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Thursday, 8 June 1989
Page: 3717


Senator MICHAEL BAUME(9.11) —The Opposition will move an amendment in relation to the second reading of the Sales Tax (Exemptions and Classifications) Amendment Bill 1989 and has moved an amendment to the Taxation Laws Amendment (Rates and Rebates) Bill 1989. Paragraphs (a) and (b) of our amendment to the Sales Tax (Exemptions and Classifications) Amendment Bill state:

(a) that this Bill arose fundamentally because of the Government's blatant exercise of attempting to manipulate the Consumer Price Index by lowering the excise tax on beer while introducing a sales tax on normal strength beer;

(b) the Government's failure more generally to reform the ramshackle indirect tax system, which is littered with inconsistencies and anomalies;

The phrase `inconsistencies and anomalies' is an example of the marvellous words the Treasurer (Mr Keating) continually uses. They are seen continually in tax measures. One finds under that sort of heading the sneaky introduction of a wide range of consumer taxes by a government which swore, with the same sort of integrity it has shown in regard to every other promise it has broken, not to move in the direction of consumer taxes which it claimed were disgraceful when it was alleged that the Opposition was pursuing that course. Under the heading `inconsistencies and anomalies' this Government has introduced a sales tax on orange juice, flavoured milk, ice-cream and a whole range of consumer items-in other words, a consumption tax on items used particularly by the families and children of this nation. Whenever I see the words `inconsistencies and anomalies' I reach for my cast iron knickers. It is the classic way this Government hits the ordinary families of Australia. Our amendment in relation to the second reading of the Taxation Laws Amendment (Rates and Rebates) Bill notes that:

(a) even after the July 1989 tax cuts, the Hawke/Keating Government will remain the highest taxing Government in the post-war history of Australia;

(b) the long overdue tax cuts will substantially be eaten up by the consequences of the Government's high inflation and high interest rate policies; and

(c) it is vital that economic measures be implemented to lower inflation and interest rates if Australia is to see a sustainable reduction in the tax burden and in the enormous net foreign debt of $103 billion'.

Those amendments basically sum up the disaster that this nation is now facing under the economic mismanagement of Mr Keating. It is extraordinary, for example, that the Prime Minister and Mr Keating are going around pretending that, because the foreign debt is not owed by the Government itself-that 60 per cent of it is owed by the private sector-therefore somehow the Government is not responsible. Actually, the appropriate word is `irresponsible'. The Government is irresponsible to claim that it has no responsibility for the size of that foreign debt. Clearly, if this Government's economic policies meant that Australia could pay its way in the world we would not have to beg $1.5 billion worth of cash each month to settle our overseas bills in the way we have to at the moment. It was a vital part of the last Budget that that monthly bill would be reduced to something like $750m a month instead of the $1.4 billion that we have been running at.

The Government's forecast for the current account deficit was about $9.5 billion, whereas it now looks like being $15 billion. The reason for this is simple: this Government's economic management has been absolutely hopeless. It has depended almost entirely on monetary policy. There is no doubt that monetary policy simply has not worked. It is not good enough to rely on interest rates to regulate this economy. One of the disastrous consequences of this Government's reliance on interest rates, and how they do not work in controlling the economy, can be seen by looking at the housing sector. I do not want to go into this area too much tonight because I hope to have an opportunity to discuss it on another occasion.

The simple reality is that the banks and the building societies have not felt capable, in a competitive environment, of passing on to Australians the real cash flow impact of higher interest rates. That means that the banks have chosen to extend people's mortgage loans for many years-in fact, for some people to infinity. This means they will never pay off their homes. That decision has been taken by the banks so that Australians will not suffer a massive withdrawal of money from their pockets as a result of huge interest rates-but their debt will become greater. In other words, they are not suffering the pain now but they will suffer it in the future. The reality is that sooner or later that pain will be suffered for a variety of reasons. One of the reasons is that the Government wants people to suffer. It is vital for the Government's economic policy for the people to suffer.

