500,000; 30 per cent between $500,000 and $1,500,000; 10 per cent between $1,500,000 and $2,000,000; and no additional relief above that figure.

• abolish capital gains tax on the sale of a business by retirees aged 60 or more on gains up to the value of ten times average annual earnings (currently around $300,000) and indexed.

• abolish capital gains tax on the sale of a business, up to the value of ten times average annual earnings, provided the funds are placed in an Approved Deposit Fund until retirement.

• full relief from capital gains tax will be provided on the rollover of a business into a Iike business where the disposal price does not exceed $5 million. This benefit will be available once every five years.

• the income tax free discount on shares issued to or bought by employees through an employees' share ownership scheme will be increased to $500.

4.4 Indirect Tax

A Liberal/National Government will:

• abolish the wholesale sales tax, Labor's hidden consumption tax;

• fund the abolition of State payroll taxes in a way which will preserve the financial relativities between the States;

Executive Summary 5

• abolish petroleum product excise and introduce a

comprehensive national road funding policy;

• phase out customs duty by the Year 2000;

• increase excise on tobacco by 25 per cent;

• abolish the automatic indexation of excises.

We will also introduce a single rate 15 per cent Goods and Services Tax. We will not increase the rate beyond 15 per cent and will embody that guarantee formally in legislation.

Some items will be "zero-rated" as far as the Goods and Services Tax is concerned. These items are health and education services, government provision of non-commercial activities (including local government rates), sale of a business as a "going concern"; welfare, religious and charitable institutions, and exports. Other items will be exempt from the tax but input taxed. They are residential rents and construction, other building construction, financial services, gambling and lotteries.

4.5 Compensation for the Goods and Services Tax

A Liberal/National Government will compensate Australians for the net one-off price effect of the Goods and Services Tax package, estimated to average 4.4 per cent of the Consumer Price Index as

follows:

Income Compensation

• all pensions will be increased by eight per cent;

Age, Wives', Widows', War Widows', Sole Parents', Service, Disability Support and Carers' pensions;

• other social security benefits will be increased by six per cent;

• income tax related benefits (sole parent rebates, etc) will be increased by 4.8 per cent;

Wealth Compensation

• Australians aged 60 years and over with taxable incomes below $30,000, will be eligible for a one-off wealth compensation rebate at the rate of 5 per cent, up to a limit of $2,500, on their

interest earning savings;

• the question of extending wealth compensation to shares will be reviewed by the Goods and Services Tax Co-ordination and Planning Office.

4.6 Tax Administration

A Liberal/National Government will:

• appoint an internal Tax Office Ombudsman;

• change the way in which the Tax Office is administered by appointing a representative Board of Directors;

• modify the self-assessment process;

• assess the present cost impact and extent of tax compliance obligations and implement necessary measures to minimise the burden;

• establish a full-time Goods and Services Tax Planning and Co-ordination Office with Sir William Cole as its Chairman, assisted by the Institute of Chartered Accountants in Australia.

4.7 Tax Avoidance and Evasion

The Liberal and National Parties' are committed to lowering the overall taxation burden on Australians and making the system fairer, thereby promoting

greater tax compliance.

Other specific measures include:

• subjecting the black economy to a tax on expenditure.

• aligning the top personal income tax rate with the corporate tax rate to remove the incentive for individuals to incorporate purely for tax avoidance reasons. -• aligning the Fringe Benefits Tax rate with the

corporate tax rate.

• changing the superannuation rules to lessen the capacity for high income earners to use superannuation as a tax shelter.

• tightening the guidelines relating to the tax deductibility of research and development expenditure.

• abolishing the wholesale sales tax, which by its complexity is open to abuse, and replacing it with the Goods. and Services Tax, which by design is largely self-policing.

4.8 Expenditure Savings

We will make gross expenditure savings worth $10 billion (net $4 billion) in wasteful and unnecessary government spending.

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4.9 National Savings Strategy

A Liberal/National Government's national savings strategy will involve six separate but interconnected initiatives:

• a commitment to price stability to bolster saver confidence;

• a reform program to boost public sector savings;

• incentives to save as a result of large cuts in personal income-tax rates which are fully funded;

• a broadly based goods and services tax helping to shift the balance of taxation away from income and towards consumption;

• better targeted government welfare and expenditure to encourage greater self reliance;

• incentives for long-term savings built on a new voluntary superannuation scheme, including a 25 per cent rebate to all individuals on the first 6,000 of contributions per year, abolition of tax on lump sums and provision for individuals to make tax rebatable contributions in respect of their non-working spouse;

• we will introduce a new system of Retirement Savings Accounts (RSAs) to diversify the range of financial institutions which can provide savings and superannuation accounts;

• incentives for shorter term savings built on a new Tax Free Savings scheme;

• this means at current interest rates over four million married couples with children who have taxable incomes of less than $50,000 will pay no tax on the interest income for the first $25,000 of new net savings;

• a further one million single taxpayers earning $50,000 or less need pay no tax on the interest income from the first $12,500 of new net savings.

4.10 Health

Medicare will be retained and significantly improved as a system of universal health cover but we will restore the balance between the public and private sectors by encouraging individuals to provide for their own health care by taking out private health insurance.

• Those on incomes of less than $30,000 per year will receive a Private Health Insurance Tax Credit phased up to $400 (married) and $200 (single).

• Persons aged 65 or over with incomes less than $12,000 (single) or $14,500 (married) who have private health insurance will receive an additional tax credit of $200 (single) and $400

(married), thus effectively covering the cost of private health insurance.

• High income earners who do not take out private health insurance will be required to pay a Medicare levy surcharge of $800 (family) and $400 (single) per year.

• Bulk billing will be retained for the over four million pensioners, health care card holders and disabled but will no longer be available to other Australians.

• Government monopoly on medical insurance will be abolished and there will be provision for gap insurance of medical bills.

4.11 World Class Schools, Universities and Training

A Liberal/National Government is committed to major reforms in the training and education areas which will involve an additional $3 billion of expenditure over the rest of this decade.

in addition to funding currently allocated to government schools by the States and the Commonwealth. We are committed to a range of policies worth $154 million over the rest of the decade to encourage parent choice of school in the government sector, to lift literacy and language skills, and to greatly expand professional development opportunities for teachers;

• we will increase funding to TAFE by $520 million above current funding commitments to the Year 2000;

• we will commit $567 million to capital improvement in the non-government schools over the six years 1993-2000;

• we are committing $245 million for university research to the Year 2000;

• education services will not be subject to the Goods and Services Tax and the abolition of other indirect taxes will result in lower costs for the delivery of education services.

4.12 Assistance to Families

A Liberal/National Government will implement a range of measures to assist families:

Executive Summary 7

Family Allowance will be doubled for families

with combined incomes below $30,000 per annum:

• families with combined incomes between $30,000 and $40,000 will have their Family Allowances increased by 50 per cent;

• eligible families with combined incomes over $40,000 will receive a six per cent increase in their Family Allowances;

• Family Allowance Supplement will be increased by six per cent;

• the Dependant Spouse Rebate (DSR) will be increased by $300 per year for all eligible families with children;

• DSR for eligible families without children will increase to $1,204;

the maximum DSR will be available for one-income families with children where income does not exceed $75,000 per year; one-income families without children earning up to $50,000 per. year will be eligible for the DSR but will not receive the additional $300 per year;

• we have allocated $90 million for increased child care support;

• sole parent pensions and additional allowances will be increased by 6 per cent;

• we have allocated increased funding of $50 million to voluntary/non-government agencies some of which will be to the advantage of families currently suffering from the effects of financial and social hardship;

• families will benefit from the health and education reforms outlined in our reform package;

• families will also benefit from major cuts in personal income tax, lower petrol costs, our • proposed changes to superannuation and our new First Home Owners Scheme.

4.13 Assistance to Aged Pensioners, Retirees and Low Income Earners

A Liberal/National Government will implement the following measures to assist aged pensioners, retirees and low income earners:

• all taxpaying retirees to receive substantial income tax cuts;

• an increase in the tax free threshold from $5,400 to $7,000;

• access to the new Tax Free Savings Scheme;

under our changes to the capital gains tax, retirees and pensioners will not be taxed on gains of $3,000 or less per year; sale of goodwill will get tax relief; the sale of a business by retirees

aged 60 or more will be tax free up to a value ten times average earnings (currently around $300,000); and similar exemptions will apply to a business, proceeds of which are placed in an Approved Deposit Fund until retirement;

retirees and pensioners will benefit from the significant fall in the price of petrol that will result from our decision to abolish excise on petroleum products;

• they will also benefit from our decision to end age discrimination and compulsory retirement.

More specific measures to compensate and assist age and service pensioners and retirees include:

• direct increases in age, service and all other pensions by eight per cent to over 28 per cent of average weekly earnings;

• a GST Tax Credit - ensuring that all part pensioners earning some additional income will be fully compensated;

• direct compensation for over-60s for the Goods and Services Tax effect on savings - retirees with taxable income up to $30,000 per annum will be compensated for any one-off decrease in the value of their savings;

• health insurance tax credits of up to $400 per single and $800 per low income pensioner couples on up to $14,500 annual income - thus effectively gives them basic private health cover which will allow access to private bed and private hospital and doctor of choice;

• access to the pharmaceutical benefits concession card for non-pension retirees -up to 500,000 aged Australians will save up to $250 per year on pharmaceutical expenses;

• a deferred pension plan - pension increase for those who defer their pension and remain in the workforce;

• simpler reporting arrangements - further encouragement for pensioners to earn additional income;

• reform of the assets test - pensioners in genuine need, particularly those in rural areas, will not be unfairly treated under the pension income and

Executive Summary

assets test.

allow the unemployed to be employed at training wages which reflect the duration of their unemployment. Employers would be required to

4.14 Assistance to Non-Age Pensioners and move to full minimum or voluntary enterprise Welfare Beneficiaries wage levels within a specified time;

A Liberal/National Government will:

• increase sole parent, invalid, wives, widows, war widows, disability and carers' pensions by eight per cent;

all other benefits and allowances, including unemployment; sickness and special benefits, education study allowances and a wide range of

training allowances will be increased by six per cent.

4.15 Genuine Assistance to the Unemployed

A Liberal/National Government will:

• implement an integrated reform package that will halve the unemployment rate by the end of the decade;

• progressively tighten the administration of the Job Search Allowance (JSA) and end automatic entitlement after nine months:

maintain the Special Benefit for persons found to be in hardship situations who have been actively looking for work while on JSA

on condition that they continue to satisfy the ongoing hardship criteria and the same tighter work test which applies in the final three months of the JSA;

• offer the unemployed earlier access to programs which combine employment and training;

• integrate Iabour market training programs into mainstream training courses;

• offer a range of positive workplace alternatives for those genuinely unemployed after nine months;

• amalgamate the Commonwealth Employment Service and the Department of Social Security;

• devolve responsibility for administering employment and training programs from government agencies to Local Employment Boards with Department of Social Security

officials, State or local government training representatives and community and business sector representatives;

• create a steady flow of employment opportunities for the longer term unemployed by introducing AUSTRAIN - a special program which will

• allow people who have had nine months on JSA to opt to work for the benefit for a period of six months; and

provide a significant increase in the funds available to voluntary community based organisations for training.

4.16 First Home Owners Scheme

A Liberal/National Government will:

• provide an amount of $2,000 to first home buyers earning up to $40,000 per year household income, under the First Home Owners Scheme to assist in the purchase of both new and established dwellings;

* give superannuation funds permission to allow those under the age of 35 to have access up to 75 per cent of their accumulated vested superannuation benefit for the purpose of a

deposit or part deposit for their home. This will be required to be repaid over a term of 25 years.

4.17 Infrastructure Reform

A Liberal./NationaI Government will:

• reduce tariffs to negligible levels by the Year 2000 as part of our wide-ranging program of infrastructure reform in conjunction with moving to:

end the Waterside Workers' Federation monopoly on the waterfront, introduce enterprise agreements that will give

stevedoring companies the right to recruit and manage their own workforce, privatise port authorities and promote competition within

and between ports;

end the Australian monopoly on coastal shipping, move to terminate the Trans-Tasman Shipping Agreement and privatise the Australian National Line (ANL);

• abolish all fuel excise and remove taxes on business inputs, thus reducing land transport costs significantly and providing cost savings to regional and rural air travel;

• transfer responsibility for road funding and charging to the National Road Transport

Executive Summary 9

Commission with the Commonwealth to

retain responsibility for national highways;

• re-examine the tax rules applying to large, long-term infrastructure projects (e.g. the Very Fast Train);

• re-organise Australian National Railways on a strictly commercial basis and ensure that the National Rail Corporation achieves reductions in rail costs;

• accelerate the construction of the Third Runway at Sydney Airport and facilitate the development of the second international airport in Sydney;

• open the telecommunications market to full competition and commence the privatisation of Telecom;

• pursue an "open skies" policy by allowing Qantas and Air New Zealand to compete on the domestic market, allow interlining by international carriers on domestic routes, encourage international charters to operate to and from Australia, privatise the Federal Airports Corporation and ensure that terminal space is available on a competitive basis;

negotiate with the States to 'establish full inter-State trade in electricity through the establishment of a national power grid

(AUSELGRID);

review the tax system to ensure that implementing best environmental practice is not hindered by inflexible or outdated rules and interpretations.

We will undertake a significant program of privatisation including:

• Qantas; • Commonwealth Bank; • Australian Mining Industry Development Corporation;

• Snowy Mountains Engineering Corporation; • Australian National Line; • The Pipeline Authority;

• Commonwealth Serum Laboratories; • Australian and Overseas Telecommunications Corporation; • Federal Airports Corporation; • Medibank Private.

10 Executive Summary

1. AUSTRALIA AT RISK

This document constitutes the most important and far-reaching reform program by any Government or Opposition in Australia this century. It is based on nothing less than a new role for government and a determination to restore the values which once made Australia the world's most successful democratic nation.

Australia today is a nation at risk. The living standards of average Australians continue to fall. The opportunities for our young people continue to shrink. And our social structures, particularly the family, are under pressure from record unemployment and unprecedented insecurity. The servicing of our massive international debt makes us one of the most

financially vulnerable nations in the world.

Unless we do something to turn our situation around, we will become the first generation in Australian history to give our children a lower standard of living than our parents left us.

It's time for Australians to fight back. As a nation we can and must work our way out of our difficulties.

There is no quick fix. But we can stabilise our national debt, and then reduce it. We can have full employment once again, along with low interest rates and a rising standard of living. Families can once more feel that there is solid reason for hope and confidence in the future. We can have world class schools and universities and training systems that will prepare people for challenging and productive employment. Our science and technology can be equal to the world's best. We can successfully manage development and protection of the

environment to the satisfaction of the vast majority of Australians.

All these possibilities can be realised, but only if we have the courage to change.

The answer is in the hands of each and every Australian. National leadership can point the way, but the solution lies with individual Australians themselves.

Government can determine a strategy, clear away obstacles, and provide equal laws and fair opportunities for all. But Government must allow people to do what they do best. With incentives and economic freedom restored and their talents liberated, Australians can do the job.

« Fightback » ! - Its Your Australia 11

2. THE ROOTS OF NATIONAL DECLINE

At the time of Federation in 1901, we were, on a per capita basis, the richest country in the world. Now, we don't even make the first eleven.

The Depression of the 1890s with its bank failures and great strikes made a deep impact on those who founded our Federation. They were determined that the economic and social turmoil of that decade

would never again be inflicted on Australians. The leaders of the new Commonwealth saw the introduction of tariff protection and industrial arbitration, supplemented after the First World War by a wide range of rural subsidies as the best means

of ensuring Australia's economic prosperity and social harmony.

Tariff protection was meant to ensure that companies could afford to pay a "just" wage while industrial arbitration was meant to guarantee that they did so. But whether it was tariff protection,

industrial arbitration or even the White Australia policy, the fundamental directions laid down in those early years reinforced, rather than broke down, Australia's isolation from the rest of the world.

For many years, the Australian system of "protection all round" made us feel superior. We didn't know then what is glaringly apparent now: that it was inculcating a low productivity and inward-looking culture and steadily eroding the basis of our prosperity.

To some extent, therefore, the Hawke Government has been a prisoner of our history. Yet it has missed its chance to make history, to break the mould of Australia's sleepy industrial and commercial

culture. The Hawke Government cannot be blamed for its inheritance - but it can be blamed for not seriously tackling problems which have become blindingly obvious in the past decade.

By 1960, according to OECD figures for GNP per head of population, Australia had declined to fifth place behind the United States, Canada, Sweden and Luxembourg. Three decades later, we had been overtaken by Switzerland, Japan, Germany, Finland, Norway, Iceland, Denmark, Austria, France and Belgium falling to just 15th place amongst industrial countries.

The economic comparisons with our own region provide an even starker illustration of our economic decline.

Throughout the Asia Pacific region, real GDP growth from 1980 to 1990 averaged 8.6 per cent every year. The economies of Japan, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Thailand, China, Hong Kong and Taiwan on average

are two and quarter times larger than they were just 10 years ago. By contrast, Australia's GDP growth averaged just 3.5 per cent and we are only 40 per cent larger now than we were (and we have 16 per cent more people).

Between 1980 and 1990, while other regional countries' share of world output rose from 16.3 per cent to 22.5 per cent, Australia's share rose from 1.4 per cent to just 1.5 per cent.

As a trading nation, Australia's ranking (in terms of our share of exports) has fallen from 13th in 1961 to 19th in 1989. By contrast, South Korea's world export trade ranking has rocketed from 99th to 13th

over the same period. Moreover, although merchandise exports as a proportion of our total exports have increased, a sophisticated economy of our size should export roughly double our percentage of merchandise.

The comparisons with our economic competitors show that the relative position of the Australian economy is being eroded, that its competitiveness has declined and that its outlook for the future under current policies gives little hope of change.

We should not begrudge others their success which, after all, explains why our tourist destinations are attracting more visitors. But we need to look at our

own relative failures. We have never wanted to be a British farm. We have never wanted to be an American mine. We don't want to be a giant Japanese hotel. Our children, the children of the Lucky Country - those lucky enough to have jobs -

don't want to become a nation of bellhops and shoeshines. We want to be a diversified, dynamic economy with a shared sense of national identity.

We have always had the potential to do more but Australia's history, for the best part of a century, is a chronicle of missed chances.

The essence of our economic problem is that, compared to the rest of the world, we don't save enough and we don't produce enough. Since 1900, we have become considerably richer but other

countries have become much richer, much faster. We cannot measure our success by beating our own past performance; we need to beat the current

competition. And since 1983, while Australia has continued to grow richer, middle Australia has become poorer, not just relatively but absolutely.

Labor's Human Misery

While the rich have become more rich and the poor have become less poor, the living standards of those people on whom the future of this country depends,

12 « Fightback » ! - It's your Australia

10

8

6

4

2

—2

-4

-6

-8

Middle Australia, has been squeezed under the pressures of inflation, taxation and unemployment. • A single income couple with four children on twice average weekly earnings is more than six

per cent worse off.

Since 1983, PAYE employees, those whose interests Labor was formed to protect, have become much worse-off while the "capitalists" Labor used to despise have done well from interest, dividend and capital gains.

Since February 1983, real average weekly earnings have declined by nearly five per cent which constitutes a sustained fall in real wages unprecedented since the Great Depression. The Government's "social wage" is a codeword for bigger and more intrusive government substituted for cash in the pocket. Middle Australia is the real

loser of the Hawke Government's policies, as the following page charts show.

Department of Social Security research, which counts disposable income as average weekly earnings plus rebates and family allowances less tax

and the Medicare levy, presents a stark picture of how Middle Australia has suffered.

A single income couple with two children on average weekly earnings is nearly five per cent worse off over the life of the Hawke Government.

• A two income couple with two children on twice average weekly earnings is nearly three per cent worse off.

Those on $19,000 a year or less are generally better off, as are those on $150,000 a year or more. But most people earning between these extremes are significantly worse-off. There has been a massive redirection of income away from the great majority of the families of Australia.

The bottom line, after all the Government's rhetoric and "compassion", is that the real money in the pockets of the typical Australian family is now $20 a week less than under the Fraser Government.

The figures cited above do not take housing costs into account. The inclusion of housing costs reveals an even grimmer predicament.

In March 1983, a single income couple with two children under 13 on average weekly earnings had $264 a week disposable income. Home loan repayments then averaged $81 a week leaving $163

(or 62 per cent of after tax income) in the pockets of an average family.

In June 1991, the same family had $432 a week disposable income but home loan repayments averaged $217 a week. An average family - if it was still able to support an average home loan - had just $215 (or under 50 per cent of after tax income) in its

HAWKE'S WINNERS AND LOSERS

CHART 2.1A Real Disposable Income 1983-91

. Single Income Couple Two Children

per cent change

75% 100% 150% 200% 300% 400% 600%

per cent of AWE

Source:Harding & Landt: Dept Social Sec

« Fightback » ! -.It's your Australia 13

0

4

pocket after mortgage payments. After inflation, such a family is actually $65 a week or more than 20 per cent worse off.

In 1983, the average Australian home cost $62,000 which was four times average annual earnings. Today, the average home costs $139,000 which is 5.5 years' average earnings. The home loan

affordability index has leapt from 19.3 to 32.5 over the period which means that a combination of high prices and high interest rates has put buying a home beyond the reach of average wage earners.

In March 1983, a Holden Commodore cost $10,952 which was 37 weeks' average earnings. Today, a Commodore costs $23,592 which is 49 weeks' average earnings.

In 1984, when basic family private health cover cost $6.33 a week, the average family spent about $17 a week on health and education, or under five per cent of total income. Now that basic private insurance costs $15 a week, the average family spends more

than $33 a week on health and education, or nearly six per cent of total income.

