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Thursday, 23 August 1984
Page: 266

Senator WALSH (Minister for Resources and Energy)(3.35) —I acknowledge the expertise of the Opposition in the area of unemployment, because in its last year of government the coalition managed to destroy as many jobs as this Government was able to create in its first year in office-that is, the Liberal-National Party Government destroyed a quarter of a million jobs and we have created a quarter of a million jobs. On the basis of that evidence, one must concede that the unemployment expertise of this Parliament is wrapped up inside the Liberal Party.

One would not expect one particular point to occur to Senator Messner, but it is highly significant and is a major reason for the imposition of this tax. Several more responsible, commentators have said, correctly, as distinct from all the wild and unfounded allegations that have been thrown around, which I shall deal with shortly, that as a result of this tax there will be an increase of about 10c a litre in the price of cask wine and-one could choose a higher figure than this, depending on how prestigious the upper end of the bottle market is, but this is a figure I have seen published-80c a litre at the upper end of the bottle market. Those figures are reasonable estimates. It would not occur to someone like Senator Messner or any of his colleagues to think that it is highly equitable for people who buy cask wine, who by and large tend to be the lower income groups, to be taxed at a lower rate on their consumption than those people who can afford the very high prices of prestigious wines or who, via the restaurant trade, patronise the upper end of the market.

This wine tax is a highly progressive tax. It will take a great deal more proportionately from the people who are able to pay for prestigious wines-that is, those whose incomes are sufficiently high to buy prestigious wines at $20 or $30 a bottle or, in very special cases, at even higher prices-than from the ordinary wine drinker who drinks mostly cask or, perhaps, flagon wine. This is a highly progressive tax. One would not expect a party so committed to inequality between individuals as the Liberal Party is to acknowledge or even recognise that this is a highly progressive tax and that it is highly defensible on those grounds. This will probably be the most progressive of all taxes, including income tax, in existence.

Senator Messner —It is a proportional tax, and you know it. It is not a progressive tax at all.

Senator WALSH —I thought that Senator Messner had some understanding of these matters, but apparently I overrated him as I did the Leader of the Opposition ( Senator Chaney). The effects on income distribution of this measure will, without question, be highly progressive.

There are a number of other good reasons for this tax, one of which is in the resource allocation area. The existing beer excise is equivalent, in round figures, to an 80 per cent sales tax. It is widely believed-I acknowledge that this is a belief that I have always shared-that it is indefensible to impose that sort of slug on beer drinkers while totally exempting from taxation people who choose to take their alcohol in some other form. One could say with great- indeed unanswerable-justification that the trouble with Senator Messner, Senator Jessop and Senator Teague is that they hate beer drinkers. All the Liberal and Country Party members hate beer drinkers.

Senator Cook —Silvertails.

Senator WALSH —Yes, silvertails. Perhaps their silvertail background explains why they hate beer drinkers. Existing sales tax arrangements impose a 20 per cent tax on soft drinks, including soda water. Does Senator Messner seriously argue that it is inequitable to impose some tax on an alcoholic beverage- normally taxed in this country under Liberal and Labor governments at extremely high rates-to impose no tax at all on a particular type of alcoholic beverage, and to impose a 20 per cent sales tax on soda water? If that is the belief of members of the Opposition, that as well as hating beer drinkers they believe that people who drink soda water should pay a 20 per cent sales tax, but that people who drink wine-at whatever level of the market, whatever level of price, prestige, snob value or whatever else goes with it-should pay no tax at all, I hope that they will say so.

The assertions that have been made about the effects of this tax are inaccurate conceptually and arithmetically. Firstly, the Opposition has not made clear whether it believes that this tax of 10 per cent, imposed at wholesale level and not at retail level, will be paid by the consumers, that is, entirely added on to price; or by the producers, that is, subtracted from price. Normally, when a tax of this type is imposed its consequences are distributed between both producers and consumers. In this case, given that there is no close substitute for bulk wine, which comprises the majority of wine produced and sold in Australia, the probability is that the tax will be passed on to the consumer almost entirely. In those circumstances, it will have no effect on the price received by producers.

Senator Teague —Why is every member of the Western Australian Parliament so up in arms?

Senator WALSH —Even if the Western Australian Parliament does not like it, I am sure that that Parliament and every other parliament will have its hands out in a year's time to collect 20 per cent of the revenue which comes from this tax, as the States in total will do. Perhaps also, Senator Teague-I suppose it is barely conceivable-the Liberal Party does not have a monopoly on economic illiteracy. In these circumstances, where because there is no close substitute the tax will almost entirely, if not entirely, be passed on to consumers, there can be no reduction in prices received by producers. The only way, therefore, in which producers could lose from the imposition of this tax would be if it affected the volume of sales.

Estimates have been thrown around, and repeated by Senator Messner, that sales will decline by as much as 14 per cent because of a 10 per cent sales tax imposed at wholesale level, and, for reasons that I shall explain later, the increase in price at retail level will be something lower than 10 per cent. It is possible that there could be some effect on consumption. The 14 per cent decline figure is based on, I believe-although Senator Messner did not cite it- estimates made by Tsolakis, on data from 1955 to 1979. All such estimates of demand elasticity are, of course, fallible. In this case those estimates are likely to be particularly fallible because for most of the period under review wine, particularly table wine, was not established on the Australian market as a mass consumed drink. As to more recent estimates, I cite, for example, Clements' 'Taxation of Alcohol in Australia' in Taxation Issues of the 1980s, published by the Australian Tax Research Foundation in 1983. He estimates that the likely effect on consumption of a 10 per cent sales tax would be a 3 per cent decline in consumption. The highest possible defensible estimate in Clements' view was a 4 per cent decline in consumption, which, incidentally, is less than the industry's present and 10-year growth rate.