The banks and building societies have softened the blow on Australians with these huge interest rate rises by not increasing the amount that most Australians have to pay each month on their mortgage. This has had one extraordinary consequence. It has reduced the effectiveness of the Government's monetary policy. One of the reasons the Government's monetary policy has failed is that it has not had an enormous impact on consumption. In the area of housing, one of the major debts Australians face, there has been no increase relative to the size of the increase in interest rates and no increase in the size of the money being drawn out of circulation to reduce the level of consumption capacity that people have.

The consequences of that are very simple: if the Government increases interest rates but the amount of money that people pay each month is not increased, then monetary policy is not working. If the Government's strategy is to reduce demand by increasing interest rates, then clearly that objective is being frustrated if the banks do not charge people more per month. That is exactly what has happened. That is one of the reasons why these high interest rates, and rising interest rates, simply have not held down demand in the way this Government wanted. That is why these huge interest rates have not stopped the big rises in imports that the Government wanted to stop. This demonstrates the Government's total failure to understand what really happens in a free market economy. It, its economic planners and its apparatchiks are only competent, apparently, in an area where there is control. But those controls have all gone. There is now a free market and, as a result, the Government's reliance on monetary policy has been shown to be a cruel fraud because it does not work. The Government has to screw that policy tighter and tighter to have the same sort of impact that it had hoped to achieve with much lower interest rates. Of course, those more modest interest rate rises were reflected immediately in higher mortgage repayments.

One thing that the Government can be cheerful about is that every time it puts up interest rates-and so far this financial year they have gone up from 13 1/2 per cent to 17 per cent-it gets a higher tax revenue which effectively is paid for by the home seekers of Australia. They are helping to supply Mr Keating's tax revenue. At a later opportunity, I hope to go into that matter in some detail. Let us recognise that one of the greatest beneficiaries of the Government's high interest rate policy is the Government's tax revenue. People should not forget that.

On the question of revenue, it is relevant to look closely at the April 1989 statement of Commonwealth Government financial transactions, which was released only last week. That statement shows, for example, that in the area of outlays, the public debt interest burden on the Government, which one would have thought would have gone up in view of higher interest rates, has, in fact, declined. That is due to the lower than expected volume of notes issued which has been partly offset by the impact of higher yields. Also, as the Minister for Finance (Senator Walsh) tried to interject, the Government is making fewer claims through the public sector borrowing requirement. But the fact is that public debt interest rates have not gone up. It is quite clear at the moment that this Government's policy of higher interest rates brings it a net benefit rather than a net loss, and that net benefit is largely being met by the mortgage payers of Australia. In other words, the last people one would think this Government would want to punish are on the top of the list. This Government seeks to punish them by concentrating its policies on high interest rates and doing nothing else.

Some other interesting matters arise out of this statement of Commonwealth Government financial transactions. The statement reveals that the outlays for the year as a whole are expected to be close to the original Budget estimate even though by April they were running a little behind. It is interesting to note that while there were shortfalls in some areas, these are being offset by higher than estimated outlays in other areas, particularly in defence where running costs and outlays on defence industries have been higher than estimated. Assistance to other governments, which is linked to the consumer price index (CPI), has increased more than expected. Assistance for natural disasters has also increased.

Let us concentrate briefly on the question of the CPI-linked increased payments. This Government's inflation policy has collapsed. Not even Government Ministers like Senator Walsh would pretend that the inflation result for this year will be at all satisfactory. That collapse is one of the major problems this nation is now facing in its relationship with the rest of the world and its capacity to protect itself from the inevitable disaster when our commodity prices fall and when the Australian economy ceases getting the benefit of the once-off kick that it has had in the last few years when the terms of trade fortunately stopped falling and temporarily moved to our advantage. The disaster is that we are now in serious economic crisis despite the fact that our terms of trade have been temporarily advantageous to us.


Senator Stone —The best since 1976.


Senator MICHAEL BAUME —As Senator Stone says, they are the best since 1976. But one wonders how long that situation will remain. In fact, already there are clear indications of significant falls. I think a $1 billion drop in the total returns from wool is expected next financial year. We have already seen some of the metals commodities coming well and truly off the top. The instability generated by the current problems with China would certainly raise some questions about what will happen with world trade. This is apart from serious concerns about the economic future of the United States of America.