For average Australians, the accepted ingredients of a secure life are slipping out of reach. For growing numbers of Australians, the essence of personal security, a job, has been plucked away.

How Labor's Policy has Failed -Unemployment

This financial disaster for Middle Australia is now compounded by the highest level of job insecurity for sixty years.

The official unemployment rate, currently over 10 per cent, masks an even greater problem of lack of work. The official figures, which regard as employed anyone who has worked for even one hour in the past month, hide the extent of under-employment in our society. Adding those who are working short time, plus those who cannot convert part-time into full-time work to those officially unemployed, shows that the total under-employment rate is nearly 16 per cent, as the chart over the page illustrates. In other words, nearly 1.5 million people cannot obtain the work they need.

Among our youth, our hope for a better future, unemployment now hovers at about 30 per cent. Unemployment is no longer something that happens "but there". It is the real experience of growing numbers of Australian families.

The latest statistics reveal that 226,000 are unemployed from families where no-one has a job, which is an increase of 41 per cent in 12 months; 193,000 Australian children live in homes where no-

one has a job, which is an increase of 40 per cent in 12 months; 566,000 people have now been

CHART 2.1B

Change In Real Disposable Income 1983-91 Double Income Household (split 60%-40%) - Two Children

per cent change

—2

—4

-6

—8

75% 100% 150% 200% 300% 400% 600%

per cent of AWE

source:Harding and Landt:Dept Social Sec

14 « Fightback » ! - Its your Australia

CHART UNEMPLOYMENT SETTING NEW RECORDS

2.2

UNEMPLOYMENT AND UNDEREMPLOYMENT

PER CENT OF WORKFORCE 18

16

14

12

10

4

2

6 6 6 6 6 6 6 6 6 6 6 6 6 6

I lb ib db d ih' iib db hb d

- UNEMPLOYMENT RATE UNDEREMPLOYMENT RATE - TOTAL RATE

NOT SEASONALLY ADJUSTED

unemployed for more than three months, which is an increase of 70 per cent in 12 months; and 219,000 have been unemployed for more than a year, which is an increase of 74 per cent in just 12 months. One year ago, the median duration of unemployment was

13 weeks. Now, it is 26 weeks.

No wonder that the latest Roy Morgan research shows that 28 per cent of Australians fear losing their job and 53 per cent fear not being able to find another one. Yet this is hardly the fault of laziness. The same survey showed that 76 per cent of

Australians would worker harder for the same pay and conditions, if only the Government would give them the opportunity.

The fact that unemployment is setting new records means that, in Labor's centenary year, Bob Hawke and his colleagues can hardly call themselves a Labor Government. Deputy Prime Minister Brian Howe's recent admission that there is now a class of "new poor" constitutes a stunning confession of failure.

None of this came about by accident or because of the actions of other countries. The current crisis is not the result of great forces beyond Government control. Australia's gravest economic crisis since

the Great Depression is essentially the result of a deliberate policy consistently pursued over the entire life of the Hawke Government.

For seven years, the Government pumped money into the economy which grew too fast for our productive capacity. Policy-induced demand exceeded production by a sizeable margin and spilled over into imports. The result has been a current account deficit averaging 4.8 per cent of GDP since 1983 compared to 2.5 per cent of GDP over the previous two decades, which basically means that for every $100 we've earned, we've spent $105 and borrowed the difference. Over eight years, this amounts to a cumulative borrowing of $57 but we still earn only $100 a year. Unless we dramatically increase our export performance the debt trap will rapidly consume us.

To finance these escalating deficits, Australia's gross foreign debt had exploded to a massive 61 per cent of GDP by 1989, which put us well ahead of the international debt champions, Brazil and Mexico, in

terms of total debt, per capita debt and even debt as a percentage of GDP. As a result, our credit rating with overseas agencies, our badge of financial integrity, has been down-graded twice.

This means that we must pay a risk premium on our overseas borrowings and our existing debt burden is even harder to service. If this process continues, the price of further access to borrowings will be International Monetary Fund dictation of Government fiscal and monetary policy. Foreign debt, in other words, threatens to take control of

Australia out of Australian hands.

« Fightback » ! - Its your Australia 15

In order to eliminate our $15 billion current account

deficit, just to keep our debt from growing further, we need additional exports equivalent to the exports of another entire mining industry, or five wool industries, or seven wheat industries.

Put another way, each one of the 1.6 million jobs created between March 1983 and the start of the current recession cost about $70,000 in new foreign debt. We are rapidly losing the jobs, but we still have the debt which our children and grandchildren will have to repay.

This is Labor's legacy - a host of unreal jobs which we could not afford and could not sustain, as the recession is now demonstrating. The unsustainably high price of those jobs guaranteed the inevitability,

sooner or later, of a severe slump, which is the recession we now endure.

All this means that Australia is now in the internationally recognised danger zone for debt servicing of about 25 per cent of export earnings and is close to the levels experienced in our worst economic crises. Moreover, our debt servicing

burden could balloon if the dollar declines to its long term competitive level.

Our household savings ratio, which averaged over 12 per cent throughout the 70s, has averaged just over seven per cent for the life of the Hawke Government (and has just fallen to 4.3 per cent which is the worst quarterly result since records were kept) - while credit growth often exceeded 20 per cent a year.

Company savings are now at their lowest level in over 25 years and public sector dissaving is increasing at an alarming level.

This helps to explain how our national investment exceeded national savings by a massive five per cent during the 1980s (compared with only two and a half per cent during the 1960s). But whereas we have the great mines of the Pilbara and the Bass Strait oil fields to show for our earlier overseas borrowings, the most tangible evidence of the 1980s spending spree is a nest of shiny but empty office towers.

We could not continue to live as we did during the 1980s. Labor's inflationary boom and speculative bubble had to burst.

Why Labor's Policy has Failed -The Accord

The Government's deal with the ACTU, the so-called Wages Accord, is at the heart of our structural problems and amounts to a virtual conspiracy against jobs.

Paying the same wage increase to everyone, regardless of workers' efforts and companies' profitability, is actually a grave injustice. Setting

wages high penalises the weak because it drives their companies out of business. But setting wages Iow penalises those who are getting on with the job because it prevents them from attaining their just reward.

Because unions have demanded, and received, wage rises that are quite unrelated to the performance of individual workers and the profitability of individual

enterprises, wage increases unmatched by productivity increases have led to even higher prices. The result is a low productivity/high

inflation spiral reminiscent of a Third World economy.

For most of its period in office, the Government has tolerated high rates of inflation because it has given workers the illusion of prosperity without the necessity for changes to work practices. Why would workers lift their game, if they were all to receive the same percentage wage increase regardless of collective productivity or individual effort?

As a result, Australia has been a consistent economic under-performer. Our growth has been erratic. Until the slump, our inflation has been unacceptably high. And our productivity performance has been generally poor.

TABLE 2.1 AUSTRALIA'S POOR PRODUCTIVITY

Labour productivity growth (% pa) 1983-90, selected countries

Japan 3.4

France 2.3

Italy 2.3

Germany 1.7

Canada 1.3

USA 1.2

UK 1.1

Australia 0.9

Source: OECD database

Throughout the decade Australian productivity growth has lagged well behind that of the Big Seven industrial countries which helps to explain why nearly every other major country has increased its relative wealth faster than Australia over the past decade.

The Accord is at the heart of our structural problems and has exacerbated our immediate macroeconomic difficulties. Wage increases consistently ahead of

productivity increases have kept inflation high and explain why a deep recession with mass unemployment has been the only way the Government could get inflation down.

The Accord was supposed to keep wage costs down to boost growth and jobs. It did restrain wage costs -but not as much as it undermined productivity growth. The result was unbalanced, unsustainable

growth leading to an inevitable crash. The Accord

16 « Fightback » ! - Its your Australia

has become a massive economic and political failure

because it has kept wages down yet, in the end, left us with very high unemployment.

cent, wholesale sales tax by 60 per cent and fuel excise by 189 per cent.

Because the Accord locked in high Government spending but locked out genuine microeconomic reform, Labor has been left with monetary policy, interest rates as its main tool of economic management - which even the ex Treasurer realised

was a blunt instrument.

Yet each trend shift in interest rates had unintended and dangerous consequences. In 1987, a rising dollar torpedoed Paul Keating's boasted "J curve" rise in exports. In 1988, easy money exposed our

structural problems and the limits to our balance-of-payments-crisis-free growth. In 1990, sustained record interest rates precipitated the recession the Government said we would never, ever have.

Each change in policy has been designed to solve yesterday's problem and has ended up creating tomorrow's mess. Meanwhile, Australia's predicament has gone from bad to worse.

Why Labor's Policy has Failed - Tax

The tax system is a key dimension of Australia's structural problem. Since 1983, even after inflation, the Federal Government's total tax take has increased by 34 per cent. Personal income tax has increased by 30 per cent, company tax by 74 per

TABLE 2.2 TAXABLE INDIVI DUALS IN 1989-90 Income Marginal Proportion of Cumulative

Tax Rate Taxpayers in proportion in

Bracket (a) Each Bracket Each Bracket

$0-$5400 0 0.6 .6

$ 5401 -$20000 20 48.5 49.10

$20001 - $36000 38 34.3 83.40

$36001 -$50000 46 11.6 95.00

$50001 + 47 5.0 10000

100.0

(Source: Income Tax Statis ti cs 1989-90 Income Year)

(a) the income tax brackets do not correspond exactly with the grades of taxable income provided in the statistics so the allocation is approximate.

In 1982/83, the marginal tax rate for a male on average weekly earnings was only 30 per cent. Now, with the Medicare Levy included, it is 39.25 per cent. More than half of all taxpayers face a marginal rate of 38 per cent or higher and nearly one fifth face a marginal tax rate of 46 per cent.

Moreover, the top marginal rate now applies to an income only 1.25 times average male earnings -compared to a multiple of 1.9 only two years ago, 2.8 in 1977, 8.4 in 1969 and almost 19 in 1950. If

the top rate still applied at 1950 levels, it would apply only to people earning over $475,000 a year!

CHART . AUSTRALIA'S DEBT CRISIS

2.3

AUSTRALIA'S NET EXTERNAL DEBT 1960-1991

(PERCENTAGE OF GROSS DOMESTJC PRODUCT)

Net debt % GDP 40

35

30

25

20

15

10

5

0 iiuv nnv ^uv nv niv nvt y ivvv cv nvvi nnv nvv nnv ivvv nvv ntiv K v ivivi kuq kyy n y t Oay Y 'I I Y 15111 kyy ntyy k V,V 'St ruyi 1960 1965 1970 1975 1960 1985 1990

OECD data

Fightbackl - It's your Australia 17

Of course, today's top rate of 47 per cent (plus 1.25

per cent Medicare Levy) is considerably lower than the 65 per cent rate of 1950. Nevertheless, the income tax paid by average weekly earners has risen

from eight per cent of total income in 1950, to 11 per cent in 1960, 19 per cent in 1971, and 23 per cent in 1982 to peak at about 26 per cent in 1988.

Access Economics estimates that bracket creep, the process whereby inflation pushes taxpayers into higher tax brackets and subjects the same real income to hidden extra tax, has reaped the Hawke

Government a cumulative tax windfall of $22 billion.

High marginal rates have discouraged work, saving and investment - and also increased the incentive to avoid tax. At the same time, increasing tax

complexity has increased the opportunity to avoid tax. The Hawke Government has added 18,000 pages to income tax rules which are difficult, if not impossible, even for experts to understand - which helps to explain why taxpayers have lodged more than 1.5 million objections to tax assessments over the life of the Hawke Government.

In addition, very favourable treatment for superannuation and lower rates of company tax have provided high income earners with plentiful opportunities to avoid tax. Under the Hawke Government, paying tax has still been only an option for the rich.

An internal Tax Office report suggests that claims for unsubstantiated tax deductions have soared since the introduction of self-assessment. Tax debts as large as $50,000 are not being pursued. In addition,

the report concludes, existing tax procedures "do not take account of the true tax avoider, the one we do not know about at all".

Assessing the size of the undeclared, or "black", economy is, almost by definition, trying to measure the immeasurable. However, estimates in the 1985 Tax White Paper are consistent with academic studies which put the black economy at 10 per cent of recorded GDP.

Hard evidence is likely to be only the tip of the black economy iceberg. In its 1990-91 Annual Report, the Reserve Bank noted a strong growth in demand for one hundred dollar and fifty dollar notes. Recent

testimony to the Building Industry Royal Commission in Sydney suggests that the black economy is rampant in that industry. In one case, union officials demanded that a $5000 payout to one worker be "worked through the books" to avoid tax. In another, a builder kept "bodgie" books to hide the fact that his labourers were getting $575 a week "in the hand" plus up to $150 cash-in-hand for Saturday work.

In addition, the Government has added greatly to the burden and complexity of wholesale sales tax, which now comprises aspects of more than 30 separate pieces of legislation.

Because the wholesale sales tax taxes business inputs it "cascades" through to goods .which are not formally subject to tax. For instance, of the existing consumption taxes, WST alone adds an estimated 7.4 per cent to housing costs, 3.3 per cent to food costs and 1.3 per cent to medical costs, even though it does not directly fall on any medical items.

Wholesale sales tax alone, which the Hawke Government has increased from about $3 billion to over $9 billion, amounts to a consumption tax of aboutfour per cent on the average family, which can

add up to $20 to their weekly shopping bill.

Government-imposed tariffs, quotas and bounties are another hidden consumption tax which, the Industry Commission says, added 3.8 per cent (or about $16 a week) to household expenditure in

1988-89. Existing tariffs on textiles, clothing and footwear, for instance, are the price equivalent of a 35 per cent consumption tax.

In March 1983, Federal petrol tax was just 9 cents a litre, which added just $3.50 to the average family's weekly fuel bill. Today petrol tax is 26 cents a litre, which adds over $10 to the average family's weekly fuel bill.

In total, the Government's existing consumption taxes - wholesale sales tax, tariffs and fuel excise -can cost the average family about $45 a week.

Everyone knows about income tax which is why Labor Governments must pretend to keep income tax levels down. But only the experts know about

the Government's existing hidden taxes which have provided this Government with the tax bonanza that has kept Big Brother alive and well.

Why Labor's Policy has Failed - Welfare

Ironically, high welfare spending is another important factor in our decline. Adjusted for inflation, welfare spending has risen by nearly four per cent every year throughout the life of the Hawke Government and is the fastest growing area of Budget outlays - up from 28 per cent of Federal

Government spending in 1982-83 to 34 per cent in the current Budget. Welfare spending now consumes $30 billion every year, with about $1 billion just to administer the welfare budget. In

other words, just administering welfare amounts to the cost of building a new Parliament House in Canberra every year.

Australians in work are now paying about $70 a month (or over $800 a year) just to support the army of jobless while total welfare payments are the

equivalent of about 80 per cent of total PAYE income tax receipts. In other words, an average wage earner is paying about $3500 a year to support other peoples' families before he can begin to

support his own.

18 « Fightback » ! - It's your Australia

Australians are living with the consequences of a

welfare explosion that began under the Whitlam Labor Government.

decisions and are now increasingly looking to Government for help whenever they are in trouble. And everyone tends to think that money really does grow on trees.

Since 1970, the number of Australians living primarily on government benefits (that is, age, supporting parent or invalid pension plus sickness, unemployment or special benefit) have risen from

one million to 2.7 million or from 8 to 16 per cent of total population.

Excluding family allowance beneficiaries, the percentage on welfare has risen from 19 per cent to 34 per cent of the workforce. In other words, in. 1970, 5 workers supported 1 welfare dependent. Today, 20 workers support 7 welfare dependents.

The fact that about one Australian in three receives some form of government benefit points not to the generosity of the system but to the fact that too many people receive welfare. This is unfair to the general community which is entitled to expect value from its welfare dollar. It is unfair to the genuinely needy who would otherwise gain more of the welfare budget. And it is unfair to those who should not be on welfare but who are encouraged to develop a culture of dependency.

By all the usual measures, more welfare has not meant a contented society. Divorce, suicide and crime have risen exponentially in the past two decades. Last year, Australians were two and a half

times more likely to pass through the divorce courts than in 1971. In particular, serious assault per capita has risen by 288 per cent since 1973. In the same period, robbery per capita has risen by 74 per cent, breaking and entering by 52 percent and fraud by 95 per cent.

Moreover, despite all the efforts to target welfare, the system can still be abused. The latest Auditor General's report claims, for instance, that Department of Social Security and Commonwealth Employment Service staff have not achieved planned savings by enforcing the work test for unemployment beneficiaries. It is this kind of failure which helps to breed the culture of

dependence which is so hard to break and so socially divisive.

The minimum award wage is a little over $300 a week. Yet an unemployed person, married with two secondary school age children, receives $329 a week in benefits. Higher wages for unskilled jobs would send even more of our companies broke and price more of our workforce out of a job.

Why Labor's Policy has Failed - Business

Australian attitudes to business constitute a cultural failure of alarming proportions. The Government regards business a milch cow - both for tax revenue and for wage deals. But Australian companies, for their part, let Government make too many of their

There are really two classes of Australian business. There are those twenty per cent of businesses which operate effectively on world markets, which are driven by the need to match best international practice and which have learned the hard way that nothing comes free. There are the other 80 per cent of businesses which operate predominantly in our domestic market; which are dominated by Government and union control, influence and direction; which are riddled by restrictive work practices; in which competition can be quite

artificial; and in which prices are often related more to union rules, government regulation and a raft of special interests, than individual business decisions in a competitive market.

The tragedy is that the eighty per cent is starting to choke the twenty per cent with massive cost disadvantages and inefficiencies.

Our world class farmers and miners can't get their products past the Waterside Workers' Federation. They have to pay award wages and loadings regardless of the state of their world markets and

they can't get overseas customers to pay a surcharge for the inefficiencies of our railways, telecommunications, waterfront and so on.

For the best part of a century, Australia's efficient exporters have been subsidising grossly inefficient domestic producers. We can no longer ride on the back of our sheep, our coal trucks and our iron ore transports because our overseas competitors have lifted their game while the Australian Government has dropped its game.

Three years ago, the annual World Competitiveness Report published by the World Economic Forum and the Lausanne Business School ranked Australia 10th out of 23 industrial countries as a place to do business. In the latest report we have slumped to

16th place.

In the past two years, this Government has added the superannuation tax and the training tax to otherwise record levels of tax and unprecedented union interference in the rights of management - as if business were an inexhaustible supply of funds for Government schemes and opportunity for union influence.

It has tied up development with green and black tape - as if Australia could afford to be absurdly fussy about the development it wants.

And it has inflicted on the private economy the recession only Government had to have. All this spells the jobs crisis that is the recession's most painful legacy.

« Fightback » ! - It's your Australia 19

The Government's sustained record real interest

rates constitute a massive burden on business. The Australian Manufacturing Council estimated last year that Australia's real cost of corporate debt averaged 6.5 per cent (compared to five per cent in the UK, 4.5 per cent in the USA and 3.5 per cent in Germany and Japan) - which is one reason why so

many Australian companies are choosing to invest overseas.

The Metal Trades Industry Association estimates that direct government imposts now consume 7.4 per cent of business operating expenses and amount to about 280 per cent of total business profits. Customs duty, payroll tax, wholesale sales tax and most of government's various petrol levies - in the first instance - fall directly on business.

Not surprisingly, investment is projected to fall in the current financial year to the lowest level since records were kept. Meanwhile, bankruptcies are setting new records - running at more than twice the rate of the 1983 recession and three times the rate of the 1961 recession.

Early in its term, the Government genuflected to market reality by allowing the Australian dollar to float and foreign banks to establish offices here. But for most of its term, the Government has inflicted on business a deal-based, mate-driven culture perfected in the smoky back rooms of NSW Labor politics. Vital business and investment decisions have been made on the basis of "mateship" and polling a few marginal seats in Sydney and Melbourne.

Senior members of the Government know that we can only justify higher living standards than our neighbours if we continue to produce more and of higher quality than our neighbours. Yet the Government has persistently shirked the reforms needed to boost productivity, retain our competitive edge and guarantee our prosperity.

In particular, the Accord has taken industrial relations out of the hands of management and into those of the ACTU and industrial bureaucrats. This substantial inability to manage their workforce is a

key explanation of - our firms' low labour productivity, the resultant reluctance to invest in manufacturing and the flight of some important business off-shore.

The Accord has prejudiced the outcome of some positive policies. The Government's tariff reforms have needlessly thrown people out of work because they have not been accompanied by greater labour market flexibility and the reform of public sector utilities. Hence, one of the few real achievements of

the past decade, is clouded in unnecessary controversy.

Labor has just cut tariffs. What we need are policies which integrate tariff reform with a much more flexible and productive domestic market. We can

continue to lose industries and shed jobs under Labor's policies. Or we can adopt a substantially new way of doing business.

Why Labor's Policy has Failed -Education and Training

Standards of education and training in Australia are another factor in our decline and loss of international competitiveness.

Education is a key indicator of a society's health and vigour. The money we invest in education and the care we lavish upon the next generation is really society's vote of confidence in itself and its future.

Education and training at international standards are essential if Australians are to have the knowledge and skills to survive in international competition. Raising the standards of Australian education and training is a national imperative for this decade.

In education, as elsewhere, Labor has tried to make the world fit its ideological preconceptions rather than the other way around. It has resisted any proper monitoring of standards preferring the rhetoric of the clever country to the reality. The reality is that this Government spends too little on the education and

training of young Australians, wastes too much of what it spends and allows teacher unions to dictate too much of what is taught.

The most recent comparative data shows that government spending in Australia on education and training is well behind that of major industrial countries (see Table 2.3).