As I said before, all such estimates are fallible. However, we have some empirical evidence of the effects on consumption of a tax of this magnitude. Last year the Victorian Government imposed a tax-it was not a simple sales tax but a complicated arrangement-but its effects on prices were comparable with the effect of a 10 per cent sales tax applied, as our sales taxes are always applied in this country, at wholesale levels. There is no evidence that that sales tax imposed in Victoria had any effect on consumption at all. A figure of 14 per cent for a decline in consumption is beyond the bounds of credibility. Such elasticities are feasible only when a close substitute exists. I invite all members of the Opposition to nominate the close substitute, as an alcoholic drink, for cask wine at $4 for 4 litres or, in some cases, even less than $4. The only alcoholic substitute is beer, which, for the same alcoholic content, costs about $12. If one moves into spirits, the equivalent alcohol level is probably even higher. But the nearest substitute product for wine is beer, and for alcohol equivalent levels it is three times the price. That is the underlying reason why more recent estimates of demand elasticity have suggested that consumption is quite unresponsive to price changes, and the actual empirical evidence from Victoria more than confirms those pre-existing estimates .

Senator Withers —What about the Hawke pledge?

Senator WALSH —I am glad that you reminded me of that, Senator Withers, because I wrote down what Senator Messner said. Senator Messner said 'In the halcyon days before March 1983', and he quoted from something that the Prime Minister said at the time. Sometimes I, too, look back with envy on those days of pristine innocence, before we discovered that the discredited former Treasurer was fibbing about the size of the deficit and the deplorable state in which he left the Australian economy. At the time, the present Prime Minister, in good faith, gave that undertaking. He, like all the rest of us-I suppose it is a considerable concession to acknowledge that we could ever have been so naive- believed that the former Treasurer was telling the truth about the state of the economy. Of course, when we came into government we found out differently. Our days of innocence were ended. We found out that instead of facing a $6 billion deficit, as the discredited former Treasurer had asserted, we were facing a $10 billion deficit.

I do not mind stating that a number of people in the Government gave serious consideration to taking a measure along these lines last year. It was deferred principally because the industry was to be given some time to adjust itself, I suppose, to more realistic expectations. We did not do what the discredited former Government would have done. That Government would have slapped on a tax straight after the election. We have a lot more integrity than the former discredited Government, and we are doing what is the right thing prior to an election instead of afterwards.

Senator Teague —You have no integrity at all. You gave a promise and you broke it.

Senator WALSH —Senator Teague did not seem to have any trouble in this place for however long it is that he has been a member of it-however long that is, it is too long-in supporting and coping with the yard long list of broken promises which his former leader piled up.

Senator Withers —That is no excuse for your being as bad.

Senator WALSH —But I have just said that we are not nearly as bad. We are incalculably better. It has been said-I regret to say that it was said by someone who ought to have known better, and that is Mr Don McWilliam-that as a result of a 10 per cent sales tax at wholesale level there will be a 15 per cent increase in retail prices. I want to take the Senate through a little exercise here. Probably Opposition senators will not be able to follow it, but I am sure that Senator Cook and Senator Elstob will be able to do so. If we assume that there is normally a 20 per cent mark-up between wholesale and retail level in wine marketing-I suspect that it is probably somewhat higher than that, but it would strengthen my case if it is higher-the imposition of a 10 per cent sales tax will increase retail prices by about 8.5 per cent. Mr McWilliam apparently believed that there would be an increase in retail prices of 15 per cent. To accept that as a realistic estimate one must assume that wine retailers have sufficient market or monopoly power to increase prices at will, at least within the range of around 10 per cent of present levels. The question then arises that if retailers have that sort of market or monopoly power, why are they voluntarily withholding the exercise of that power now? Why did they not all increase their prices by 10 per cent yesterday since, for Mr McWilliam's conclusion to remain correct, they could have done that without affecting their sales volume?

Senator Townley —Your arithmetic is wrong, too.

Senator WALSH —I am sorry but it is not wrong. I shall give the honourable senator a note on it afterwards, if he wishes. I daresay I would not be able to explain it in terms that would be comprehensible to the honourable senator. Why, if that sort of market monopoly power exists in the retail sector now, it is not being utilised is, and no doubt I suspect will remain at the conclusion of this debate, a matter for wide-eyed conjecture.

The Opposition has demonstrated yet again that it is bereft of any coherence or long term economic overview or strategy. Instead of a strategy or coherent policy, it practises sequential appeasement of pressure groups and the interests of pressure groups, however misconceived they may be. The plain and simple facts are that almost in its entirety this tax will be passed on to consumers, and in the eyes of believers in a progressive taxation system no more equitable tax exists. Because that tax will be passed on, it will have no effect on the prices received by producers. It may have some effect on the volume of sales. There is little doubt, however, that the effect on the volume of sales will be less than the normal rate of growth in the market. However minuscule that figure is, the Opposition asserts that it justifies the maintenance of a system of taxation which is irrational in resource allocation terms, regressive in income distributional terms and, above all, aimed straight at beer drinkers, reflecting the fact that all members of the Opposition who support this motion hate beer drinkers.