Let us look at the other side of this equation. In our amendments we noted that, even after the July 1989 tax cuts, the Hawke-Keating Government will remain Australia's highest taxing government in our postwar history. Let us just test that. In the 10 months to April this year we have seen exactly what is happening to revenue collections. It seems to me that the key point to look at is what pay as you earn (PAYE) taxpayers-the great bulk of Australians; people who work for a living and get paid a salary-are paying. PAYE collections from this extraordinary, grasping, high taxing Government have so far this year gone up by 17.5 per cent compared to the same period last year. The Budget forecast that net PAYE collections would go up by 13.8 per cent. At the time we said, `Hey, that's a bit rough. You are supposed to be holding down taxes and here is yet again another attack on the taxpayer'. But we find that collections are not going up by 13.8 per cent; they are going up by 17.5 per cent. That is an extra $1.2 billion a year in taxes more than the forecast rise of $4.3 billion for this year. No wonder this Government can pretend that it is handing out some great benefits by way of tax cuts. When one adds the $4.3 billion that the Government budgeted and for the $1.2 billion extra it will get, that magically adds up to $5.5 billion. What is the volume of the tax cut? It is $5 billion.


Senator Stone —It is 4.9.


Senator MICHAEL BAUME —Yes. So on these figures alone the reality is that so far this year this Government has collected about $600m more than the tax cut it will hand back. What monumental hypocrisy from this Government! It has tried to pretend that somehow it is doing something absolutely wonderful when in fact it is still ripping off more than it is giving back by way of tax cuts. That is apart from the enormous expense facing people who are trying to pay off their homes. For example, people with average mortgages have to face enormous interest bills. I hope to have the opportunity to deal with that at greater length at another time. We also see, among these extraordinary rises in income tax collections, the prescribed payments system. There has been an increase of 36.6 per cent in the amount collected under the prescribed payments system, to over $1 billion-an increase of over one-third compared to the 22 per cent increase that was forecast. In fact, the Government has collected almost as much in 10 months as it was supposed to collect in the full year. Company tax collections have gone up by 15 per cent.

It is interesting, though, that non-PAYE taxpayers have paid a substantial amount less. In other words, all these big increases in tax revenue have taken place despite a drop of almost 20 per cent in non-PAYE tax collections. This is fascinating. The excuse for this is that it reflects delays in processing returns of provisional taxpayers at the Australian Taxation Office (ATO). It also involves higher than expected levels of refunds, the incorporation of provisional taxpayers and an apparent shift in the composition of investment portfolios away from interest income towards insurance company and friendly society bonds.

However, the key element is delays in processing returns of provisional taxpayers at the ATO. If that delay is not caught up with within the next two months-and I doubt that it will be-we will see next year a massive, hidden in-built dam wall; a wall of water, or a tax flow, will come rushing in. In other words, the figures for the huge tax collections we will see by the end of this year will not fully reflect the real level of tax debt which is to be collected when the delays in processing returns are eventually overcome. The figures I have given today show that this enormous and continuing rise in Government tax revenues will not fully reflect what this Government is ripping off the taxpayers of Australia.

Let us now look at another area-sales tax, the area where the Government said it would not have any consumption tax. We have had a 23.8 per cent increase in sales tax collections this year. The Budget forecast was 14.4 per cent. That means, on an annual basis, an increase of approximately $700m. According to the statement of the Minister for Finance (Senator Walsh) this increase is supposed to reflect the strength of sales of motor vehicles, and non-retail and investment goods and the impact of the 1988-89 budget measure on beer. Of course, one of the amendments to be considered tonight is to deal with that matter, which was a fiddle aimed at cheating on the CPI. That cheating on the CPI had some unintended consequences which now must be fixed.

Here we have a huge increase in consumption taxes, even above its Budget forecast, from a government which said it was not going to go into consumption taxes because they were somehow obscene. The fact is that in the six years of the Hawke Government there has been a 150 per cent rise in consumption taxes. That is three times the rate of inflation. It hits hardest on lower income earners, particularly families with young children, who are consumers of food such as orange juice, ice-cream and flavoured milk-items on which the Government has, for the first time ever, put a consumption tax. It is a hidden attack on the pockets of Australians, particularly Australian families.