TABLE 2.3

PUBLIC EXPENDITURE ON EDUCATION PER HEAD OF SCHOOL AND UNIVERSITY AGE POPULATION - SELECTED OECD COUNTRIES 1987

(US DOLLARS)

Canada 3798

Germany 3058

United States 2704

France 2472

Japan 2314

United Kingdom 2085

Italy 1886

Australia 1754

(Source: OECD)

As a nation we have been prepared to make a greater private commitment to education than other countries. While additional government spending

is, we believe, more than justified, the key point is to make sure that total education spending - public and private - is adequate to provide Australians with world class teaching and research.

20 « Fightback » ! - It's your Australia

Spending is by no means the only issue. Equally

important is making sure that our educational institutions are efficient and responsive to those whom they serve. There are serious structural issues to be addressed in Australian education. Industrial relations reform must be very much on the agenda and there should be an increasing emphasis on paying parents and students rather than institutions.

Australians are failing behind in the intellectual pre-requisites of an advanced nation. Over one million Australians lack sufficient literacy and numeracy to function in the workplace.

The "good" news, in science education at least, is that our students are as knowledgeable now as they were in 1970. The bad news is that the students of other countries have lifted their standards and we are

falling badly behind.

In training and skills development Australia is arguably at "the back of the pack" among industrial countries.

Except for Greece, Australia has the OECD's lowest proportion of students in vocational training (see Chart 2.4)

The Government's higher education "reforms" (which abolished the distinction between universities and colleges of advanced education) were driven by an academic version of the "tall poppy" syndrome and submerged the vast

differences between institutions in a false and arbitrary uniformity.

The result is that so many academics are heading for better paid jobs overseas - and academic life has become so unattractive - that Australia faces a shortage of up to 20,000 qualified academic staff by

the end of the decade.

Education has been a key victim of Labor's Accord with the ACTU. Confrontation and over-regulation damage all sections of society but are especially out of place in communities of scholars driven by the

desire to expand and impart knowledge.

The over-regulation of the universities has not only robbed institutions of their autonomy, but resulted in severe overcrowding. In 1991, for instance, 30,000

qualified students were shut out of the universities because the Government would not allow institutions to admit them.

Education has been a particular victim of Labor's levelling-down mentality and pre-occupation with equality of outcomes rather than opportunity. That form of elitism which always seeks further and tries harder should be at the very core of any educational institution. Instead, Labor's teacher union allies

continue to fight against external exams and skills testing while advocating fringe subjects based on ideological correctness.

CHART 2.4

PER CENT OF POST-COMPULSORY

STUDENTS IN VOCATIONAL PROGRAMS

100

80

60

40

20

0

OST GER SW] SE ITA DEN ERA NET NOR BEL FIN SPA UK IRE JAP TUR NZ USA AUS GRE

Source: OECD data

Fightbackl - It's your Australia 21

In education, as in so much else, Labor has exalted

the administrator and diminished the actual provider. A "Canberra-knows-best" mentality has flourished so that schools and universities waste vast energies assuring head office that everything is

happening by the book. Melbourne University, for instance, had to spend $100,000 to provide Canberra with a 9 kg "research profile" submission.

In education, more than in most other fields, Labor's Big Brother instinct has had full rein with a system of school funding which allows the Federal Minister, rather than interested parents, to set the

agenda for the establishment of new schools.

Conclusion

Over more than eight years, the Hawke Government has shown that its instinct is to protect the interests of government over people and bureaucracies over individuals. And by giving the trade union bosses a virtual veto over policy, the Hawke Government has

given up the quest for real social and economic reform.

The best way for people to have a better life is to build a dynamic economy where everyone who wants work can get a job and our resources are put to

their best use. And the only way to produce a sound economy is to tackle our underlying structural weakness - the low productivity wage culture, incentive-sapping tax structure and welfare

mentality which add up to a decreasing capacity to compete in the world.

Labor's real failure is that in eight years of government it has failed to address longstanding structural problems and instead it has created a range

of new ones. Without a change of direction, Australia faces the prospect of continued structural failure, more pressure on living standards, more dependence on government and more government spending on borrowed money - the very banana republic future Paul Keating predicted five years ago.

Having given us the recession "we had to have", Labor is incapable of giving us the reforms we need. Labor has turned its back on the only way out of our predicament. It won't make the reforms needed to restore incentive and increase national production,

such as reforms in the labour market, in taxation and in private sector incentives because the ACTU, its own factional power brokers and its favoured

interest groups just say "no".

Change is no longer an option. Australia will change. The only question is whether we make the changes now ourselves, or have outsiders sooner or later force them upon us much more painfully.

We can and must fight back!

22 « Fightback » ! - It's your Australia

3. INDIVIDUAL VALUES & NATIONAL GOALS

Shortly after the 1990 election, the Liberal and National Parties sought the views of Party members, community leaders and concerned citizens about what's right and what's wrong with our country and

what our future direction should be.

Australia 2000 - The People's Verdict

What emerged from that process, and in particular, from the Australian 2000 project, is that Australians are united on the need for change, divided on what that change should be and pessimistic about whether change will make much lasting improvement.

Australians know what they don't want. They don't like big government, big unions and big bureaucracy. They don't want falling living

standards and declining international standing. But our respondents differed on what particular changes are necessary.

Australians have faced depression and war without flinching and without losing faith in themselves. There is more to peoples' pessimism than our current economic crisis. Contemporary Australia, it seems, no longer believes that the "system" can give us what we need. Ordinary Australians are losing faith in themselves and in their country.

The great reform program contained in this document is our answer to Australia's problems. This is our response to those thousands of Australians who heard our call to tell us what

Australia needs.

The Liberal and National Parties believe that what really needs to change is the belief that Australia cannot change for the better. Our program is based on the fundamental belief that whatever is wrong

with the Australian economy and whatever can be improved in Australian society, there's nothing at all wrong with the Australian people.

Australia faces daunting problems. Our foreign debt, our army of jobless, the threats to our trade and other major problems can be overcome and will be overcome by the measures detailed in this reform

package. By far the biggest problem facing Australia, indeed the only problem which can bring us down, is the apparent lack of confidence which ordinary Australians now have in their capacity to

rebuild their country.

The reform program set out in this document is based on a simple proposition: Australians have all the ability and enterprise this country needs provided they are helped rather than hindered by the

action of government. Australian business - mostly small business - can certainly provide jobs as long as it is not undermined by ruinous interest rates, payroll tax, training tax, superannuation tax, industrial rorts

and endless paperwork.

The whole purpose of this great reform program is to give individual Australians the chance to fight back for a better life. It is then up• to each Australian to make the most of it. This reform program will put

Government in its place and put Australians back in control of their own lives.

Overcoming A Generation of Failure

In the 1960s the vast majority of Australians felt good about the "Lucky Country". Today, Australians' feelings about their country are much more complicated and ambivalent.

In part, this is due to deeper understanding of old problems. But in part, it is popular frustration at hopes that government has raised but not fulfilled.

Whitlam won office pretending that government could solve every problem - turn businessmen into philanthropists, doctors into welfare workers, bus drivers into public servants and suburban Australia into a Garden of Eden.

In the end, the enduring impact of the Whitlam era on Australian public life was not simply the economic shambles he bequeathed to his successors

but a stylish contempt for ordinary Australians. Who, after all, would try to do everything for people except someone who believed people were incapable of doing much for themselves?

The Fraser Government came to office facing an economy destabilised by an explosion of government spending, labour costs and regulations. It began the huge task of restoring stability, reining in government spending and reducing union power.

It set out a new agenda of rolling back big government.

Unlike Whitlam, Fraser managed responsibly. The economy was steadied but the task of developing the program that would address the fundamental reasons for the decline in the freedom of Australians to build

their own lives was just begun. The recognition of the immensity of the structural reforms required was in its early days. But a new agenda was set and the Hawke Government came to office promising smaller government and lower taxes. The reality proved to be very different.

Figbtback! - It's Your Australia 23

The Hawke Government stands squarely in the

Whitlam tradition of big, interfering and ineffective government. They both made government a major provider of people's incomes - Whitlam through "universal" health and `free" education; Hawke through the "social wage" and the "Accord". They both peddled myths about "free" health care and "free" education until reality closed in on them.

They both made grandiose promises they never kept (such as Whitlam's "Charter for Children" and Hawke's infamous "no child will live in poverty by 1990" pledge).. They both supported the amalgamation of trade unions to give them added industrial and financial muscle. They both dabbled in social engineering through increasing dependence of people on government welfare and programs.

Yet Australians remain remarkably sceptical of government and much more ready to trust themselves than their governments. Our problems

mean that our leaders must re-dedicate themselves to the values Australians have in common. Essentially, this means abandoning the habit of looking to government to solve all our problems. In many

cases, it means restoring to people the independence they have lost to social engineers.

The first priority is creating the conditions where everyone who wants work can obtain a job. On this subject, the differences between Labor and the Liberal/National Coalition go to the very heart of what is fair, equitable and compassionate in policy making.

For us, equity means giving everyone the right to pursue their own goals in life without being penalised and brought back to the lowest common denominator if they succeed. For Labor, equity

means promoting government as the first, not the last, resort and concentrating more on redistributing wealth than creating it.

For us, equity means fairness between all sectors of the community, rural and metropolitan, rich and poor, young and old. For us, compassion means a job for everyone who wants one, providing

incentives to self-respect through work rather than government welfare and giving appropriate assistance to those in greatest need.

For Labor, compassion means compensating individuals for the opportunities that Labor never gave them.

Liberalism in Australia has always stood for pride in our achievements as a people, and for the values of personal responsibility, reward for effort and the rejection of mediocrity.

We believe that strong government, but not big government, can best achieve this goal. We believe that the community has a responsibility to help those

in need who cannot help themselves. But we do not believe that we must help those who choose not to help themselves.

The achievement of the Menzies Government was that, unlike the Whitlam and Hawke Governments, it made so much of its vision a reality. It made the dreams of many Australians come true.

Australia today is a very different country and the foundations of prosperity have been badly damaged. The policies needed to restore those foundations are not the same as those of Sir Robert Menzies' day, but the objectives and the values on which they are based are the same.

Building A Constituency For Change

Since the 1990 Federal . Election, the Liberal and National Parties have been building a constituency for fundamental change in Australia. We have pointed to Labor's inability to address the underlying causes of our current problems, defined a new role for government, highlighted the areas

where reform is necessary, and developed a strategy for stable growth built on greater freedom and incentives for individuals and businesses.

We are determined to give Australians something to believe in, something to hope for - a vision of what our country can be, based on a clear view of what we stand for and the values in which we believe.

We want to help build a country with an economy that can compete with the best in the world. We want young couples to own their own homes and to raise their families in a country of expanding opportunities. We want farmers to be able to keep the land which they and their families have worked so hard to develop. We want those in business to be able to turn their ideas into reality and to be rewarded for doing so. We want tradespeople and professionals to be able to reap the rewards of their skill. And we want our young people - as well as those returning to education - to know that their skills are equal to the best in the world.

We want government to help all Australians to realise their destiny, and not to stand in their way.

But desire and hope will not make all this happen. Significant changes in public policy and community attitudes will be required. Those changes are not threats to the goals and aspirations of individual Australians but the necessary means of achieving them.

The Australian community needs to demonstrate the drive, enthusiasm and innovation to make the most of the new incentives to work hard, save and invest. It will only do so if it is confident that everyone can

24 « Fightback » ! - It's Your Australia

share in the benefits of change and that all will pull

their weight in the processes of reform.

Achieving an effective constituency for change requires more than honesty and realism from political parties. Average Australians must regain their confidence that politicians and bureaucrats

understand their hopes and fears, identify with their goals and aspirations, and appreciate (as well as share) our current difficulties.

Australians know that "Canberra" is too divorced from reality and too protected from the problems which economic mismanagement has created. This has to change. And our program of reform makes

specific proposals to help bring about that change.

Australia Can Do It

As much as a fundamental change in policy direction, Australia needs a change of attitudes.

Governments can never substitute for individual achievements. The Coalition's commitment to individual choice, private enterprise and economic

growth is one that derives not from ideology but from practical results. Our own history testifies, and the collapse of socialism everywhere confirms, that

economic growth based on individual private enterprise is the best way to generate a dynamic economy, to maximise freedom and to enable society to care properly for those in real need.

Private enterprise is a means to an end and not an end in itself. It is the means to achieving both a more just and a more prosperous. society. It is the means of achieving a fairer and more genuinely compassionate society.

Given an equal shot at independence, Australians have shown what they can achieve, at the same time promoting human values and an improved life for all.

The story of Australia has been the story of an and continent becoming one of the world's great breadbaskets, feeding millions in other Iands. The story of mining in Australia is of dedicated pioneers

defying odds and expectations to build a world-beating industry. The best stories of sporting Australia are of shy heroes who haven't let fame go

to their heads.

The greatest assets which our country has are the values which have been passed down by generations of Australians who came to this land seeking freedom, opportunities and self-respect for themselves and their families. These are not the values of some historic past. They are values of

enduring importance to all Australians, and the task of government is to make sure that they can be given full play.

Above all else, the program put forward in this document is aimed at giving Australians the chance to show what they can do when the official, the regulator and the taxman get off their backs, and when they are once more guaranteed rewards for their achievements and opportunities for the taking.

It is a program based on trust and regard for the individuals and the families, the farms and the businesses, the teachers and the scientists, who hold the destiny of this great country in their hands.

« Fightback » ! - It's Your Australia 25

4. FRAMEWORK FOR CERTAINTY:

A NEW ROLE FOR GOVERNMENT

The Liberal and National Parties propose government which is less costly but more effective, smaller but stronger, less intrusive but which enforces clear, general laws fairly and equally applied. We propose a government which offers leadership but does not dictate.

Essentially, the role of government must be to provide a framework of policy and law within which people can plan with confidence. Government should set the framework . for action but not determine the content of action which should, so far as possible, be left to individuals. The failure of

government to provide such a satisfactory framework has been a central cause of AustraIia's recent decline.

The Liberal and National Parties propose to bring about an historic redefinition of the role of government in Australia, so that, in relation to each other, people and government know exactly where

they stand.

There is also an important wider purpose.

Australia is increasingly part of the wider world of trade and finance. The challenge for modern governments is to make their societies and economies attractive to the people, capital and technology which can easily find another base. The task is to give these mobile "factors of production" a secure home by offering them competitive rates of return and good potential for productivity growth.

The most effective way for governments to meet that challenge in the 1990s is to create a predictable and orderly environment which will best enable individuals, families and businesses to achieve their values and plan for the future with certainty and confidence.

Government and Freedom

Throughout our reform program we emphasise the tremendous benefits to Australia of expanding individual freedom and reducing unnecessary interference from government. But it is not just

unwise government intervention that we aim to reduce.

Over this century various powerful interests - private companies, government authorities, trade unions, and, increasingly, powerful lobby groups - have

trampled the freedom of the average citizen. Notwithstanding attempts to justify these intrusions in terms of the public interest, they have mostly been at the expense of the majority of people.

The powerful have extracted benefits and privileges for themselves: special protection and regulations, generous subsidies, compulsory memberships. The

costs have been higher prices and higher taxes, lower economic growth, less innovation, and declining international competitiveness.

Economic freedom has as its centrepiece people's right to buy and sell, invest, improve property, and freely contract with one another, without needing permission from government. Free markets work because individual people, co-operating peacefully

and voluntarily through markets, can achieve much that politicians and bureaucrats cannot achieve using compulsion and direction.

The most important benefit of terminating unjustified interference with people's freedom is that everyone is able to make full use of their own knowledge and experience without being hamstrung by some rule put there by government to give a mate

a special privilege. People can make decisions on the merits of the case. Motivation is higher and opportunities immensely greater.

In a freer Australia, the power of individual people to achieve what they want in life will be extended, and the threats to the public interest from concentrations of monopoly and union power greatly reduced. A much sounder foundation for a democratic Australia will have been set in place.

This expansion of freedom will be the absolute heart of the reform agenda of the Hewson Government. It is the most important advance which can be made to achieving government based on the public interest.

Our emphasis on the importance of reducing regulation and taxation does not mean a "laissez faire" approach. Markets need a clear framework of rules within which to operate properly. Governments must promote competition, ensure fair dealing between people, resolve conflicts and protect the weak against exploitation.

The Limits of Markets

Freer markets can achieve a great deal, but they cannot achieve everything. The Liberal and National reform program is not based on a blind faith in markets. Markets are simply one of the means

available to society to achieve a better life.

Successful nations are those which strike a proper balance between economic freedom, wise laws, private morality and ethics.

26 « Fightback » ! - It's Your Australia

The Liberal and National Parties' program is based

on a clear recognition of the limits of markets, as well as their capacities.

.Sometimes "free" dealings between people can harm the interests of third parties - by polluting rivers or the air, destroying the amenity of neighbourhoods. If so, government must be ready to

intervene to protect the wider community.

There are some goods and services which people working individually through free markets may not provide, because once provided, they become everyone's property. Apart from defence, and a legal framework, aspects of basic research, clean

air and water are examples. Government has a role in ensuring that these "public goods" are available.

• There are some goods and services which confer such benefits on everyone that government action may be necessary to ensure they are provided at an optimal level. Aspects of education and

training services are of this kind.

There are some goods and services which are so complex - or whose full character is "hidden" -that consumers have great difficulty in assessing whether they are being satisfactorily provided or not. Many products and aspects of medical services have this character. Government must ensure that consumers are protected.

In many cases these limitations of markets have been used to justify excessive government intervention. But the limits, nevertheless, exist and

must not be ignored.

Beyond these limits, the ability of people to participate in markets is affected by their income levels. In Australia problems of poverty mainly result from health or family crises or fluctuations in

the wider economy. Government must make sure that there is a safety net which protects people in these conditions and which gives them full opportunities to regain their independence and control over their own lives.

Finally, there are those who see some advantage in shielding themselves from the pressure of the market to "lift their game". Some put great effort into stopping competition and extracting, invariably from government, monopolistic privileges at the expense of the rights of others. Government must ensure that monopolists are not allowed to claim privileges and must protect the rights of everyone to freely compete in the market place under laws that

apply to the powerful as much as the weak.

The Liberal and National Parties reform program fully takes these matters into account. This is more than a program to restore people's rightful economic

freedom. It is a program for positive and soundly based government.

Community

There is a further dimension of the freedom we are determined to restore to Australians. Beyond the commercial marketplace, there is a whole sphere of private life where relations between people are based on affection, altruism and voluntary association. It is here - in the families, churches, clubs and local activities of Australians - that the foundations of community are laid down. It is here that the real networks of mutual support, of welfare and

sustenance, exist.

One of the many fallacies of socialism - shared by the promoters of big government - has been that politics, power and government are the heart of "community". The greatest threat to a strong sense

of community in Australia today is the attempt by the social engineers and powerful interests to impose their view of the world by laws, taxation and decisions taken far away from the real life of people in their local communities.

Our emphasis on free markets does not suggest or imply that the most important relations between people are commercial ones. A decent society must be based on a strong sense of fair and ethical dealing and a commitment to the interests of the community beyond the marketplace.

Moral community and economic freedom, nevertheless, are closely related to each other. Properly functioning markets are a by-product of an ethical community. Because markets are based on voluntary co-operation and decentralised decision-making, they also create the only conditions in

which a moral community can emerge and be sustained. The collapse of the socialist states of Eastern Europe and the Soviet Union in a welter of corruption and exploitation shows the truth of the saying that power corrupts, and absolute power corrupts absolutely. Economic freedom does not guarantee morality, but it fosters it and - for its full benefits to be achieved - requires it. The wiser the framework government provides for economic life, the closer the harmony between a liberal economy and a moral community.

In the late nineteenth century a compelling vision was articulated for Australia that this great southern continent could be the home of the most decent, humane and equal society the world had ever seen.

Our message is a simple one. An Australia where people have the freedom to pursue what is important to them will not only be more productive and internationally competitive. It will also be an

Australia which has the best possible chance of reclaiming the grand vision of our founders - an equal and democratic state without parallel in the world.

« Fightback » ! - It's Your Australia 27

The Limits of Government

Government which tries to correct every social ill invariably creates more problems than it solves. The more governments replace wide freedom within clear rules with a raft of specific regulation designed

to keep everyone happy, the closer they come to dictatorship.

The Hawke Government's ad hoc, deal-driven policy interventions have meant that, in many areas of national life, no-one really knows what they can

and cannot do.

The Government has . made numerous capricious decisions - on media ownership, environmental rules, foreign takeovers and tax administration -only to change them just as , arbitrarily. It has allowed the usual rules of market liability to become a political lottery. It bailed out Kodak but not other failing businesses. It guaranteed woolgrowers that

their price support scheme would remain, only later to renege on that commitment.

The Government continues to tolerate rigged markets in domestic air and rail transport, trans-Tasman° shipping, telecommunications, power and water utilities and, above all, in the provision of

personal labour - which ensure that decisions are made on the basis of political clout.

Under Labor, government fails to treat different citizens and different sections of the community equally. When the Hawke Government has to choose between some of its favourites and the

interests of all Australians, it always prefers its mates.

Throughout the term of the Hawke Government, favoured lobby groups - most notably the ACTU -have exercised a blocking veto on the most vital reforms, that is, those designed to achieve job

flexibility, business efficiency and,. of course, fundamental tax reforms of the kind spelt out in this package.

Labor has extended "government-by-deal" to the operation of many of our national institutions.

Labor compromised the independence of the Reserve Bank in 1989 when it engineered a change in Bank rules to keep housing interest rates down when its policies had failed to do so. On other

occasions it has manipulated interest rates for blatant political ends.

The Government has bullied, denigrated or ignored the Industrial Relations Commission whenever its decisions have diverged from the Government "line".

In an extraordinary display of arrogance, Labor ignored a ruling by the High Court (on MPs' postage) which it found inconvenient.

