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Monday, 20 May 1985
Page: 2125

Senator SCOTT —My question is directed to the Minister for Finance and refers to the tax package of the Department of Finance. Is the Minister aware that Mr Eric Mayer of the Business Council of Australia has strongly condemned the proposal? Does the Minister agree with Mr Mayer that a broadening of the direct tax base, in association with only minor reductions in personal income tax, would perpetuate, in Mr Mayer's words, 'the strong disincentives for personal effort and reward for enterprise inherent in the current income tax system'?

Senator WALSH —No, I am not aware of Mr Eric Mayer's criticism. From the question I was asked, I do not know whether Mr Mayer was critical of the entire proposition put up in the departmental paper or whether he was critical only of some particular aspects of it. An infinite number of packages and proposals can be put together. Similar packages have been put together by other people. On the question of incentive, I remember reading some years ago some material from the Brookings Institution which, after an assessment of the available evidence, concluded that whether high marginal tax rates were a deterrent or an incentive for greater effort was terribly subjective. The evidence was so mixed that no conclusion could actually be drawn.

I have noticed the propensity of the ultra-conservatives, the Right, or whatever one likes to call them, to believe that there is nothing wrong with high effective marginal tax rates for people on low incomes via withdrawal of benefits in association with an income tax per se. They do not seem to be nearly as disturbed about that as they are about high marginal tax rates for people on upper incomes. That probably tells us more about the prejudices of the individuals concerned than it does about an objective judgment of the effect high marginal tax rates on effort.