One of the matters that confuse me slightly is the customs duty collections in the period to April, which were only very slightly higher, 1.9 per cent higher, than the collections for the same period last year. I would have thought that the massive increase in import volumes and import values-I regret I have not got the figures in front of me-should surely have brought a significant increase in customs duty. This statement indicates that there has in fact been a compositional shift towards goods dutiable at higher rates, and I presume that means a big increase in the number of motor vehicle imports. Despite that, there has been only a 1.9 per cent increase in collections. The Finance Minister's statement says that this is because there has been a reduction in tariff rates and import prices resulting from a higher value for the Australian dollar in 1988-89. That really surprises me. I cannot imagine that will end up being correct, although I notice that in the Budget Papers the Government was expecting a 2.5 per cent fall in customs duty on imports. That is not because of a higher Australian dollar; it is because it expected its economic policies to work, and of course they have not worked.

It is interesting to see the sorts of things that Mr Keating was saying on 19 July 1988 and how he was stressing that we could not have tax cuts. I wonder what has happened since July 1988 that has so improved our economic position.


Senator Stone —Things have got worse.


Senator MICHAEL BAUME —Exactly. Yet in July 1988 Mr Keating was saying the strongest possible things, jawboning about how it was not appropriate to have tax cuts and how it was vital to maintain a tough fiscal stance, a tough wages stance and a tough monetary stance. He said:

If the unions think we're just mouthing some empty rhetoric about a tax-wage trade-off and the quality needing to be there before we produce the goods, then they're mistaken . . .

We will hang on to the surplus if they don't play the game.

They were certainly playing some sort of game, because they played the game well enough for Mr Keating to give them the surplus, $5 billion of it, by way of tax cuts, to give them a wage rise as well, and a promise of more to come, and no requirement on productivity whatsoever at this stage. It sounded impressive to the foreign investors, but it was meaningless nonsense. He said:

If Australia doesn't make provision now when there's a bit of sunshine around in terms of commodity prices, if we don't pay a bit of debt off and restructure the economy now, if the terms of trade ever turn down on us again we'll cop it right in the neck.

He is right; we are going to cop it right in the neck. This is what he was saying less than a year ago. He said that the country could not rely on improved commodity prices, and:

The terms of trade have been declining since 1950 in a trend away, and it's reasonable to assume that decline may resume. The lift in the terms of trade we are seeing now of high rates of world growth may not be around forever.


Senator Stone —When did he say all this?


Senator MICHAEL BAUME —In July last year. He said:

Now is the time to restructure the economy, and this is why it's very important to keep policy tight-fiscal, wage, and at this time, monetary policy.

What has he done to keep wages policy tight? He has given major rises because he could not do the deal he thought he was going to do with the unions. Has he kept fiscal policy tight? Yes, by reducing taxes by $5 billion. What about monetary policy? That is the only thing he is screwing. He is screwing monetary policy; he is screwing interest rates. If all this was true when Mr Keating said it last July, what intrigues me is why it is suddenly true no longer.


Senator Stone —The balance of payments is worse.


Senator MICHAEL BAUME —The balance of payments, the inflation rate-all those things are worse. In February this year Dr Hewson, the shadow Treasurer, said, and he has been proved so right, that there were real dangers in what Mr Keating was doing. He said that there was a danger of interest rate overkill. He stated:

It will be very difficult for them to engineer a `soft landing'; it has not been characteristic of the Australian economy. It looks like we will again see economic activity go from `too fast' to `flat'.

Dr Hewson stated that there was a danger of an exchange rate crisis. He stated:

It could happen if `jawboning' is carried too far. It will certainly happen if world commodity prices suddenly fall quite markedly. (i.e. over and above the downward drift that is already evident in commodity prices).

There is no doubt that the Opposition has been correct in continually stressing the need for structural change which the Government, as we realised when we debated the statement yesterday, has only started to nibble at, not to bite on. Until the Government takes notice of the Opposition and follows the strong advice we have been giving it for years about what it should do, the economy will be a disaster.


The ACTING DEPUTY PRESIDENT (Senator Bjelke-Petersen) —Order! The honourable senator's time has expired.