Labor has even resorted to subverting the constitutional Monarchy - not on the basis of any considered reflection - but as a cynical exercise timed to distract attention from the deep policy and leadership divisions within its own ranks.

Under Labor, government has become increasingly out of touch with the needs and aspirations of the people whom it is supposed to serve. Politicians and officials have become too cocooned in Canberra. The Public Service has become increasingly in need

of infusions of outside talent. And there are now important benefits to be gained from decentralising some key policy advisory areas out of Canberra.

The role of , government under Labor expresses the traditional collectivist belief that Big Brother knows best. Whether the decision involves the ACTU, the Green movement, or Labor's own factions, it's the views of the leaders which count and not those of the rank and file.

Labor's compulsory training levies, compulsory superannuation, compulsory arbitration, compulsory Accords and a refusal to act against compulsory unionism exemplify a philosophy of government whichcontinually resorts to coercion and compulsion in order to achieve its aims.

Forced amalgamations and attempts to administer the universities centrally have damaged the quality of education. Decisions taken in consultation with unions and Labor factions but not medical providers

and consumers, have damaged health policy.

Yet every compulsion undermines motivation and distorts decisions. All compulsion strikes at the roots of growth and prosperity.

No democratic government should lightly resort to coercion. The Liberal and National Parties believe that compulsion is justified only to ensure an

equitable sharing of contributions to community well-being (as in the taxation laws or aspects of health policy), or to protect those members of the

community who cannot look after themselves (as in compulsory schooling). But compulsion is always very costly. It should always be a last, rather than a first, resort and should never become simply a means of achieving political objectives.

The Framework

The primary role of government must be strategic -and not focussed on the distribution of benefits and privileges to its friends. The main task of government is to provide a framework of law within which people can plan their own lives in freedom

and with confidence.

The framework Australia requires, and to which the Liberal and National Parties are committed, is one which promotes prosperity and full employment - a framework which provides:

28 « Fightback » ! - It's Your Australia

• low inflation and sound money;

• clearly defined private property rights that preclude sudden and arbitrary changes in ownership rules or environmental requirements;

• fair dealing in open and competitive markets as well as the acceptance of liability by market participants;

• equality before the law;

• freedom of contract;

• exposure of monopolies to competition;

• protection for the community, especially its weaker members;

• and promotion of the public good by cultivating individual excellence.

The taxation laws are a key element of such a framework. Tax laws work best when they treat all people and all activities equally. In setting the tax

rules, government must aim to be neutral between the different objectives which individuals, families and businesses pursue - provided those objectives conform to the general law of the land.

Public policy may distinguish between activities which are equally legal (for instance, it may seek to discourage smoking or to encourage saving), but we have sought to minimise distortions to maximise efficiency.

The framework set out in this document is designed to harmonise the private and voluntary activities of individuals, families and businesses with the public interest and to promote personal independence and self-reliance.

It is a framework for a society based on equal opportunity for all, not privilege for the influential few. It is a framework within which those who "lift their game" will be rewarded. And it is a framework

for an ethical political system and an ethical society in which government's only bias is towards the public interest.

Fightbackl - It's Your Australia 29

5. THE CHALLENGE

The economic challenge for Australia in the 1990s is to achieve stable growth and expanding job opportunities without rising inflation, and to start to repay our huge foreign debt.

Over the next decade, about 1.4 million people will enter the Australian workforce. If these additional people are to be employed and if we are to make substantial reductions in the current levels of

unemployment, nearly two million jobs will need to be generated over the next ten years.

Three scenarios showing the effects of three different economic programs illustrate what must be done to make a sustained attack on unemployment.

The first scenario (Base Case) shows the impact of "crisis" policies that attempt to protect real wages. The second (Low Road) shows the effects of following policies which deliberately cause a

decline in real wages. The third scenario (High Road) shows the effects of a program of reform such as that outlined in this document.

These scenarios have been prepared using the Access Economics Murphy model of the Australian economy (and are fully detailed in the Supplementary Papers). This model is the result of a

decade of research at the Treasury, the Office of the Economic Planning Advisory Council, and the Australian National University.

The "Do Nothing But Protect Real Wages" (Base Case) scenario graphically illustrates the illusion of paying ourselves money we have not earned. Trying to maintain real wages without lifting our productivity game:

• doesn't work: real wages fall anyway;

• is unfair: the unemployment rate by the end of the decade is higher, a 8.5%;

• produces poor productivity and business investment; and

• accelerates the increase in our foreign debt.

The "Do Nothing" (Low Road) scenario, based essentially on a steady as she goes policy program, generates:

• mediocre productivity growth and low business investment;

• further increases in foreign debt; and

• low real wages and an unemployment rate still at 7% by the year 2000.

It is clear from these scenarios that limited changes of policy will not do the job. Moving back towards full employment requires sustained economic growth. This in turn requires higher productivity

and making room for private investment by cutting back on the public sector.

The third "High Road" scenario assumes the implementation of microeconomic, Iabour market and taxation reforms. These reforms will raise labour productivity compared with the "Low Road"

scenario. Lower government spending allows lower income taxes, reduces government borrowing, and induces a more competitive exchange rate.

These reforms encourage exports and stabilise debt. Most important, they lead to the creation of around two million soundly based jobs - enough to halve the rate of unemployment by the end of the decade. The

scenario projects unemployment falling to 5.2 per cent by the year 2000.

This analysis shows that the stakes are high. Current economic policies are not on track. Lifting Australia out of the disastrous position into which it has fallen

requires a comprehensive program of reform and change. Only such a program provides the certainty of growth and jobs.

If Australia is to escape from the boom/bust cycles of the past, and if there is to be a sustainable and lasting recovery with job growth through the 1990s, the challenges that need to be met are clear. We must:

think strategically as a nation and develop a shared sense of national purpose;

make full employment and price stability priorities for policy making;

develop our industrial structure in a way which exploits the enormous potential to add value to our traditional agricultural and mining commodities, which develops other "brain-

based" manufactures and which makes the most of the emerging opportunities in areas such as finance, tourism, medicine and legal services;

• increase the international competitiveness of our economy - thus creating jobs;

• improve our productivity;

• rebuild business, particularly small business;

30 Fightbackd - It's Your Australia

4

4

3

• achieve higher levels of productive investment in our export and import competing industries;

• increase our national savings; and

• encourage individual initiative and private business rather than big government and central control.

In short, our challenge is to become a much more productive, dynamic and competitive economy so that we can trade our way out of Labor's debt trap. We need a considerable period where we produce more than we consume and where we develop a genuine export culture.

The scale of this challenge is considerable - as the following chart shows. We need to achieve a shift of 3.75 per cent of GDP into net exports over a

sustained four year period just to stabilise the growth in our foreign debt by the mid-1990s.

The fact that Australia has not achieved a shift of this magnitude over the past 25 years, Iet alone sustained a shift, demonstrates the size of the task. It can occur - but only if improvements in competitiveness, productivity, investment, savings and private sector growth are achieved

The World Economic Forum, in conjunction with the Lausanne Business School, publishes a detailed annual "World Competitiveness Report" which examines different aspects of 23 industrialised

countries' competitiveness. This report emphasises the attractiveness of these countries to investors

According to the latest data in 1989 Australia finished 10th, in 1990 we were 13th and, in 1991, 16th out of 23. At this rate of decline, we will be last in two years time.

Our competitiveness is declining, depressing investment and job prospects in Australia.

We have tended to create obstacles for ourselves despite our rich natural endowments, our mineral resources, our laud and our educated workforce.

The obstacles confronting Australian firms and individuals are the result of poor attitudes and practices encouraged by a myriad of home-grown and man-made arrangements which have built up

over decades.

Australia's Debt Hurdle

THE DEBT HURDLE WHAT WE HAVE DONE BEFORE AND WHAT WE NEED rI'0 DO NOW

a sustained contribuLion of :I.5 % of GT)P is roquired wb,t — Lire Le -obieve is rut4,.

0

'-•` ►b.L b •chirvrh in thr p..L r^^__^^^r^

2

I

-2

up i wFutui -i l ! 1 1}^' a }as h , ! ! +.'' ^ ^'.i^-i- t - {.. a^i_:^ l t.{ ' ^ ^[aia_}^^ 0

70 73 83 t) k

Q1.. A RT ERS

-'-^" Net Exports — Required Hurdle

FIVE YEAR MOVING AVERAGE

Figbtback! - It's Your Australia 31

In his study "The Competitive Advantage of

Nations", Michael Porter stated that:

"A nation's companies must relentlessly improve productivity in existing industries by raising product quality, adding desirable features, improving product technology, or boosting production efficiency. They must develop the

necessary capabilities to compete in more and more sophisticated industry segments, where productivity is generally high. They must finally develop the capability to compete in entirely new,

sophisticated industries."

This statement sums up the challenge facing Australian firms in the 1990s.

There is much scope for Australian firms to add more value to their output by processing raw materials that would otherwise be exported in bulk and by producing more sophisticated manufactures.

In its 1988 study "Raw Material Processing: its contribution to structural adjustment", the Economic Planning and Advisory Council found that:

"Australia has a number of advantages as a location for early-stage processing of many raw materials. In most cases the underlying factors are some combination of proximity to natural

resources and savings in international freight, relatively low energy costs, relatively low labour costs, well-developed infrastructure and stable political conditions."

The study identified scope for further processing of raw materials (and value added) in forest products, wood processing, meat and livestock processing, steel, ferro-alloys, aluminium and mineral sands.

But, at the same time, EPAC concluded that domestic factors impeded the further expansion of raw materials processing, including unnecessary cost penalties on transport, construction, tariffs and fuel excise. It also found that large, long term investments may be threatened by excessive uncertainty about future environmental policies.

Since the study was published in 1988, the Hawke Government has completely shaken any confidence of prospective investors in Australia with its decisions to halt the Wesley Vale pulp mill, prohibit

the mining of Coronation Hill and its repeated postponement of the construction of the third runway at Sydney airport.

In fact you have to think long and hard to identify the last major project that got off the ground in Australia.

Although the 1990 Pappas Carter Evans and Koop report on Australian manufacturing, "The Global Challenge", found that Australia generally lacked sophisticated manufacturers and "strategic

exporters" and was hampered by "the prevalence of entrenched bad practice", it also concluded that there is significant scope for Australia to expand its exports of services particularly in communications,

transport, education, tourism, medicine and finance.

Australia must respond to this challenge to increase the value added of our exports, to transform the structure of our manufacturing base towards the production of more sophisticated, differentiated,

brain-based products and to capture the export potential of our service sector.

Studies by the Industry Commission (IC) and the Business Council of Australia (BCA) indicate that the policies advocated by the Liberal and National Parties could boost GDP, once the structural

adjustments have been achieved, by at least 15 per cent. In other words, GDP could be permanently increased by at least $60 billion.

Some estimates of relevant policy changes and their effects are listed in Table 4.1.

The Liberal and National Parties' tax reforms will add to the long-term benefits of these micro-economic reforms.

For example, the Centre of Policy Studies has estimated that the replacement of the wholesale sales tax with a broadly based goods and services tax would increase GDP by between 0.5 and 1 per cent

in the short-term. Moreover, Chapman and Vincent estimate that the abolition of payroll tax will yield GDP increases of between 1.4 and 1.8 per cent in the short-term. Finally, Industries Assistance

Commission (1986) estimates suggest that the abolition of petroleum excise could increase GDP (in the short term) by a minimum of 1 per cent.

Clearly, a reform program along the lines advocated by the Liberal and National Parties promises an enormous increase in output and jobs.

In fact, Australia can do even better - under the LiberaijNational reform program -than the Industry Commission estimates. For example, the IC does not include the further efficiency gains to be

achieved from the privatisation of Telecom in a competitive environment.

Improvements of the magnitude indicated will create a dynamic and expanding economy that offers reward, incentive and security for all Australians.

Although many of the benefits are long term, and involve short term adjustments, we must not shirk from implementing the Coalition's entire program immediately. Delay will cost us exports, investment

and jobs.

The opportunities are there. But to benefit fully from these changes to workplace structures we need to make better use of our human potential. At every level of the education and training system, we need

32 « Fightback » ! - It's Your Australia

Table 4.1

REFORM GDP INCREASE MEASURES INVOLVED

Domestic water transport Reduction in domestic water

(IC) (a) 0.4 transport costs by 20 per cent

through the opening up of coastal shipping to foreign competition, significant

improvements in work practices on the waterfront, cheaper port services and reduced delays

Bulk commodity handling 20 per cent reduction in farm

(IC) 0.6 to wharf transport from

removal of monopoly carriage rates

International shipping (IC) Freight reductions of 20 per

0.2 cent (non-bulk) and 50 per

cent (bulk) across the Tasman and a cost savings of 15 per cent on other routes

Rail transport (IC) 1.5 Cost savings to reduce rail

deficits and full cost recovery in freight and passenger rail

Domestic aviation 0.1 10 per cent improvement in

(IC) (b) labour and capital

productivity

International aviation (IC) 20 per cent reduction in

(b) 0.2 international airfares from

deregulation

Road transport (IC) 0.5 Cost recovery in each vehicle

class and a 10 per cent productivity improvement in road construction and maintenance

Post and telecommunications Reduction in Telecom and

(IC) (c) 0.5 Australia Post unit labour and

capital requirements of 20 per cent and an increased rate of return for Australia Post

« Fightback » ! - It's Your Australia 33

REFORM

GDP INCREASE MEASURES INVOLVED

Electricity supply (IC) 0.4 Full cost recovery, the

removal of excess reserve plant margins and improved work practices

Rural and manufacturing Elimination of tariff, quota

assistance (IC) 1.1 and bounty assistance

Water services (IC) 0.3 Contracting out and better

asset management, reducing water service costs by 15 per cent

Contracting out (IC) 1.0 Reductions in the costs of

certain government services by 20 per cent

Labour market reform (BCA) An increase of about

5.68 25 per cent in labour

productivity (achievement of best international practice)

Capital productivity (BCA) Achievement of best

0.55 international practice in

capital productivity

(a) The full privatisation of Australian National Line will reduce costs and, hence, the increase in GDP would be greater

(b) The full privatisation of Qantas, Australian Airlines and the Federal Airports Corporation would increase significantly the gains in GDP

(c) The privatisation of a large proportion of Telecom in the Coalition's first term will result in substantially higher efficiency and, hence, GDP gains

34 « Fightback » ! - It's Your Australia

to make better use of our human potential. At every

level of our education and training system, we need to stir the often dormant abilities of our people by promoting excellence, competition, intellectual curiosity and industrial creativity. This is why a massive boost to education - particularly science education and training - is a key part of the Liberal/ National reform program. Our education reforms will enable Australians to take full advantage of the reformed economic structures we will create. We are

determined in this way to help industry to seize all the opportunities which are there for the taking.

For too long, many of our failings have been conveniently blamed on the small size of our domestic market and the lack of economies of scale for our industries. Such thinking neglects the reality of the huge, expanding and dynamic markets on our doorstep in the Asia-Pacific region.

If you think small, you will be smallf

The Asia-Pacific region offers the greatest growth prospects in the world and the greatest opportunities for Australian exporters. In forty years time, the Asia-Pacific market will be more than twice the size of the American and European markets combined.

Making Australia a major economic and political player in the Asia-Pacific region by the Year 2000 is the Liberal and National Parties' strategic goal.

Australia should set its sights realistically high. We should be a major processor of raw materials. We should be specialists in sophisticated manufactures. We should aim, by the year 2000, to be the most

important financial centre in the Asia-Pacific region after Tokyo. We should be the major provider of health services to the region. We should be a regional centre for legal services. We could be the region's main tourist destination. We should be the region's centre for educational services.

We should be all these things and more given courage, consistency and hard-headed strategic thinking in government policy-making and given a change in community attitudes, particularly as they relate to our export culture.

This is why the Liberal and National Parties believe that major change is both necessary and desirable. We are not pursuing change for its own sake. But we are simply not prepared to stand by while Australia's great opportunities are squandered by mismanagement and misplaced complacency.

Fightbackl - It's Your Australia 35

6. MEETING THE CHALLENGE -

AN INTEGRATED

STRATEGY FOR JOBS AND GROWTH

The reform program which the Liberal and National Parties propose is designed to solve Australia's debt and unemployment crisis and to stimulate economic growth.

Our program is also designed to restore individual responsibility as the foundation of our community life while promoting important social objectives. It

aims to change attitudes, improve relationships between employers and employees, foster social harmony and provide world class educational opportunities for our young people.

JOBS STRATEGY FOR THE NINETIES

In Australia right now, the most immediate obstacle to individual well-being is slow growth and unemployment. Without a job, people lack the freedom to make the most elementary choices about

how they live. The fundamental objective of the Liberal/National reform program set out in this document, the one task to which all of our policy changes are ultimately directed, is the restoration of

full employment - which we define as the ability of everyone who wants to work to obtain a job.

Expanding job opportunities and stable economic growth cannot be achieved without our economy becoming more internationally competitive, without higher rates of productivity; without a more dynamic and expanding private sector; without higher levels of skills and investment; and, without higher levels of saving.

The only way that government can provide a framework in which these objectives can be achieved is to implement a wide-ranging reform program focussed on building more co-operative workplaces, more competitive businesses and lower and fairer taxes.

Our program is directed at removing the cost disadvantages that are impeding business investment, and thus destroying job growth.

By pursuing a strategy built on these foundations, sustainable job growth can be achieved within a dynamic and expanding economy.

Our reforms are designed to create two million jobs over the remainder of the decade and to halve the unemployment rate which we will inherit from the Hawke Government.

Our industrial relations reforms will ensure that antiquated rules do not stand in the way of people obtaining work.

Our tax changes will give people more incentive to find work themselves and more incentive to create work for others.

Our sweeping microeconomic reforms will take the shackles off Australian business and give our managers and entrepreneurs the chance to take on the best and win.

Our education and training policies will make sure that Australians have the knowledge and the skills to take full advantage of the opportunities that will

open up.

A BETTER AND FAIRER SOCIETY

The reform program outlined in this document will not succeed unless all Australians see that they have a stake in the future. Economic success cannot be built on social distress. The unemployed must not

be thrown on the scrap-heap. They must receive every assistance to find their way back to personal independence.

Our reforms ensure that all Australians will have access to high quality health care, world-class schools and universities, and a welfare system which

gives generous help to those who cannot help themselves while encouraging self-reliance. Our reforms are also aimed at improving conditions for pensioners and the retired, for the sick and the disabled.

They provide an assurance to all Australians that our magnificent natural environment can be restored and protected while we continue to develop our resources and our industry.

The whole thrust of our policy is to strengthen the individual against the state - in particular, to strengthen the forgotten people, the low and middle income earners, against the forces which control and

limit their lives.

The principal focus of this package is to help average Australians help themselves.

A key feature of the reform agenda set out in this document is that its constituent parts are elements of a comprehensive package. Each of the reforms complements and reinforces to the effects of the

others. Every element is important, but no part is a solution in its own right, and none will be

implemented as such.

36 « Fightback » ! - It's your Australia

A 20 POINT PLAN TO REBUILD AND

REWARD AUSTRALIA

Our strategy to achieve economic growth, an increasing number of jobs and greater social equity is based on this 20 point plan:

1. a commitment to price stability;

2. labour market reforms to achieve more productive and rewarding workplaces and to create more employment;

3. lower, fairer taxes including;

• record reductions in personal income tax;

• abolition of wholesale sales tax and its replacement by a Goods and Services Tax;

• reductions in capital gains tax;

• abolition of superannuation lump sum taxes; • abolition of payroll tax;

• abolition of petroleum product excise;

• reduction in business input taxes including for import-competing business and on exports;

4. measures against tax avoidance;

5. a new national savings strategy (new superannuation arrangements and a new Tax Free Savings scheme);

6. health security;

7. family and pensioner assistance measures;

8. reductions in government waste, improvements in efficiency and contracting out;

9. privatisation;

10. tariff reform and anti-dumping measures;

11. infrastructure reforms:

• land transport; • waterfront; • telecommunications; 'aviation; •utilities;

12, competition policy;

13. world class education and training;

14.- building Australia as a world-class financial centre;

15. genuine assistance for the unemployed;

16. a realistic immigration program;

17. speedier development approvals while protecting the environment;

18. building a better Federation;

19. a new focus for trade policy;

20. putting Australia first - a more relevant framework for foreign policy and national security.

1. A COMMITMENT TO PRICE STABILITY

A commitment to full employment can only be realised if government policies provide an environment in which business can plan with

confidence to achieve sustainable economic growth in the private sector. Providing such a framework is one of the keys to creating jobs.

The basic tasks of macroeconomic policy are to maintain sound money, establish low and predictable taxes, ensure low and stable interest

rates, preserve a competitive and stable exchange rate, and maintain predictable and sustainable spending policies.

For nearly 20 years, Australia's inflation has averaged almost nine per cent and has been approximately double that of our major trading partners.

Inflation is a form of financial fraud that discourages saving and investment and distorts production and investment decisions.

The Hawke Government has used record interest rates to drive the economy into a recession and get inflation down. Getting inflation down further does not mean even higher interest rates and a longer recession. It means using the various arms of policy rather than employing interest rates as a blunt

instrument to knock the economy out.

A Hewson Government will pursue a co-ordinated anti-inflationary strategy:

• we are committed to policies aimed at the medium term goal of reducing inflation to below two per cent, and keeping it there;

• we will undertake a major reform of the tax system;

• we will make major public sector savings

• we will reduce Government spending by cutting expenditure;

• we will reduce rigidities in the economy by freeing up the labour market, embarking- on major infrastructure reform and reducing tariffs to negligible levels by the year 2000.

« Fightback » ! - It's your Australia 37

The flexibility in employment conditions which will

be achieved will greatly expand job opportunities.

After years of hostility, the Hawke Government has now conceded the need for enterprise bargaining -which has been Coalition policy for most of the past decade. Labor has adopted much of our rhetoric, but

little or none of our substance. Labor cannot deliver the dramatic change that is needed because of its traditional commitment to the existing centralised system which gives priority to its trade union mates

and its allies in the wages bureaucracy.

We will encourage, therefore, the formation of workplace unions and abolish the automatic deduction of union dues.

The Industrial Relations Commission will have no direct role in setting the new enterprise-based agreements but all employees, whether or not they choose to operate outside the existing award system,

will remain protected by IRC-set minimum wages as well as occupational health and safety provisions.

we will implement a national savings strategy to boost both long term and short term saving.

We will also legislate to give the Reserve Bank effective independence and a clear mandate to achieve medium term price stability. The Governor

will be required to be more accountable for his actions, including regular testimony before Parliamentary committees. The Government and its agencies will continue to comment on the setting of monetary policy and its relationship with other policies. The Reserve Bank will continue to consult

with the Government on those settings. But all changes to monetary policy will be decided by the Bank Board and announced by the Governor after consideration of what is needed to achieve the

Government's mandate.

The Coalition has reversed our previous policy and we will not abolish the Prices SurveiIIance Authority (PSA) during our first term of government. The PSA will be provided with

additional resources during the implementation phase of the indirect taxation reform program and will re-order its priorities to make sure that businesses pass on the benefits of the tax reform to

their customers by way of lower prices.

2. LABOUR MARKET REFORMS TO ACHIEVE MORE PRODUCTIVE AND REWARDING WORKPLACES Returning responsibility for good industrial relations to the workplace where it belongs is essential if the productivity and competitiveness of enterprises are to be improved and wage rises are to reflect productivity gains. Our habit of pushing responsibility for industrial relations onto legalistic tribunals has done enormous damage to the Australian workplace.

and more workers to opt for arrangements . outside the centralised wage-fixing system. Both enterprises have operated outside the existing industrial relations system. Both have been criticised by the industrial relations "club". But Powers' workers earn over $9,000 a year more than

those on the brewing industry award and SPC workers have jobs that would otherwise have disappeared.

To achieve this goal, employers and employees will be offered the choice of leaving the existing industrial relations system and moving to a system which allows individual agreements on workplace pay and performance (subject to specific minimum

standards on wages and conditions). There will be choice, not compulsion, about opting out of the present award system into an enterprise-based

agreement. This will require agreement from both employer and employee.

There should be no further national wage cases. Wage increases in the future should be based on improvements in productivity and performance, and that means returning negotiations over wages and

conditions to the enterprise level.

"Opting- out" of the present industrial system does not mean replacing the rule of law with the law of the jungle. Quite the contrary - it means submitting to the ordinary law of the land enforced by proper courts rather than existing in a special . jurisdiction where Commissioners' rulings are sometimes ignored with impunity.

Trade unions will be welcome within the new system but they will not be allowed to enforce "closed shops" or to demand compulsory membership. Unions, like other representative groups in society, should earn their membership by winning, and keeping, the confidence of their members.

A Hewson Government won't simply stand on the sidelines and urge others to greater effort. Where the

We will encourage employers and employees to Federal Government is an actual employer, we will negotiate together at workplace level to maximise attempt to lead by example. In particular, we will pay and productivity. The clear purpose of our implement greater decentralisation, flexibility and reforms is to achieve mutual gains for both sides in accountability in the Federal Public Service by

the current industrial relations battlefield by turning giving the heads of government departments and today's opponents into tomorrow's partners, businesses a total wage budget to be administered in the way they consider will most effectively achieve Power Brewing in Brisbane and the Shepparton their corporate goals and their public respon-Preserving Company (SPC) in rural Victoria point to sibilities. They will be able to determine the pay

what our proposed reforms can achieve. They have levels of their employees and the structure of their demonstrated the attitudes which are driving more organisations in the most efficient way. 38 « Fightback » ! - Its your Australia

In addition to building a policy framework that

will

create new jobs, we have also developed programs aimed at getting those currently unemployed back to work.

Policies to help the unemployed find work and obtain training for new jobs are an essential part of our strategy. To give the unemployed hope, dignity and a real chance to move off the jobless scrap-heap,

the Coalition will dispense with the rigidities in employment conditions which now threaten to create a permanent army of jobless.

We will:

offer the unemployed earlier access to programs which combine employment and training (e.g. the AUSTRAIN scheme on which details are provided in the policy paper

on Genuine Assistance for the Unemployed in the Supplementary Papers);

offer a range of positive workplace alternatives for those genuinely unemployed after nine months;

combine the Department of Social Security and the Commonwealth Employment Service and devolve responsibility for administering employment and training programs from government agencies to Local Employment Boards with an increased investment on the community;

• significantly increase the funds available to voluntary community based organisations, requesting an increased emphasis on training, and refocussing our efforts on community

based programs such as Skillshare;

• provide an additional $520 million for TAPE until the year 2000 to fund growth, opportunity and world class skills;

• a limited, community based work for benefits scheme;

• work with the States to ensure that "at risk" young people have available appropriate assistance to them to make the transition from school to further training and into employment.

3. LOWER, FAIRER TAXES

The major elements of the Coalition's tax reform package are:

• record cuts in personal income tax focussed on low and middle income earners;

• abolition of wholesale sales tax;

• abolition of payroll tax; • abolition of fuel excise;

• abolition of the training levy;

• abolition of lump sum superannuation tax;

• a new national savings strategy based on improved superannuation arrangements and a Tax Free Savings scheme; • reductions in capital gains tax;

• phase-out of customs duty over this decade;

• abolition of the coal export duty;

• introduction of a broad-based Goods and Services Tax compensated by income tax cuts and benefit increases.

(A) LOWER, FAIRER TAXES - PERSONAL INCOME TAX

What's Wrong With Labor's Personal Income Tax System

The Hawke Government's personal tax system has four major failings:

The overall burden of personal tax is excessive.

Australia has the fourth highest personal tax burden of the 24 OECD countries, and well above the average of the seven major industrial countries, and of course, significantly greater than in the newly industrialised countries of our region.

The tax rates significantly reduce the incentives to work.

Workers face high tax rates at low income levels and the situation has worsened dramatically under the Hawke Government.

A person on male average weekly earnings now faces a marginal tax rate of 38 per cent (or 39.25 per cent including the Medicare levy) -which is an increase from just 30 per cent over

the life of the Hawke Government. More than 50 per cent of all Australian taxpayers now face an effective marginal tax rate of 39.25 per cent or higher. For every extra dollar they earn,

almost 40 cents or more disappears into the pockets of the Federal Government.

The Government has increased its revenue by billions of dollars through stealth, by hanging onto revenue generated from "bracket creep".

The Hawke Government has used "bracket creep" to reap a hidden tax bonanza estimated at $22 billion over its term of office.

The present tax system discourages savings.

Savings are discouraged because income earned from savings is taxed twice. In the case

« Fightback » ? - It's your Australia 39

of a wage and salary earner, income is earned

and taxed. If savings are made from after-tax income, the interest income earned will then be taxed. Thus income from savings incurs double taxation.

The Liberal National Alternative

A Liberal/National Government will:

implement the largest personal tax cuts in Australian history:

• we will slash personal income tax by about 30 per cent - that is, by $13 billion;

• we will raise the tax free threshold from $5,400 to $7,000 with the result that at least another 320,000 low income earners will now pay no tax;

• we will cut marginal tax rates across the board, especially targeted at middle income earners;

• 95 per cent of taxpayers will face a marginal rate of 30 cents or less: under Labor, over a half of all taxpayers face a rate of 38 cents or more, up to 47 cents;

• average Australians will be able to double their taxable income and still pay a marginal tax rate of 30 cents;

• when our reforms are implemented, taxpayers will be able to earn up to $75,000 and pay a lower rate of marginal tax than they currently pay if they earn more than

$20,700;

• implement a new tax free savings scheme whereby, for taxpayers with incomes up to $50,000, interest income on new saving will be tax free;

• increase the corporate tax rate to 42 cents to align it with the significantly reduced top marginal personal income tax rate, and thus eliminate tax avoidance through incorporation;

+ guarantee the return of revenue from tax bracket creep to taxpayers;

• provide tax rebates of up to $100 to $400 for low to middle income earners who take out private health insurance, with up to $400 in additional incentives for persons over 65;

• provide an additional tax rebate for persons over 65 who earn up to $12,000 (single) and $14,500 (married) and thus effectively cover the full cost of private health insurance which

to the Medicare levy for families with incomes above $50,000 and singles above $40,000 who do not have private health insurance;

• increase the Dependent Spouse Rebate for eligible families with children to $1,679;

• implement a major new initiative to ensure that low income earners are more than compensated for the impact of the Goods and Services Tax through a Goods and Services Tax Credit system;

• adjust specific thresholds and allowances under the Income Tax Act for the impact of the Goods and Services Tax;

• increase Zone Rebates by at least 25 per cent;

• implement a range of other changes affecting personal tax such as a new superannuation tax rebate and the abolition of the lump sum tax, a new tax free personal savings scheme, a lower

and revised capital gains tax and a reduced fringe benefits tax.

Tables 6.1 to 6.3 on the following pages show the present and proposed personal income tax rate scales and threshold level.

(B) LOWER, FAIRER TAXES - ABOLITION OF WHOLESALE SALES TAX AND INTRODUCTION OF GOODS AND SERVICES TAX

What's Wrong With Labor's Wholesale Sales Tax

The wholesale sales tax actively penalises manufacturing production and all exports, is an administrative nightmare and falls most heavily on the poorer sections of the community.

There are six major flaws:

Its Narrow Base

In 1989/90 the total wholesale sales tax base represented less than 40 per cent of the value of private final consumption expenditure. Anomalies and inconsistencies abound making

the administration of the tax very unwieldy.

The main distortion is that services are not directly taxed. Their omission is clearly regressive because services (such as restaurant meals, taxi fares and hair styling) are consumed

disproportionately by the well-off.

entitles access to private Deus and the doctor of The wholesale sales tax falls mainly on choice; manufacturing industries - industries which

must become internationally competitive if we

• encourage higher income earners to take out . are to begin to trade our way out of our huge private health insurance by adding a surcharge foreign debt and create sustainable jobs. 40 « Fightback » ! - It's your Australia

TABLE 6.1

NEW PERSONAL INCOME TAX SCALES

Present Tax Scales

% Proposed Tax

Scales from 1 Oct 1994

% Proposed Tax

Scales from 1 Jan 1996

%

$ 0-$ 5400 0 $ 0-$ 7000 0 $ 0-$ 7000 0

$ 5401-$20700 20 $ 7001-$20700 16.2 $ 7001-$20700 16.2

$20701-$36000 38 $20701-$50000 30 $20701-$50000 30

$36001-$50000 46 $50001 & over 45 $50001-$75000 36

$50001 & over 47 $75001 & over 42

This means, in practice, that all taxpayers will enjoy substantial tax cuts (see Table 6.2).

Fightbacld - It's your Australia 41

TABLE 6.2

TAX SCALES FROM OCTOBER 1994 (a)

INCOME $

TAX PAID

Present Proposed

Scale(I) Scale (II)

$ $

DIFFERENCE (I - II) $

PER CENT REDUCTION IN TAX

PER WEEK GAIN (a)

$

GAIN IN AFTER TAX INCOME

(%)

7000 320 0 320 100.00 6.1 4.8

8000 520 162 358 68.9 6.9 4.8

9000 720 324 396 55.0 7.6 4.8

10000 920 486 434 47.2 8.3 4.8

15000 1920 1296 624 32.5 12.0 4.8

20000 2920 2106 814 27.9 15.6 4.8

25000 4694 3509 1185 25.2 22.7 5.8

30000 6594 5009 1585 24.0 30.4 6.8

35000 8494 6509 1985 23.4 38.1 7.5

40000 10714 8009 2704 25.2 51.9 9.2

45000 13014 9509 3504 26.9 67.2 11.0

50000 15314 11009 4304 28.1 82.6 12.4

55000 17664 13259 4405 24.9 84.5 11.8

60000 20014 15509 4505 22.5 86.4 11.3

65000 22364 17759 4605 20.6 88.3 10.8

70000 24714 20009 4705 19.0 90.2 10.4

75000 27064 22259 4805 17.8 92.1 10.0

80000 29414 24509 4905 16.7 94.1 9.7

85000 31764 26759 5005 15.8 96.0 9.4

90000 34114 29009 5105 15.0 97.9 9.1

95000 36464 31259 5205 14.3 99.8 8.9

100000 38814 33509 5305 13.7 101.7 8.7

(a) Annual figures rounded to nearest dollar. Weekly figures rounded to nearest ten cents.

Weekly conversion factor calculated by using the increase of 365 days divided by 7.

42 « Fightback » ! - It's your Australia

TABLE 6.3

TAX SCALES FROM 1 JANUARY 1996 (a)

INCOME $

TAX PAID

Present Proposed

Scale (I) Scale (II)

$ $

DIFFERENCE (I - II) $

PER CENT REDUCTION IN TAX

PER WEEK GAIN (a)

$

GAIN IN AFTER TAX INCOME

(%)

7000 320 0 320 100.00 6.1 4.8

8000 520 162 358 68.9 6.9 4.8

9000 720 324 396 55.0 7.6 4.8

10000 920 486 434 47.2 8.3 4.8

15000 1920 1296 624 32.5 12.0 4.8

20000 2920 2106 814 27.9 15.6 4.8

25000 4694 3509 1185 25.2 22.7 5.8

30000 6594 5009 1585 24.0 30.4 6.8

35000 8494 6509 1985 23.4 38.1 7.5

40000 10714 8009 2704 25.2 51.9 9.2

45000 13014 9509 3504 26.9 67.2 11.0

50000 15314 11009 4304 28.1 82.6 12.4

55000 17664 12809 4854 27.5 93.1 13.0

60000 20014 14609 5404 27.0 103.6 13.5

65000 22364 16409 5954 26.6 114.2 14.0

70000 24714 18209 6504 26.3 124.7 14.4

75000 27064 20009 7054 26.1 135.3 14.7

80000 29414 22109 7305 24.8 140.1 14.4

85000 31764 24209 7555 23.8 144.9 14.2

90000 34114 26309 7805 22.9 149.7 14.0

95000 36464 28409 8055 22.1 154.5 13.8

100000 38814 30509 8305 21.4 159.3 13.6

(a) Annual figures rounded to nearest dollar. Weekly figures rounded to nearest ten cents.

Weekly conversion factor calculated by using the increase of 365 days divided by 7.

« Fightback » ! - It's your Australia 43

Multiple Rates

The wholesale sales tax applies multiple rates (10, 20 and 30 per cent) to a range of goods, resulting in significant classification problems and costly administration and compliance.

There is no rhyme or reason why wholesale sales tax is levied at different rates. Soft drinks are taxed at 20 per cent but flavoured milk at only 10 per cent; garbage bags attract 10 per cent tax but cling wrap 20 per cent; and children's toys are taxed at 20 per cent but babies teething rings at only 10 per cent.

Business Inputs Are Taxed

The effect of taxing business inputs - and of imposing different rates on different inputs -distorts the choice of production processes and the choice of products produced.

In its 1985 Draft White Paper on taxation reform, the Government recommended that intermediate goods should not be subject to a consumption tax - except in the last resort case

where it is impracticable to tax final consumption of a good directly.

Taxes Exports And Favours Imports

The wholesale sales tax taxes exports and favours imports. It saddles Australian manufacturers with a tax system which actively disadvantages them on world markets by

taxing inputs which, under most other indirect tax systems, are tax free.

It Is Regressive

The burden of the wholesale sales tax falls most heavily on low income earners. For example, the wholesale sales tax paid by families with children on the lowest 10 per cent of incomes is 4.2 per cent of their income compared with 2.9 per cent for families in the highest 10 per cent of incomes.

Lack Of Transparency

.. The wholesale sales tax is a hidden tax.

The Government has systematically and deliberately increased the wholesale sales tax by nearly 60 per cent in real terms since it came to power.

Most Australians are unaware of these increases and many are not even aware that the wholesale sales tax exists. Goods on which the wholesale sales tax is paid do not bear any sign in supermarkets so consumers are often not aware of which goods are taxed directly, let

alone indirectly.

The Liberal/National Alternative

We will introduce a broad based, single rate, 15 per cent Goods and Services Tax on 1 October 1994.

The first advantage of the Goods and Services Tax is that it eliminates the faults associated with the wholesale sales tax - faults that the present Government detailed at length in its abortive campaign to introduce a broad-based consumption tax in 1985.

The second advantage of a Goods and Services Tax is that it will, by removing distortions and simplifying administration, increase GDP by up to one per cent or add a permanent $4 billion to our

national economy. This means a lasting gain in jobs and more potential for future growth. Making our indirect tax system efficient means that every other improvement will work better.

Third, the introduction of a Goods and Services Tax means that our exporters will have a huge tax burden lifted from them - putting them on the same tax footing as most of our competitors who already exclude exports from indirect tax.

Fourth, moving from the narrow-based, variable rate and non-rebateable wholesale sales tax to a broad-based, single rate and rebateable Goods and Services Tax will bring Australia into line with the industrialised world.

Australia stands out from most other industrialised countries in lacking an efficient and well-designed goods and services tax. Twenty one of the 24 OECD nations have value added taxes - except for the United States (which has various State retail taxes);

Switzerland (which has a retail tax); and Australia (which is burdened by an archaic, inefficient and inconsistent wholesale sales tax).

And fifth, no government is serious in the fight against tax evasion without moving to tax spending more and income less. Those who earn undeclared cash will pay tax when they spend, if not when they earn. In addition, a Goods and Services Tax will ensure that foreign tourists help to pay for the infrastructure they use.

(i) What is a Goods and Services Tax?

A Goods and Services Tax is a tax charged on the supply of goods and services in Australia. It is a "value added" tax levied at all stages of production and distribution. At every stage, the relevant business pays tax only on its "valued added".

The Goods and Services Tax is charged every time goods or services are supplied in the course of business. Tax paid is collected by the business which supplies the goods or services and is forwarded to the Taxation Office at the end of fixed

periods. But the Goods and Services Tax is not a tax

44 « Fightback » ! - It's your Australia

on business or its profits. It is the final consumer

who ultimately pays the Goods and Services Tax.

In addition, consumers and business will be compensated for this change by the abolition of the existing wholesale sales tax, payroll tax, petrol

excise, the training guarantee levy, reduction in customs duties and substantial income tax cuts, together with various social security measures.

(ii) Exceptions

Some goods and services will be wholly free of tax. Such goods and services are termed "zero rated" which means that no Goods and Services Tax is paid by the final consumer and Goods and Services Tax

paid on business inputs at earlier stages in the production and distribution is fully rebateable.

Exports Exports are zero-rated under all Goods and Services Tax systems. This is, in fact, one of the key reasons for introducing the Goods and Services Tax in Australia and will substantially boost the international competitiveness of Australian industry.

Education and Health The Hawke Government's 1985 Draft White Paper on the Reform of the Australian Taxation System concluded that:

"It is not possible to apply a [Goods and Services Tax] directly to publicly-provided education services as there is no direct charge. Private education services could be included.. .but to do so would...be considered highly arbitrary and

discriminatory."

Again, as the Hawke Government said in 1985:

"Health services also receive substantial government funding and the consumer bears directly only a minor part of the total cost."

To impose a Goods and Services Tax on education and health services would create a significant bias against private providers.

Coalition policy should see a fall in the absolute cost of health and education services. The price of services should fall because we will remove completely any sales tax from both education and health service provision. The current effective sales

tax on medical care and health expenses is around 1.4 per cent. The Coalition will abolish this tax and not impose any tax in its place. The abolition of the fuel excise and other taxes will also lower the costs of health and education services. We estimate that the price of health and education services will fall by up to one per cent.

Government Services

pay tax to itself simply involves unnecessary "churning" and paperwork. Making the consumers of Government services pay tax on those services amounts to a "tax on a tax". The Coalition has

decided not to tax the provision of non-commercial activities by government. Therefore, the Goods and Services Tax will not be imposed on top of local government rates.

In 1985, the Tax White Paper concluded that:

"Services provided without charge by governments (such as public administration and defence) obviously cannot be subject to [Goods and Services Tax]."

Welfare, Religious And Charitable Institutions Welfare, religious and charitable institutions provide services similar to those provided without charge by

government which, as noted by the Hawke Government in 1985, "...obviously cannot be subject to [Goods and Services Tax]." These institutions are not now directly subject to sales tax (although they pay wholesale sales tax indirectly on some of the goods they buy). The Liberal and National Parties will give them genuine tax-free status.

Sale Of A Business As A "Going Concern" The sale of a business as a "going concern" is zero rated as a matter of commonsense. The transaction

costs involved in implementing the Goods and Services Tax on businesses, where in reality the purchaser will end up having the Goods and Services Tax rebated back to them as a Goods and

Services Tax credit almost straight away with no gains to the government, necessitates zero rating in this case.

(iii) Partial exceptions

Some goods and services will be free of tax on their final sale but will still be subject to Goods and Services Tax at intermediate stages. Such goods and

services are termed "exempt" - they are exempt from tax on their output value but are fully taxed on their inputs.

Residential Rents, Residential Construction And Other Construction No OECD country imposes a Goods and Services Tax on rental payments. As the Hawke

Government's 1985 Draft White Paper noted: "The [Goods and Services Tax] is a tax on consumption and so should logically fall on the services flowing from buildings rather than the purchase of the buildings themselves. That is, the tax should fall on

actual rent payments in the case of tenants and imputed rent payments in the case of owner-occupiers. The administrative and technical problems of taxing imputed rents are such as to rule out this approach."

No country (except New Zealand) imposes a Goods and Services Tax on non-commercial services As the Hawke Government's 1985 Draft White provided by Government. Having a Government Paper noted, it would be difficult to distinguish

Fightbackl - It's your Australia 45

between building materials for residential housing

and building materials for commercial buildings and public works. Therefore, all building materials will be input taxed.

About 50 per cent of the actual cost of building a home - labour plus the builder's margin - is excluded from input taxing.

In addition, a first home owners scheme (FHOS) will provide first home buyers earning up to $40,000 a year household income with $2,000 to offset the price effect of the Goods and Services Tax. Those on higher incomes will be compensated by large personal income tax cuts.

Financial Services No country in the world imposes a Goods and Services Tax on financial services because financial institutions charge for their services through the margin between their deposit and lending rates. Because there is no readily identifiable value for

these services, they will be exempt from the Goods and Services Tax (or input-taxed only).

Gambling And Lotteries Gambling and lotteries are already subject to very high State taxes. Given the practical difficulties in defining what part of gambling activities should be

taxed and in lieu of abolishing those State taxes and charges, gambling and lotteries will be input taxed only.

(iv) Compensation for the Goods and Services Tax

The introduction of a Goods and Services Tax will enable the abolition of four major taxes - wholesale sales tax, payroll tax, petroleum excise and customs duties - and help to fund large cuts in personal income tax.

The abolition of these taxes means that the price effect of the Goods and Services Tax will be far less than 15 per cent. As the Table 6.4 on the following page demonstrates, we calculate that the abolition of

taxes raising about $22 billion a year and the imposition of a tax raising about $30 billion should produce a one-off CPI effect of 4.4 per cent.

To compensate for this one-off price effect, we will:

• provide all taxpaying Australians with substantial income tax cuts;

• raise the tax-free threshold from $5,400 to $7,000;

• increase age, service and other pensions by 8 per cent;

• increase other benefits by 6 per cent;

• provide retirees over age 60 who have annual taxable incomes under $30,000 with lump sum

compensation up to $2,500 for the effect of the Goods and Services Tax on their savings;

provide persons whose incomes are too low to be adequately compensated by tax cuts but who do not receive a full pension or other benefit with a Goods and Services Tax Credit based on taxable income and the one-off price effect of the tax;

provide everyone over 65 earning less than $50,000 a year with a Pharmaceutical Benefits Concession Card (PBCC) - worth, on average, $5 a week;

provide first home buyers with a cash benefit of $2,000 for the purchase of new and established housing.

As a general rule, compensation for the introduction of the Goods and Services Tax is best provided through extra cash. Exempting food, for instance,

makes less sense than providing compensation for price increases through the social security and personal tax systems.

As Bureau of Statistics data shows, the richest 10 per cent of Australian society spend about three times as much on food as the poorest 10 per cent. To make food tax free, therefore, would be equivalent to

a $3 tax cut for the better-off compared to a $1 tax cut for the less-well-off.

(C) LOWER, FAIRER TAXES - CAPITAL GAINS TAX

What's Wrong With Labor's Capital Gains Tax The taxation of capital gains is an essential element of any taxation system which continues to rely on income as a taxation base. Without it, there would be an incentive for some people to take their

remuneration in the form of capital gain rather than income and escape their tax obligations. Without it, there would be a strong incentive to speculative property and share transactions.

However, Labor's application of the capital gains tax since 1985 has been far too sweeping and administratively difficult, particularly for small investors. It has been fixed at too high a rate and it

has penalised many thousands of Australians who have put their efforts into building up a business or farm to support their families and provide for their retirement.

The most counter-productive aspects of Labor's capital gains tax are:

80 per cent of the goodwill value of a business (up to a ceiling of $1 million) is liable to capital gains tax - a significant deterrent to working hard to build up a business;

the application of capital gains tax to assets sold in the process of expanding a business - a major disincentive to growth and employment; and

46 « Fightback » ! - It's your Australia

TABLE 6.4

CUMULATIVE PRICE EFFECT OF TAX REFORM

• One-Off Impact of CPI

Individual Cumulative

Measure - Total.

(%) (%)

15% GST on Private Final Consumption 15.0 15.0

less impact of adjustments made to -3.9 . 11.1

deri ve GST base

less impact of WST abolition -4.3 6.8

less impact of payroll tax abolition -0.9 5.9

less impact of petrol excise abolition -1.3 4.6

plus net impact of faster phase-out of +0.1 4.7

Customs Duty and increases in Tobacco Excise

Net impact of Indirect Tax Reform -0.3 4.4

excluding Tobacco Excise Increases

the application of the capital gains tax and its administrative burden especially to very small investors;

Because only tax experts can understand the capital gains tax, taxpayers who make small capital gains either have to employ an accountant or risk breaking the law.

The Liberal/National Alternative

The Liberal/National reform package will make major changes to the capital gains tax system to provide significant tax relief, incentive, and retirement benefits for small business people, farmers and small investors. We will do so in the following ways.

• Capital gains tax will continue to apply, but at the significantly lower marginal income tax rates, to real capital gains on assets bought after 19 September 1985.

• To reduce paperwork and simplify the system, there will be an option to pay capital gains tax at a flat rate of 30 per cent on nominal gains on assets held for five years or longer.

• Capital gains of less than $3,000 made by an adult individual in each year are to be exempt from tax.

• Relief from capital gains tax on the sale of goodwill will be provided at the following rates: 50 per cent relief up to $500,000; 30 per

cent between $500,000 and $1,500,000; 10 per cent between $1,500,000 and $2,000,000; and no additional relief above that figure.

• Abolish capital gains tax on the sale of a business by retirees aged 60 or more on gains up to the value of ten times average annual earnings (currently around $300,000).

• Abolish .capital gains tax on the sale of a business, up to the value of ten times average annual earnings, provided the funds are placed in an Approved Deposit Fund until retirement.

• Full relief from capital gains tax will be provided on the roll-over of a business into a like business where the disposal price does not exceed $5 million. This benefit will be available once every five years. -• The income tax free discount on shares issued

to or bought by employees through an employees' share ownership scheme will be increased to $500.

• Greater encouragement of employee share ownership is an important part of our privatisation program; the value of shares which may be issued under Employee Participation Schemes will be extended from $2,000 to $5,000 with a discount of up to $500 per year tax free but shares must be held for more than three years before they are exempt from capital gains tax.

« Fightback » ! - It's your Australia 47

(D) LOWER, FAIRER TAXES - PAYROLL

attract Goods and Services Tax but business users

TAX will be able to gain a refund in the usual way.

What's Wrong With Labor's Payroll Tax

Payroll taxes discourage employment and raise consumer prices. Over 3.5 million jobs (or over 60 per cent of jobs in the private sector) are subject to

payroll tax.

Australia relies on payroll taxes much more than other comparable countries. In 1989, payroll taxes constituted 5.7 per cent of total tax revenue compared to an OECD average of just 1.1 per cent.

Fourteen of the 24 OECD countries have no payroll tax at all.

Payroll tax is another bureaucratic nightmare which applies at different rates in different States and even applies at different rates within the same State to different employers.

The Liberal/National Alternative

A Hewson Government will use part of the proceeds of the Goods and Services Tax to fund the abolition of existing State and Territory payroll taxes. Each State will receive an increase in Commonwealth

grants to offset foregone payroll tax revenue. This is a reform which will significantly boost sustainable job growth.

(E) LOWER, FAIRER TAXES - FUEL, TOBACCO AND ALCOHOL EXCISE

What's Wrong With Labor's Excise

Fuel excise affects the cost of every product which is transported by road. It is one of the most distorting taxes in the economy, especially because substitutes such as LPG, coal and electricity are not taxed at all.

In a 1986 study of fuel excise, the Industries Assistance Commission identified three problems with taxes on intermediate products: they penalise the production of goods where increased costs

cannot be passed onto the consumer; they distort the consumption of goods where higher costs can be passed on; and they distort production decisions by encouraging substitution of other inputs. The IAC

concluded that a broad-based consumption tax should replace fuel excise and other indirect taxes.

In addition, fuel excise has become a major boost to consolidated revenue. Motorists, in particular, have become a soft target for governments seeking a relatively painless way of raising revenue. The

Federal Government in 1990/91 collected around 25 cents per litre of petrol and diesel to the grand total of more than $6 billion in 1990/91 dollars.

The Liberal/National Alternative

For ordinary motorists the pump price of petrol, after the abolition of fuel excise and the introduction of Goods and Services Tax, should fall by about 19 cents a litre. This should save the average family

around $11.40 in filling the 60 litre tank of the average family car. For business users, the Goods and Services Tax rebate means an effective cut of over 25 cents a litre on petrol and diesel.

In addition to Goods and Services Tax, a Hewson Government will increase excise on tobacco by 25 per cent which will increase the price of a packet of 25 cigarettes by about 90 cents. Tobacco use costs

the community about $1 billion every year in smoking-related medical expenses and smoking-related loss of output.

A Hewson Government will not make changes to excise on beer and other alcoholic beverages. The CPI price impact of the Goods and Services Tax reforms involves an average price increase across all alcoholic beverages of about 3 per cent.

Automatic indexation of excise on alcohol and tobacco will be terminated.

(F) LOWER, FAIRER TAXES - TAXES ON BUSINESS

What's Wrong With Labor's Taxes on Business

The wholesale sales tax, payroll taxes, excise duties, the training levy, the capital gains tax and other taxes add around $15 billion to business costs directly, and perhaps an additional 20-30 per cent indirectly through the cascading effect of some of these taxes.

There are additional problems, however, with the current system of business taxation.

• It encourages debt over equity finance and discourages large investments with long lead times such as the Very Fast Train project and the Alice Springs to Darwin rail link).

• The capital gains tax discourages investment in new businesses and the expansion of existing ones.

• The rate of company tax is set considerably lower than the top marginal personal tax rate, thus encouraging incorporation to limit tax liability.

• The compulsory training and superannuation levies are counter-productive to lowering inflation and creating jobs.

A Hewson Government will abolish all Federal The Liberal/National Alternative excise on refined petroleum products. Fuel will The business sector will benefit directly from the tax measures in the Liberal/National reform package.

48 Fightbackl - It's your Australia

Taxes on business will be cut by at least $20 billion.

Most importantly, we will:

• abolish the $9.4 billion wholesale sales tax; • abolish the $5.8 billion payroll tax;

As with other sectors, the business sector will he expected to contribute to, as well as benefit from, the reform process under a Liberal/National Government. We are also committed to bringing the corporate tax rate into alignment with the top personal marginal tax rate.

• abolish the $6.6 billion excise on petroleum products (about 55 per cent of which falls on business);

• abolish effectively all $3.3 billion of customs duties;

• rebate Goods and Services Tax paid on most business inputs, including businesses competing with imports;

• reduce the tax on exports by $1.7 billion.

In addition, the Liberal and National Parties propose to implement a range of other measures to reduce cost disadvantages to the business sector:

• our overall reform package dramatically lowers many business costs by 20 to 50 per cent;

• the revised and lower capital gains tax system will permit greater access to roll-over relief and make additional allowance for goodwill;

• the coal export duty will be abolished;

• the training guarantee levy, which is in effect an extra tax on employers, will be abolished;

• the level of compulsory employer contributions to employee superannuation, in place at the time of the next election, will be retained but there will be no further compulsory increases. Further increases will be on the basis of choice and incentive, rather than Labor's compulsion;

• we will review the present depreciation arrangements to help Australian business to be able to match best international practice;

• company tax deductions for research and development costs will continue from July 1993 at 125 per cent, but we will ensure strict measures to guard against abuse and we will promote new R&D links between industry and universities;

• the fringe benefits tax will be reduced significantly and loop holes eliminated through the alignment of the corporate and top personal tax rate.

These tax changes are also to be seen against the background of the other elements of our reform agenda designed to reduce or eliminate major cost disadvantages to business (e.g. on the waterfront, in utilities, telecommunications, aviation, shipping,

land transport, development approval processes, training and others).

Measures Against Tax Avoidance And Evasion

This package, in its totality, constitutes a systemic assault on tax avoidance.

• Reducing the overall burden of taxation and making the system fairer will promote greater compliance.

• Moving the emphasis of tax away from earning and on to spending will further subject people who operate in the black economy to their fair share of tax.

• Aligning the top rate of personal income tax with the corporate tax rate at 42 per cent will eliminate the incentive for high income earners to avoid tax by incorporation.

• Abolishing the wholesale sales tax, which because of its complexity is open to abuse, and replacing it with a Goods and Services Tax will introduce more consistency and simplicity.

• Our changes to superannuation, described later, will reduce the ability of high earners to use superannuation as a tax shelter.

The Liberal/National tax package is an essential ingredient in the total reform package outlined in this document. The tax reforms will "oil" every other change we propose to make.

Our tax reforms will also help to make workplace bargaining effective, as workers take home more of their productivity gains. They will reduce the cost of delivering health and education services. And they

complement our policy to promote saving across the board.

4. AUSTRALIA AS A FINANCIAL CENTRE Australia has the potential to emerge as the second most important financial centre in the Asia/Pacific

region by the year 2000, behind Tokyo but ahead of Singapore and Hong Kong.

An excellent start has been made with the deregulation of the financial sector in the late 1970s and early 1980s, although the process is not yet

complete and some important mistakes were made.

The Coalition is committed to finishing this process and ensuring that our finance industry takes its place as another significant export earner. Several steps are essential:

« Fightback » ! - It's your Australia 49

Lift restrictions on foreign bank entry subject

to entrants being able to satisfy the Reserve Bank of Australia's prudential standards;.

Allow foreign banks to operate branches and not continue to require them to operate as subsidiaries - a change which is absolutely fundamental to ensuring maximum effective competition.

Allow holders of bank licences not to be formally required to offer the full range of bank services - it is important that new entrants be permitted to specialise and diversify if the damaging concentration on asset growth, which occurred during the 1980s is to be

avoided in the 1990s.

Establish an effective national system of prudential supervision - not re-regulation - both to underwrite confidence in the system and to send clear messages to investors about the relative performance of different institutions

Review and reform the taxation of financial transactions including swaps, options and other financial derivatives. This has been an appalling area of neglect in the 1980s and the

Coalition proposes to act decisively to clear-up existing uncertainties concerning the tax treatment of these various financial instruments by legislating, inter alia, to introduce tax

timing rules which better align with accepted accounting principles. The Coalition will also monitor the relative tax position of Australian financial institutions in the context of the proposed further development of the financial sector in Australia.

5. A NATIONAL SAVINGS STRATEGY

Our inadequate national savings are an important cause of our current economic problems. Although there is nothing wrong with sustainable borrowing (indeed, much of Australia's development has

largely been funded by overseas debt), the borrowing excesses of the last decade have stretched our capacity to repay.

This would matter less if Australia's debt had funded investments which, in the future, would be able to repay both principal and interest. Unfortunately, our latest "investment boom" has

funded conspicuous consumption along with productive investment. The 1980s have left us with dramatically higher debt but only a marginally higher capacity to repay.

To boost national savings, those who already save must save more or those who do not save must start saving. An effective national savings scheme, therefore, means giving low and middle income

earners a reason to save rather than spend.

It is not enough to force people into superannuation which may just shift savings from one form into another. This explains why, notwithstanding award

superannuation and superannuation tax breaks, Australia's household savings ratio has fallen over the past decade.

To achieve an overall boost in savings, the rules must encourage people to change their attitudes to saving. We must replace a spending culture with a savings culture. The greater self-reliance that will be required as a result of our better targeting of

social welfare spending is part of our strategy to encourage savings.

A Hewson Government will impose tight discipline on public sector spending. But we will meet the major challenge to rebuild private sector savings through the following initiatives:

• a commitment to price stability and public sector savings;

• the introduction of the broad based Goods and Services Tax to shift the balance of taxation away from income and towards consumption;

• revised superannuation concessions to target incentives to lower income earners (see below);

• and a new tax rebate scheme on interest to be called the Tax Free Savings (TFS) scheme (see below).

Superannuation

Right now, the Government taxes income before it goes into superannuation; it taxes income as it is earned by superannuation funds; and it taxes retiree's lump sums. Notwithstanding taxation at

every stage, Australia's current superannuation arrangements embody a systemic bias to the rich.

The 15 per cent tax on super fund earnings provides a tax subsidy as little as six cents in the dollar for low income earners but 33 cents in the dollar for taxpayers on the top marginal rate.

Moreover, the current system allows people to "double-dip" by spending their lump sum and subsequently living off the pension.

Money can either be saved or consumed. Because One of the inescapable facts driving our retirement saving generates income, a tax system based on policy is the rapidly rising ratio of retirees to income tax is inherently anti-saving. Income tax workers. Therefore, our changes to superannuation means that saving attracts double taxation. To this arrangements will encourage people to provide for extent, a move away from reliance on income tax is their own retirement; ensure that superannuation unambiguously pro-saving. incentives apply more equally at all income levels;

and guarantee that superannuation investment really

50 Figbtback? - It's your Australia

does fund retirement and cannot be used as a shorter-

term, tax advantageous way of saving for an overseas trip or a holiday home.

Our changes will redistribute the existing superannuation tax break away from the wealthy and towards low and middle income earners - who will gain an up-front incentive to invest in

superannuation plus a better retirement payout.

To give all income earners an incentive to invest in superannuation, we will provide tax concessions for contributions up to a total of $6000 a year from all sources. In particular, we will:

• provide a 25 per cent tax rebate for all taxpayers on the first $6000 of contributions. Someone on $30,000 a year investing $2000 in superannuation will receive $500 cash back - as will someone on $90,000 a year also investing $2000;

• tax employer contributions (up to $6000) in the hands of the superannuation fund at the beneficiaries' marginal tax rate, less the 25 per cent tax rebate;

• allow individuals to make tax rebateable contributions for their non-working spouses on the same basis as for themselves;

• allow persons under 35 buying a first home to withdraw 75 per cent of their accumulated superannuation from their superannuation fund subject to repayment over their working lives;

• enhance freedom of choice by allowing funds managers to provide more flexible pensions and annuities and by permitting banks to offer superannuation products;

• abolish the tax on lump sums (and abolish the existing reasonable benefits limit);

• due to the more generous tax regime on contributions and the removal of the lump sum • tax, we will raise the tax rate on super fund earnings from 15 to 25 per cent. (However, as

we will retain full dividend imputation, the effective tax rate should remain under 20 per cent);

we will retain any level of employer contributions in place at the time of the next election but there will be no further compulsory increases. Further increases will be on the

basis of policies based on choice and incentive, rather than Labor's compulsion;

cap the amount which can be taken as a lump sum at ten times average annual full-time earnings (currently around $300,000);

deem lump sums above $60,000 for the age pension income tests;

raise the preservation age to 60.

Tax Free Savings (TFS) Scheme

We will implement a new Tax Free Savings (TFS) scheme whereby interest on new savings, up to a limit of $1000 a year for single tax payers and $2000 a year for married couples, will attract a rebate of 30 cents in the dollar, whatever their income.

6. HEALTH SECURITY

Medicare's problems include: over-servicing and less attentive service due to bulk billing; unacceptably long public hospital waiting lists; under-use of private hospitals; over-supply of

doctors; and concealment of the true cost of the health system. In particular, the Medicare system has created the illusion of "free" health care even though the Medicare levy now provides for less than

25 per cent of spiralling health costs.

Our proposals are designed to keep costs down and improve the quality of health care. Our changes will shift some of the cost of health care from the Government to the individual in a way which will still ensure universal cover, protect those on low and middle incomes and retain cost discipline but allow individuals greater scope to be responsible for their health care.

Health services will be zero-rated for the Goods and Services Tax. This, together with the abolition of the wholesale sales tax, fuel excise and payroll tax, will lower the cost of these services.

Our reforms will retain and improve Medicare. They will: guarantee all Australians access to high quality health care; reduce waiting lists at public hospitals; contain the costs of public health care; and restore the balance between the public and private health sectors by encouraging individuals to provide for their own health care through private health

insurance.

The best way to eliminate waiting lists is to ensure that more people have access to the private health care system. This will be achieved by increasing the proportion of people with private health insurance. We will provide incentives for elderly and low and middle income earners many of whom already take out private health insurance.

Those earning less that $12,000 a year will receive a Private Health Insurance Credit of $400 a family or $200 for a single person.

Those earning between $12,000 and $20,000 a year will receive a Credit of $300 a family or $150 for a single person.

And those earning between $20,000 and $30,000 a year will receive a Credit of $200 a family or $100 for a single person.

Fightbackf - It's your Australia 51

People over 65 who earn less than $30,000 per

year will receive an additional tax credit if they have private health insurance.

The additional credit for a person over 65 who earns less than $12,000 (single) and $14,500 (married couple) will be $200 (single) and $400 (married) which will effectively provide the full cost of private health cover entitling them to access to private beds and to the doctor of their choice.

However, we will require single people earning over $35,000 a year and families earning over $45,000 a year to take out private health insurance or pay a Medicare surcharge. For singles this will be $100 between $35,000 and $36,600; $200 between $36,600 and $38,000; $300 between $38,000 and $40,000; and $400 at or above $40,000. For families this will be $200 between $45,000 and $46,600; $400 between $46,600 and $48,000; $600 between $48,000 and $50,000; and $800 at or above $50,000.

The best way to contain costs is to introduce a price signal for health services. Bulk billing will be abolished with the exception of the four million pensioners, health care card holders and the disabled.

Of itself, this does not entail that patients pay more -just that they have to pay their bills before obtaining a Medicare rebate. In addition, by abolishing the wholesale sales tax and totally removing medical

expenses from Goods and Services Tax, we will actually reduce the costs of delivering medical services.

Instead of introducing a co-payment, we will reduce the Medicare rebate for non-pensioners from 85 to 75 per cent. In addition, we will allow health funds to offer partial cover for the "gap" between the Medicare Rebate and the AMA schedule level. The remaining 15 per cent will remain the responsibility of the patient.

in addition, a Hewson Government will grant Pharmaceutical Benefits Concession Cards (PBCC) to people aged 65 and over earning less than $40,000

a year (single) and $50,000 a year (married). We will also allow pharmacies to act as agents for Medicare, thus significantly improving access to Medicare for country people.

To further limit the growth of health costs we will work with the States to institute efficiency reforms to public hospital systems, including new accounting systems and management information

systems up to best international practice. We will maintain control over the numbers of medical students, monitor the immigration of doctors and require foreign medical graduates to achieve the

same clinical and theoretical standards as Australian graduates.

These proposals will reshape the Australian health care system. They will eliminate waiting lists at public hospitals, put an end to "sausage machine" medicine from under-paid GPs, and extend the private hospital system to regional centres.

7. FAMILY ASSISTANCE MEASURES

The family is the place where values of independence, co-operation, personal responsibility, tolerance and concern for others are developed. Not only is the family the chief source of emotional nourishment; it is also the most important welfare institution in society.

Personal tax cuts under a Coalition Government will give a priority to families on incomes between $20,000 and $50,000.

The Liberal and National Parties will focus Family Allowance benefits on those families in greatest need of assistance and significantly increase the level of assistance provided to those families.

We will double the Family Allowance where family income is less than $30,000 a year. This means that low-income families will be better-off by an extra $20 per child per fortnight for their first three children and more for subsequent children.

For families earning between $30,000 and $40,000 a year, we will increase family allowance by 50 per cent. This means that middle income families will be better-off by an extra $10 a child per fortnight for the first three children and more for subsequent children.

For families earning between $40,000 and $55,000 a year, Family Allowance (as with other benefits) will be increased by six per cent to compensate for the

introduction of the Goods and Services Tax.

Table 6.5 on the following page provides the details.

The Dependant Spouse Rebate (DSR) will be increased from $1379 to $1679 a year for eligible families with children. For eligible families without children, it will increase from $1149 to $1204. The

DSR will be phased out from $75,000 for families with dependent children and from $50,000 for those without dependent children, at a rate of $1 for every $4 income.

Families will also be assisted by other reforms under a Coalition Government..

Eligible families with incomes of less than $30,000 will receive tax credits of up to $400 to assist them with the cost of private health insurance.

Families will benefit from our superannuation reforms which, among other things, provide a 25 per cent rebate on the first $6,000 of contributions and the abolition of lump sum taxes.

52 « Fightback » ! - It's your Australia

Abolition of petrol excise will save the average

family around 19 cents a litre or approximately $11.40 in filling the 60 litre tank of the average family car.

Our First Home Owners' Scheme will assist low to middle income earners with a cash benefit of $2,000 to compensate for the Goods and Services Tax

impact on saving for their home.

We will implement a new Tax Free Savings (TFS) scheme whereby interest on new savings up to a limit of $2000 per year for married couples will attract a rebate of thirty cents in the dollar, whatever

their income.

Families will also benefit from the $90 million we have allocated to help reduce the cost of child care to Australian families.

The zero-rating of health and education services and the abolition of the wholesale sales tax, payroll tax and fuel excise will mean that the cost of delivering

health and education services will be reduced.

Families will also benefit from the Coalition's commitment to allocate an additional $50 million to voluntary welfare agencies. Some of these funds will assist such agencies in providing family care

and family crisis counselling to families currently suffering from the effects of financial and social hardship.

8. REDUCTIONS IN GOVERNMENT WASTE AND INEFFICIENCY

The current size of government imposes a heavy burden on, and costly intervention in, the lives of individuals, families and businesses.

The size and cost of government are excessive. Both will be reduced.

Given the worst recession in sixty years, fiscal restraint is made even more imperative and, in combination with a major overhaul of revenue and

expenditure priorities, every area of government outlays must be scrutinised.

Of total Commonwealth Budget outlays of just over $100 billion in 1991-92 the Coalition has identified $10 billion in gross savings although these are offset by increases in outlays of $6 billion including those associated with compensation for the Goods and

Services Tax. Net savings are $4 billion.

in addition to the big-ticket expenditure items such as defence and social security.

In line with the need for across-the-board restraint, the cost of Federal politicians to the taxpayer will be significantly reduced. Members and Senators will be given a "global" budget. Each Member's global amount will be based on the size of their electorate,

its location and the Member's Parliamentary duties. The global limit provided will be 10 per cent lower than Members' current spending.

On top of this general reduction, the COMCAR fleet will be reduced and the use of VIP aircraft will be initially restricted and ultimately its size will be reduced significantly.

Political grants to trade unions and lobby groups will be abolished.

Industries will experience reductions in Budgetary assistance, as well as the accelerated reductions in tariff protection.

Jobs in the public service will be reduced in line with reductions in overmanning and improvements in efficiency.

Social security is the largest single item of Commonwealth Budget outlays with spending of about $26 billion in 1991-92. The Coalition has

sought savings which will encourage greater self-reliance. At the same time, we have ensured that no-one is left without a safety net.

While there are significant cuts to some social security outlays, the Coalition has sought to target assistance to the genuinely needy. The best example of this is that we have deliberately and significantly

over compensated the age, invalid, wives', widows, war widows, sole parent's, service, disability and carer's pensions.

In all areas of income support and family assistance there will be a uniform and realistic assets test. In times of individual extreme economic circum-stances, the income test only will apply.

Across the range of portfolios, the Liberal and National Parties will make substantial savings as shown in Table 6.6 on the following page.

Savings will be achieved by:

• better targeting of programs to those who need them;

Every area of government spending has been examined to eliminate waste and inefficiency. • greater efficiency in the way programs are managed and in the way services, benefits A broad range of groups in the community will be and assistance are delivered;

affected by the Coalition's spending cuts.

reducing or eliminating programs where Politicians, industry, public servants, trade unions, • there is duplication of other services or where lobby groups and those defrauding the system will p all share the burden of the reductions in expenditure provision of benefits or services by government is no longer appropriate; andFightback! - It's your Australia 53

TABLE 6.5

FAMILY ALLOWANCE RATES

(A) Up to $30,000, Family Allowance rates will be:

No of Children New Rate Per Fortnight Old Rate

1 $ 40.00 $ 20.00

2 $ 80.00 $ 40.00

3 $120.00 $ 60.00

4 $173.40 $ 86.70

5 $226.80 $113.40

extra child $ 53.40 $ 26.70

(B) Between $30,000 - $40,000, Family Allowance rates will be:

No of Children New Rate Per Fortnight Old Rate

1 $ 30.00 $ 20.00

2 $ 60.00 $ 40.00

3 $ 90.00 $ 60.00

4 $130.05 $ 86.70

5 $170.10 $112.40

extra child $ 40.05 $ 20.25

(C) For Families with combined income in excess of $40,000, the rates of Family Allowance will be increased with reduced cut off levels:

No of Children Rate per Fortnight FA not paid if

income exceeds

1 $ 21.20 $55,000

2 $ 42.20 $58,000

3 $ 63.60 $61,000

4 $ 91.90 $64,000

5 $120.20 $67,000

extra child $ 28.30

54 « Fightback » ! - It`s your Australia

•

greater cost recovery by charging for commercial services and encouraging private sector funding of some programs.

Keeping Government In Touch

Perhaps the most accurate electoral perception of Canberra bureaucracy and government is that they have become increasingly out of touch in recent years. This is no better evidenced than by the

appallingly inaccurate forecasts and assessments of the current recession by both Government departments and advisers.

There is also a mounting body of opinion that believes that existing government structures mitigate against significant and dramatic change and policy development to that end. This view tends to argue that it will become increasingly important to inject experienced and talented outsiders with first hand experience of the reform tasks in particular

areas. To that end, we will review existing staff recruitment, transfer and promotion policies and contracting arrangements to permit new talent to be injected to all levels of the Public Service. That will

include making a number of key, senior appointments from outside - from Departmental head level down - for specific time periods to do specific jobs.

The Coalition also accepts the ongoing need to bring the government processes closer to the people and their problems and is therefore committed to:

moving the relevant divisions of the main economic advisory departments to other parts of Australia where they will be directly exposed to our economic and industrial

problems. Specific examples of beneficial moves include:

• the economic conditions section of Treasury to be based in Sydney or Melbourne where the main financial and business operations are headquartered;

• the foreign investment division of Treasury moved to Melbourne;

• the financial institutions division of Treasury to be moved to Sydney;

• specialist divisions of Industry and Commerce will be moved to Sydney or Melbourne; and

• elements of the Department of Primary Industry and Energy will be moved to a regional centre;

completely revamping of the role of the Industry Commission to upgrade its role in monitoring the progress of micro-economic reform and a stronger focus on

"benchmarking". The Industry Commission would have the specific task of identifying best international practice, industry by industry,

activity by activity, with an important educational role to emphasise the need for us to match international best practice, in everything we do;

extending the regionalisation of key social and tax collecting department to both regional centres and suburban areas of major centres.

Making Use Of Private Sector Expertise

As well we will take advantage of the best private sector practice in the provision . of services currently provided by the Government.

Many of these services can be corporatised, privatised or contracted out with significant savings to the taxpayer.

Over many years, governments have increasingly and inappropriately involved themselves in the provision of goods and services that are more efficiently provided by the private sector. Public sector activities are often shielded from competition. Individual firms in a competitive private sector have no option but to minimise ,their costs and maximise efficiency if they are to prosper. This . means they must be innovative and responsive to changing

demands.

The users of many services currently supplied by government would benefit considerably if these services were delivered by the private sector. The contracting out of such services will provide a better

definition, and will enable more direct targeting, of the service provided. It will also enable the level of, and need for, community service obligations to be accurately assessed and be more cost efficient.

For example, research indicates that at least 20 per cent can be saved in the cost of delivering a service if it is contracted out. The Industry Commission has estimated that contracting out a range of services currently provided "in-house" by all levels of government would generate savings of $3.4 billion a year, Australia-wide.

Services that can be contracted out include:

• office cleaning and waste collection; • security and fire protection; • computer services; • transport and storage management;

• catering and laundry; • property management, construction and maintenance; • training; • laboratory analysis.

Implementing this extensive program of contracting out will free resources tied up in the public sector and reduce public spending while providing better services.

« Fightback » ! - It's your Australia 55

TABLE 6.6

THE COALITION'S THREE YEAR EXPENDITURE PROGRAM (1991/92 DOLLARS)

Increases Decreases Net Savings

in Outlays in Outlays

PORTFOLIO

General Savings (Political) 0 47 47

Departmental Efficiency Saving 0 249 249

Aboriginal Affairs 0 90 90

Administrative Services 0 220 220

Arts, Heritage and Sport 0 60 60

Attorney-General and Justice 0 52 52

Communications 2 76 74

Community Services and Aged Care 0 0 0

Corporate Law and Consumer Affairs 3 13 10

Defence 300 500 200

Education 403 173 -230

Employment and Training 35 300 265

Energy and Resources 0 440 440

Environment 0 10 10

Family Assistance 1060 0 -1060

Finance 0 6 6

Foreign Affairs 0 209 209

Health 698 1509 811

Housing 180 400 220

Immigration and Ethnic Affairs 0 21 21

Industrial Relations 0 79 79

Industry and Commerce 0 53 53

Land Transport 0 87 87

Primary Industry 0 497 497

Prime Minister and Cabinet 0 34 34

Privatisation (Public Debt Interest) 0 1328 1328

Science and Technology 0 20 20

Social Security 2643 2415 -228

Tourism and Aviation 0 23 23

Trade 0 70 70

Treasury 475 787 312

Veterans' Affairs 0 8 8

SUB TOTAL 5799 9776 3977

Redundancy Allowance 200 0 - 200

Telecom Debt Repayment 0 275 275

NET TOTAL 5999 10051 4052

56 « Fightback » ! - Its your Australia

9.

PRIVATISATION

In addition to cutting Government waste, the Coalition is committed to a major privatisation program of Commonwealth authorities which undertake essentially business functions.

The Commonwealth currently owns and operates over six hundred trading organisations, statutory authorities and business enterprises many of which clearly could, and should, be owned by their

employees and private sector investors.

Privatisation, accompanied by increased competition, will generate greater efficiency, higher productivity, lower prices and better services and is essential to deregulating key sectors of the economy

such as transport and communications. Privatisation will help to maximise the gains from increased competition, enable a more appropriate role for government, reduce public sector debt, widen community share ownership and facilitate enterprise

bargaining.

The Coalition will undertake a significant program of privatisation including:

• Qantas • Commonwealth Bank (remaining shares) • Australian Industry Development Corporation (remaining shares)

• Snowy Mountains Engineering Corporation • Australian National Line (remaining shares) • The Pipeline Authority • Commonwealth Serum Laboratories

• Australian and Overseas Telecommunications Corporation (formerly Telecom and OTC) • Federal Airports Corporation • Medibank Private.

The Coalition's program of privatisation will encourage all Australians to become shareholders and will also ensure that employees become participants in ownership and profit sharing.

10. TARIFF REFORM AND ANTI-DUMPING MEASURES

Traditionally, Australian policy makers believed that a small domestic market (with small production runs and higher capital costs per unit of production)

meant that our manufacturing industries needed protection to survive.

The resulting higher prices were sometimes justified as the cost of maintaining "strategic" industries or protecting employment. At other times, policy makers justified protection as necessary for "infant

industries" to survive to maturity when they would no longer need help.

But more than 40 years after the first "all-Australian car", tariffs still add about $4000 to the cost of the

average vehicle sold in Australia. This is the tariff required to make local cars competitive with imports. Yet the motor industry has been in decline for more than a decade, shedding more than 20,000 jobs and steadily losing market share. Our most

protected industry, textiles, clothing and footwear, shed 17,000 jobs in 1990, the year when protection reached an all-time high.

The clear lesson is that, under our existing commercial culture, protection has neither created viable export industries nor protected local jobs.

On the other hand, over a decade which has seen significant tariff cuts, manufacturing exports have increased from 9.1 to 14.7 per cent of total exports.

Cutting tariffs, far from heralding the demise of manufacturing industry, has actually helped our manufacturers to lift their game. Adding genuine

microeconomic reform to the policy mix will lead to a further major expansion of manufactured exports.

However it is important to recognise that tariff reduction should proceed in tandem with genuine micro-reform which is designed to reduce or eliminate the major cost disadvantages which

bedevil our industries. The Hawke Government has failed to deliver the necessary reform and more recently has compounded this failing by its interest rate and exchange rate policies.

The Liberal and National Parties will cut tariffs to negligible levels by the Year 2000 as part of a reform agenda which allows our firms to take on, the best in the world and win. In this respect, tariff cuts

are not an attempt to create a "level playing field" in international trade. We are not trying to achieve a textbook economic orthodoxy derided by our competitors. Rather, we are putting our own

domestic house in order. We are eliminating unnecessary domestic costs so that our export industries can become leaner and more competitive.

Eliminating motor vehicle tariffs is not a favour to foreign car companies -it saves Australian consumers an unnecessary tax, frees their money for other purposes, and forces local car companies to match best international practice. It actually means more jobs in the future.

There are two other important dimensions to our tariff policy. One is a significantly improved set of anti-dumping procedures. The other is a major international push: bi-lateral (for example CER), regional (for example APEC), and multi-lateral (for example GATT) to improve access to international markets and break down corrupt international

trading practices.

Unfair trading practices by locally based companies are not tolerated within Australia. The Liberal and National Parties consider that unfair trading practices by overseas producers should not be tolerated in Australia either.

Fightbackl - It's your Australia 57

A Hewson Government will ensure a fairer trading

environment by introducing effective anti-dumping and countervailing procedures. In particular, we will significantly reduce the inquiry period for anti-dumping and countervailing cases.

The changes proposed will not allow anti-dumping and countervailing procedures to be used as an alternate aveneue for unlimited assistance. This would patently work against our objective of negligible protection, at most, for all Australian industries by the Year 2000. They will, however, ensure that unfair trade practices and claims of such practices, are dealt with quickly and effectively, thus giving greater certainty to both domestic and foreign producers.

In respect of anti-dumping procedures, domestic producers must currently wait 255 days to conclude an anti-dumping action and anti-subsidy restrictions are not getting the priority they deserve. A Hewson

Government will put arrangements in place so that preliminary findings can be in place in 65 days, and final hearings concluded in a maximum of 155 days. We will also extend the sunset provisions for duties from three to five years.

A Hewson Government will seek to eliminate the major disparities in health, quarantine and other restrictions and standards that exist between our exports and imports.

A Hewson Government will also review developing country preferences where those countries have developed to the point where they no longer need preferences.

11. INFRASTRUCTURE REFORM

Australian industry struggles with an infrastructure that falls significantly short of best international practice and which imposes cost disadvantages of forty to fifty per cent.

(a) Land Transport A Hewson Government will abolish petroleum excise and slash transport costs.

The Commonwealth will retain responsibility for national highways which will be funded from general revenue. Over the longer term, responsibility for road funding will be transferred to

the National Road Transport Commission and roads will be funded through user charges as proposed in the current negotiations being undertaken in the context of the Special Premiers' Conference.

An efficient national railway is essential to the revitalisation of Australia's land transport. A Hewson Government will reorganise Australian National Railways on a strictly commercial basis

and ensure that the National Rail Freight Initiative does have some substance and facilitates an attack on basic problems such as over manning.

(b) The Waterfront and Shipping

Australia's waterfront is marked by excessive government involvement, a lack of competition, chronic overmanning and restrictive work and management practices. For years, the prevailing work culture meant that two wharfies were "needed"

to drive a crane with one set of controls; that two wharfies were required to be on board ship during unloading whether required or not; and that casual staff could not be hired during busy periods

necessitating flying in extra wharfies from other ports.

A Hewson Government will end wharf workers' "jobs for life" scheme, implement voluntary unionism and break the Waterside Workers' Federation monopoly on the waterfront. The move

to enterprise agreements will give stevedoring companies the right to recruit and manage their own workforces. We will privatise port authorities and

promote competition within, as well as between, ports.

Coastal shipping, and Trans-Tasman shipping in particular, is in a scandalous state, which is why some companies send cars to New Zealand by air

rather than risk the costs, delays and damage of sea transport.

We will remove the requirement that coastal shipping remain an Australian monopoly, end the union-to-union Shipping Agreement which keeps foreign ships out of the Trans-Tasman trade, and fully privatise the Australian National Line (ANL).

(c) Telecommunications More than a year after the Labor Party Conference permitted the Government to license a Telecom competitor, the only real change is that an efficient OTC has been merged into an inefficient Telecom.

A Hewson Government will fully privatise Telecom and open our telecommunications market to full competition. Austel will be retained and given more teeth and more resources, not in order to impose

unnecessary "standards" but to ensure the full-blooded competition which will give consumers lower prices and better services.

(d) Aviation The Government has replaced the two airline policy with a three airline policy. The resulting price reductions are but a forerunner of the potential benefits from full deregulation.

We will allow Qantas and Air New Zealand to compete on domestic routes and deregulate Australian airports so that they operate on a more commercial basis and offer more effective access to new competitors. We will totally privatise Qantas

and Australian Airlines as a . matter of top priority. We will accelerate the construction of the third runway at Sydney Airport and proceed with the construction of a third airport.

58 Fightbackl - It's your Australia

We will pursue an "open skies" policy which will

involve the renegotiation of air service agreements and the further encouragement of international charters to operate to and from Australia.

(e) Utilities

Microeconomic reform in the area of utilities is principally a State responsibility. Nevertheless, the duplication evident in current plans to build a hydro-electric dam on Queensland's Tully Mill Stream

while a state-of-the-art power station stands under-utilised across the border in NSW, points to the need for a national perspective.

A Hewson Government will negotiate with the States to establish free inter-State trade in electricity through the establishment of a national power grid

(AUSELGRID). This will improve efficiency and lower costs to consumers through increased competition and a more productive use of resources.

12. COMPETITION POLICY

Our policies to free the labour market, accelerate microeconomic reform and cut business .costs will stimulate greater competition. Many of the markets

which are now rigged, such as labour, trans-Tasman shipping and aviation, will experience full competition for the first time. In addition, in co-operation with the States, we will extend the

operation of the Trade Practices Act to Government instrumentalities which can abuse market power just as much as private business.. The Trade Practices

Commission will be given additional resources.

13. WORLD CLASS SCHOOLS, UNIVERSITIES & TRAINING

Australian schools, universities and training institutions need to aim at, and achieve,performance at international levels.

It is not enough just to maintain standards relative to our own past performance, when Australian students are falling behind those of other countries.

Education and training of international standard are central to our determination to ensure real job opportunities and the opportunity for satisfying lives

for all Australians.

In its broadest conception, education is the gift of present to future generations. The care we put into education is a measure of our consideration for our children and our hope for the future.

The deepest problem in Australia's schools and universities is not lack of learning, but lack of spirit. Too many of our educators have lost their zest to teach under a mountain of paperwork and the weight

of union-enforced mediocrity.

Strategy for Excellence Our strategy to lift the standards of Australian education and training centres on the creation of flexible, financially autonomous, and locally

managed institutions accountable to informed parent and student markets and on moving away from centralised, confrontational industrial relations.

We will increasingly move towards funding students rather than institutions and rewarding strengths and excellence rather than non-performing providers.

Only such a strategy will ensure that the fundamental conditions for outstanding educational institutions will be achieved. These are effective institutional leadership, clear educational goals

emphasising achievement, diversity of institutions to meet the diversity of student needs, responsiveness to the needs of students, parents, the community and industry, improved status and

conditions for teaching and academic staff, and accountability to the community.

Our strategy is based on our commitments to:

regard education and training as among Australia's most vital investments. Over the rest of this decade, we will commit to education and training new spending of over $3 billion. The program for the first term of

Government is detailed in this package as is its funding.

improve information about standards actually being reached so that deficiencies can be identified and students properly helped; so that resources can be better targeted; and so progress towards international standards can be monitored. We firmly believe that such a program will help to restore community confidence in our schools and training institutions.

World Class Schools

The key to the establishment of world class schools is a much greater willingness to invest in teachers, to strengthen parental choice of schools and local initiative, and to provide better information about the success of programs and the quality of learning.

In particular we will:

free all educational services from the impact of the Goods and Services tax (i.e. we will zero-rate education and training);

establish programs creating additional professional development opportunities for teachers in key areas of literacy and numeracy, language, science and technology, worth $20

million a year. These will include a $10 million Quality of Teaching program to support `best practice' initiatives in professional develop-ment, and tertiary professional development

« Fightback » ! - It's your Australia 59

units especially in science, mathematics and

technology.

establish national Australian Teaching Excellence -Awards to acknowledge outstanding achievements in teaching on the nomination of schools and parents. We see

raising the status of teaching in the community as a key objective in lifting the quality of schooling.

work through the Australian Education Council and other forums to correct the structural problems of the teaching profession, such as restrictive awards and regulations preventing freedom of movement between sectors and dependence on centralised employment practices.

structure programs to enhance initiative at the school level and strengthen parent choice within the government school sector;

• a "Literacy Start" program of $5 million per annum will provide a much more effective way of supporting early intervention to improve literacy skills during the vital early years, based on funding `best practice' initiatives;

• a school level excellence program in languages other than English of $5 million per annum will be funded on the basis of school-level initiatives and competitive

tender;

• a "Schools of Choice" program for government schools of $10 million per year will support the development of specialised programs in science, mathematics, technology, English and other languages, with parental freedom to apply for admission to such programs for their children;

• establish with the States and non-government school systems national monitoring of standards in literacy, numeracy and other core skills which are required for successful workforce and

social participation;

strengthen the right of low and middle income families to choose a school which reflects their particular values by significantly increasing per

capita grants to non-government school pupils, and by abolishing the highly restrictive so-called "new schools policy" which has prevented many thousands of parents from setting up or extending their school of choice;

recognise that gifted children are today a disadvantaged group, and that such children not only have an entitlement to full educational opportunity to develop their talents, but that it

is very much in the interest of the community as a whole to ensure that this occurs. A $2 million program to provide professional development, research and "best practice"

support will be established to help gifted children;

improve educational assistance for rural and isolated children by abolishing the asset test on the Assistance for Isolated Children's scheme,

and setting aside the AUSTUDY asset test in cases of extreme economic hardship as are affecting many rural families at present;

• increase the value of benefits under AUSTUDY to fully compensate for the effects of the Goods and Services Tax.

Training of International Standard

Knowledge and skills of world class standard have underpinned the economic success of nations such as Germany and Japan. Lifting the standards of Australian training to international levels requires the development of an open and competitive training market, the structural reform of the TAPE systems to ensure more flexible institutions and decentralised leadership and industrial relations, and a clear policy of support for training excellence.

The Liberal and National Parties will:

• respond to the sentiment of the Deveson and Finn reports and provide an additional $520 million for TAPE over the rest of this decade to fund growth, opportunity and world class skills;

• provide for effective monitoring of the key competencies required for success in the workplace;

• abolish the compulsory training levy;

• support a national co-operative effort to raise the profile of career education and develop strategies to facilitate the involvement of • business in career education in schools; • support improved credit transfer arrangements

between schools and training institutions, and training and universities;

• establish a new program to be known as AUSTRAIN which will allow people presently unemployed to be hired at training wages which reflect the duration of their unemployment, so that they have the opportunity to gain sound workplace experience;

• recognise a serious deterioration in the quality of infrastructure in the non-government school sector, and the importance for equal educational opportunity of not letting this • review AUSTUDY benefits to ensure that they sector fall behind. Accordingly we will double are appropriate to the training sector; capital grants to the non-government schools to $162 million per annum (in 1990/91 dollars);60 « Fightback » ! - It's your Australia

work with the States to ensure that "at risk"

young people have available appropriate assistance to help them make the transition from school to further training and . into employment;

support national competency based training and a national system of certification for skills;

end intrusive Commonwealth accountability requirements for TAFE and support development of locally managed and

responsive TAFE colleges.

World Class Universities

The Liberal and National Parties will restore independence to universities and increase support for the basic research effort. Links with industry should be encouraged, but in ways which will

enhance research opportunities rather than through the disruptive ad hoc policies pursued by Labor.

The Liberal and National Parties will:

• terminate the policy of forced amalgamations and permit institutions which wish to dis-amalgamate on educational or efficiency grounds to do so;

• establish an effective student market for higher education by basing the recurrent funding of universities on a system of national education awards given to students on the basis of merit and scholarships;

• restore universities' essential freedom to set their own courses and end the process of bureaucratically approved profiles;

• free the academic labour market from the centralised industrial relations system to achieve better conditions for academic staff;

• give universities the freedom to offer additional places to Australian undergraduates - beyond the government funded places - on their own terms;

• maintain and extend the Higher Education Contribution Scheme to ensure that equitable deferral arrangements for all students are available;

• establish an independent Higher Education Commission to advise the Government on university accreditation and funding;

• provide an additional $245 million over the rest of this decade for research to train outstanding young graduates and to encourage clearer research links with industry. Two hundred new post-graduate research awards will be made

available, and the value of all awards will be increased by $200 0. $25 millio n per year will

go to a program to reward institutions, which are successful in obtaining research contracts from industry, with additional basic research funds.

14. GENUINE ASSISTANCE FOR THE UNEMPLOYED

There is something fundamentally wrong with the existing system of income support which, in theory at least, allows a person to leave school, go on the dole and remain there until reaching pension age. By contrast, the Liberal and National Parties believe that only people who are serious about seeking work have a right to a benefit. Because the best form of

welfare is work, our package is oriented towards finding a job rather than simply providing a benefit.

Every unemployed person will enter an integrated nine month program to return to work:

During the initial three months, people receiving the Job Search Allowance must provide the names of at least two prospective employers approached in the previous two

weeks.

At three months, unemployed people will be required to attend interviews, alerted to a range of job training programs and be warned that the Job Search Allowance terminates after nine months. During the subsequent three months random checks with named prospective employers will ensure full compliance with the work test.

After six months' on Job Search Allowance, two prospective employers must certify in writing every two weeks that beneficiaries have approached them in person seeking work.

Unemployed people will at that time become eligible to participate in AUSTRAIN.

Those who fail to satisfy the progressively tighter work test or who refuse to participate in the various training programs will no longer eligible to receive income support.

AUSTRAIN is an innovative reform which allows employers to recruit the jobless at a special training wage set at 90 per cent of minimum wages for those unemployed for more than six months. AUSTRAIN provides those hitherto unemployed with the dignity

of performing valuable tasks plus the type of training necessary for a full-scale return to work.

We will ensure that AUSTRAIN participants are additional to firms' normal labour requirements and do not fill existing jobs. We will establish Local Employment Boards, comprising local business, civic and Government representatives to supervise AUSTRAIN contracts.

« Fightback » ! - It's your Australia 61

Someone without a job after nine months has three

options:

Subject to Local Employment Board approval, the long-term unemployed may enter a work-for-benefit arrangement with a voluntary organisation which provides relevant work

experience.

The long term unemployed may enter Skillshare-style community-based training programs administered by the Boards.

Finally, unemployed people who meet the current liquid assets test, are unable to participate in work-for-benefit or AUSTRAIN and who continue to satisfy a rigorous work

test will qualify for Special Benefit.

None of our policy changes, however, will leave any individual without access to taxpayer-funded support where there is neither the capacity nor the

means for self-help.

A Hewson Government will give an extra $50 million to voluntary agencies, particularly those at the "sharp end" of the fight against poverty. We will invite the major private welfare agencies, such as the Salvation Army, Smith Family, St Vincent De Paul, Sydney City Mission and Brotherhood of St Lawrence to submit spending proposals to qualify for extra funds.

In addition, the welfare rules need to be applied so that all equivalent categories of beneficiary are treated equally.

We will lift the pension age for women towards that applying to men. Pension ages were set when average life expectancy was much lower and when women were not expected to enter the paid workforce. Maintaining a different pension age for men and women is no longer compatible with the general move to non-discriminatory arrangements.

15. A REALISTIC IMMIGRATION PROGRAM

In the immediate post-war period, Australia welcomed hundreds of thousands of refugees from ravaged Europe. Since then, we have made a home for the victims of war and oppression in many parts

of the world and welcomed millions of people who have wanted to build a new life in a new land. The Coalition Parties are proud of the contribution we have made to that process over many decades and we are determined to continue it.

A generous refugee and humanitarian component aside, Australia's immigration intake must meet Australian priorities. Australia has a duty to its migrants - to ensure that they have access to full

participation in our national life. And our migrants have a duty to their adopted country - to give an overriding and unifying commitment to it.

In the long term, we need to match our nation's performance with its potential. To properly develop our country and to do justice to its vast natural resources, we need more people. Environmental

Iimitations do not prevent Australia from supporting many millions more at a higher standard of living, and with better environmental protection, than we

enjoy today. Existing concerns, however, over continuing access to clean water and ensuring sustainable land use warrant continuing study and research.

In the short term, however, the number of new migrants coming to Australia needs to take account of existing economic conditions. In the midst of the

worst economic crisis since the Great Depression, there are two constraints on our immigration intake. Fewer well-qualified migrants want to come here -in fact, over the past year, applications have fallen by up to 20 per cent across all categories. And

Australia's capacity to accommodate a large migrant intake is substantially reduced.

The Hawke Government's fundamental error has been to set numerical targets and depress migrant qualifications to meet them.

In the short term, a Hewson Government will substantially reduce immigration to a level significantly below the Government's current projections.

In particular, the balance between family reunion and skilled migrant categories should change to favour skills - although compassionate migrant entry under family reunion and humanitarian provisions

(particularly for refugees) will continue to be accommodated responsibly.

Lower migrant intakes are not, in themselves, a solution to Australia's economic difficulties which will only be overcome by a sustained policy of reform, as set out in this document. Such reform will enhance Australia's prosperity and increase our capacity to sustain a Iarge scale immigration program.

16. STREAMLINING DEVELOPMENT AND PROTECTING THE ENVIRONMENT

Economic growth and environmental protection can be mutually supportive.

In Government we will implement a concerted strategy to combat land degradation, to maximise biological diversity, to achieve national minimum standards of pollution control and improved air and water quality, and to encourage energy conservation.

A Hewson Government will pursue a clear set of environmental priorities. We will

« Fightback » ! - Its your Australia 62

i

mplement an integrated strategy to combat land degradation and maximise biological diversity. This will involve support of existing programs as well as working with the States to

develop new approaches to:

re-vegetating over-cleared lands; providing a policy framework which encourages farmers to avoid over-clearing; providing appropriate tax arrangements

for those who, for conservation or preservation reasons, incur expenditure on the protection of native animals and plants.

• target critical areas within the national Land Care program for special attention and reduce the current 18 month period between lodging a land care submission and receipt of

Government funding;

• negotiate with the States to achieve national minimum standards for pollution control and improved air and water quality;

• ensure that Federal Government agencies maintain the best energy management practices so that the Commonwealth plays a leadership role and is able to urge the rest of the community to do as we do (rather than do as we

say);

• ensure that the Commonwealth itself meets strict pollution standards and ends the farce of demanding the world's highest standards but not meeting those already in place.

The Liberal and National Parties are committed to sustainable development.

The nations with the greatest environmental problems are those with weak and struggling economies.

A Hewson Government will promote sustainable development by providing consistent development guidelines which will promote both a growing economy and effective environmental protection. Even the ACTU estimates that nearly $7 billion in job-creating investment is now held up by "green"

tape.

We will: • expedite construction of the third runway at Sydney Airport;

put maximum pressure on the State Government to facilitate the development of the Marandoo iron ore project in Western Australia (which will generate six hundred jobs during the construction phase);

get out of the way so that the Jawoyn people are free to negotiate with the joint venturers of

the Coronation Hill project in the Northern Territory (which would generate four hundred jobs during construction);

scrap Labor's Three Mines uranium policy and permit the Northern Territory's Jabiluka and Koongara uranium projects (which will

generate 1000 jobs during the construction phase and 400 jobs during production) to proceed at the developers' commercial

discretion, subject to the strict national and international safeguards to ensure We and peaceful use of the resource;

• not hinder any pulp mill proposal which meets the current pulp mill pollution guidelines and which satisfies relevant heritage, social and economic requirements;

• give full faith and effect to State or regional forest strategies which are drawn up and implemented according to Commonwealth approved procedures;

• re-examine the tax rules applying to large, long-term infrastructure projects such as the Very Fast Train proposal;

• establish a Prime Ministerial Working Group on Sustainable Development to provide a one-stop shop at Commonwealth level to assess proposals according to pre-specified deadlines;

• review the tax system to ensure that implementing best environmental practice is not hindered by inflexible or outdated rules and interpretations.

17. BUILDING A BETTER FEDERATION

The Liberal and National Parties are totally committed to the Federal Constitution, the cornerstone of our Federation.

We support the Federal system which distributes powers in a way which encourages participation and acts as a barrier against centralist, remote and authoritarian control.

However, there is now broad agreement that Commonwealth-State relations are in urgent need of reform. There is also widespread agreement about the problems which need to be resolved -

duplication, lack of responsibility and apparent lack of co-ordination between different levels of government.

In 1991, the States derived more than 50 per cent of their total revenue in the form of payments from the Commonwealth. In addition, nearly 50 per cent of those Commonwealth payments were in the form of conditional (or "tied") grants. By contrast the Commonwealth raised about 80 per cent of general government revenue but was only responsible for 54 per cent of Commonwealth and State own purpose outlays.

Fightbackl - It's your Australia 63

The separation of revenue raising responsibilities

and spending decisions blurs and thereby diminishes accountability. It also leads to less responsive, less creative and less efficient governments.

In order to maximise competitive pressure, each government has to be, as nearly as possible, responsible for its own revenue raising and expenditure decisions. This allows each State to provide a "tax/service bundle" which has to compete

with bundles from other States. This allows greater choice and a more efficient public sector.

In a nutshell, there is much to be said for "Competitive Federalism" - for competition in policy and in service delivery between the States.

States taxes are a significant source of inefficiency and inequity. In particular, State taxes such as payroll taxes impose a heavy cost on business and investment and, therefore, jobs.

The abolition of payroll tax will be accompanied by payroll tax abolition grants to refund the revenue foregone by the States. The payroll tax refund will be sourced from GST revenue, thereby providing the

States with a more stable revenue base.

The Coalition is favourably disposed to the option of providing the States with a permanent share of income tax. The Coalition would be prepared to "make room" for the States to share directly in

income tax revenue. In so doing, the existing rights of the less prosperous States would be fully protected. No State would be disadvantaged and the relative positions of the States would be preserved.

There would be no separate state income tax.

The Commonwealth would be the sole collecting agency. There would be a standard tax form. Commonwealth and State taxes would be separately identified on one assessment so that the taxpayer can see the amount being levied by each form of government.

The Coalition is therefore in broad agreement with the proposals recently proposed to the Prime Minister by the Premiers and Chief Ministers (in November 1991). In Government the Coalition would use the proposals as a basis for negotiation. In particular, the key features would be:

the States would be accountable for an identifiable component of national personal income tax;

any proposed changes to these arrangements would require the consent of the Commonwealth so as to ensure the effectiveness of the Commonwealth's overall responsibilities for macro-economic policy;

the proposed arrangements would be revenue neutral with no effect on the rate of personal

income tax paid by individuals (ie no double taxation).

Reform of Commonwealth-State relations - in particular, allowing the States to make more of their own decisions on taxing and spending, and to be

responsible for the consequences of those decisions -will be one of the more effective and lasting ways of boosting Australia's economic performance. As a result, we all have the opportunity to be better off. It

would represent, arguably, the most significant single reform of the 1990s.

18. A NEW FOCUS FOR TRADE POLICY

Within a framework of free trade, a Hews on Government will give priority to enhancing our economic interaction with the Asia-Pacific region

where, to date, we have barely scratched the surface of the economic possibilities and have actually lost market share in important regional countries.

In particular, we will work to establish a GATT-consistent Free Trade Area in the Asia-Pacific region. An exclusive, discriminatory trading bloc in our region is not in the interests of Australia, the region or the world. But a regional free trade area

aimed at reducing, and eventually eliminating, trade barriers on a non-discriminatory basis would be an important step in the right direction and we will work through the Asia-Pacific Economic Co-

operation (APEC) forum to achieve this objective.

In addition, we are committed to completing the Closer Economic Relations (CER) process by the end of our first year in government. Our aim is a single internal market comprising Australia and New Zealand, although we believe that a common tariff or a single currency are inappropriate.

In our first year in government we will, among other things, establish a single trans-Tasman aviation market, abolish the Trans-Tasman Shipping Agreement, provide New Zealand firms with domestic status for investment in Australia, and harmonise competition laws, professional and product standards.

19. FOREIGN POLICY

Australia's recent foreign policy has been driven by grandstanding and emotion rather than any clear concept of our real international priorities. We have been too ready to claim credit for positive

international developments and we have become blinded by delusions about our real capacities.

Australia's self-inflicted economic crisis has reduced our capacity for constructive influence in the region and beyond. Important trading opportunities have been squandered while our

general international standing has declined, particularly in our own region where economic performance has far surpassed our own.

64 Figbtback! - It's your Australia

Our international interests will be best served at the

present time by putting our own economic house in order and interacting more effectively with the countries of our region. To achieve this objective we need to reduce our record foreign debt, maximise

our export potential and achieve real reforms in our economic infrastructure.

Australia should be a major economic and political player in the Asia-Pacific region by the Year 2000 -this is our strategic goal. The Asia-Pacific region

will offer the greatest growth prospects in the world for the next four to five decades at least and the greatest opportunities for Australian exporters.

Australia need not, and should not, focus on Asia to the exclusion of opportunities in Europe or the Americas or elsewhere. But in terms of the size of the market and its import needs, the Asia-Pacific region offers Australia special opportunities.

The focus of our foreign policy, of course, extends beyond economic issues to wider political, social and other objectives. We will continue to pursue those objectives on the basis of a clear view of Australia's national interests.

We will promote democratic change and encourage compliance with internationally recognised standards of human rights in a way that is carefully integrated with other concerns that . are central to

Australia's international interests. Australia's particular interest in promoting democracy and human rights will be best served by promoting dialogue for the development of support among all

communities in particular countries that are the focus of our concern.

20. NATIONAL SECURITY

A Hewson Government will ensure our national security through more effective regional diplomacy by strengthening our alliance relationships (particularly with the United States) and enhancing

the capabilities of our own Defence Force.

The Coalition is currently finalising a major review of Defence policy. In terms of the reform package outlined in this document, however, we aim to begin the process of reforming and restructuring Defence expenditure.

It is grossly inefficient, for example, that 24,000 Defence civilians administer 14,500 front line combat personnel. We will ensure that our Defence

Force gets better value for the money it is allocated through accelerated commercialisation of support arrangements and through re-directing an additional $300 million to combat areas of the Defence Force

(see Chapter 15 of the Tax and Expenditure document).

« Fightback » ! - It's your Australia 65

7. CONCLUSION

The Liberal and National Parties are proud of this program and confident of its success. We believe it will achieve the generational change of attitudes which will transform the prospects of Australia over this decade.

This program crystallises the choice facing the Australian people. It is a choice between the uncertainty produced by continuing national decline under current policies, on the one hand, and the confidence in national recovery which a thoroughly planned program of reform alone can offer.

In this paper, we believe we have produced a completely documented case for the necessity of the program we are proposing. It is, we believe, irrefutable.

There is really only one question which Australians should ask: are you less prosperous and less optimistic now than when the Hawke Government came to power?

We are confident that the vast majority of Australians will be better off under our proposals. More than that however, our program opens the way once again to rebuilding the foundations of Australian life, and restoring vitality to the Australian spirit.

Australia, it's now in your hands.

« Fightback » ! - It's Your Australia 66

References Used in this Document

OECD, Economic Outlook Database, No 49, July 1991 (as compiled by the Statistics Group of the Parliamentary Research Service) (p 7).

Reserve Bank of Australia Annual Report 1990/91, August 1991 (p 9).

Australian Manufacturing Council Reference (p 12).

Metal Trades Industry Association Reference (p 12).

Michael E Porter, "The Competitive Advantage of Nations", Free Press, May 1990 (p 3).

Office of Economic Planning Advisory Council (1988), "Raw Materials Processing: Its Contribution to Structural Adjustment", Council Paper No 31 (p 4).

Pappas Carter Evans & Koop/I'elesis, "The Global Challenge - Australian Manufacturing in the 1990's", July 1990 (p 4).

Industry Commission Annual Report 1989/90, AGPS, Canberra 1990 (p 4).

Business Council of Australia Report, "Developing Australia's National Competitiveness", 1991 (p 4).

R Chapman and D Vincent, "Payroll Taxes: An Investigation of the Macroeconomic and Industry-Level Effects of Their Removal", August 1985.

Reform of the Australian Tax System, Draft White Paper, June 1985 (p 17).

« Fightback ! - It's Your Australia 67

Authorised by: John Hewson and Tim Fischer

Parliament House Canberra ACT 2600 Printed by: Online Offset Printers Gladstone Street, Fyshwick ACT 2609