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Tuesday, 19 August 1975
Page: 52

Mr HAYDEN (Oxley) (Treasurer) - I move:

In doing so, I present the Budget for 1 975-76.

This Budget is presented at a time of high inflation and, by Australian standards, high unemployment.

Other countries have been confronted with much the same economic problems as currently bedevil Australia. Some have responded to these problems with drastic measures which, although partly successful in curbing inflation, imposed the severe social and economic costs of higher levels of unemployment and lost production to a greater degree than in any period since the Great Depression.

For example, the United States of America suffered unemployment rates peaking at 9.2 per cent, and still at 8.4 per cent; and peak to trough falls of 14 per cent in industrial production and 8 per cent in real Gross National Product. In the process inflation in terms of seasonally adjusted annual rates has fallen from around 14 per cent at the peak to around 7 per cent in the most recent quarter.

The costs, however, have been great.

By contrast, unemployment in Australia has remained below 5 per cent and the peak to trough decline in real Gross Domestic Product was 5 percent.

There are now some early signs of a recovery in the private sector. Retail sales are improving. Business inventories are falling. The home building industry is strengthening.

On balance unemployment in recent monthsand notwithstanding the rise in July- has been fairly steady. The situation will be carefully watched.

Meanwhile, unless appropriate economic measures are adopted now, the hopeful signs in the economy could prove illusory, and inflation could take off again from its already high level, to a thoroughly destructive effect. The private sector would find it increasingly difficult to function, with increasing business failures, and unemployment could rise to dramatically higher levels.

That situation can be avoided and it was with this objective in mind that this Budget was designed. Some sacrifice and patient restraint is called for from all of us in our demands for more resources, whether it is additional public services that are wanted or higher personal incomes.

We expect that as the expansion of public sector activity is restrained, the opportunities for private sector expansion will improve, though full responses to greater room for growth may take time to develop.

The public sector has played an important part so far in stimulating the movement towards recovery from the recession. Furthermore, the big increases in spending on our programs in the past two years were needed to overcome decades of neglect.

This Government began great programs of change in our society. The achievements are readily measurable. Incomes have risen, not only in terms of real personal disposable incomes but in terms of facilities provided to the whole community in health, in education, in social welfare. The Australian Government's record in these areas is widely acknowledged.

Our reforms are enduring; they will not be reversed. Now we propose to pause to take stock of the achievements.

Because of the structure of our mixed economy, where three out of four jobs are in the private sector, there are firm limits on how far the public sector should be stimulated in this recovery phase. In framing the Budget, therefore, we have exercised the utmost restraint on government spending.

For these reasons, the key-note of this Budget is consolidation and restraint rather than further expansion of the public sector.

On the economic front, inflation is this nation 's most menacing enemy. We aim to curb it. Unless this aim is achieved, the nation's productive capacity will run down and job opportunities will diminish.

Our present level of unemployment is too high. If we fail to control inflation unemployment will get worse.

THE BUDGET AND ECONOMIC POLICY

The economic situation is reviewed in Statement No. 2 attached to the Budget Speech. Here I concentrate on the policy problems inherent in the situation. Recent developments offer some hope that 1975-76 will be a better year than its predecessor. For that, steady and responsible economic policies are needed.

The objectives we seek- continued economic growth and the control of inflation- are almost universally applauded. Achieving them is another matter. In that regard, this Budget is crucial.

But it is only one of several tools of economic management. Also of major importance are wages and salaries, monetary and external policies. There are important linkages between these arms of policy.

In coming to our budgetary judgments, we have had those linkages well in mind.

This year's budgetary considerations began, as usual, with an examination of the prospective Budget aggregates. Expenditures were projected to grow much more rapidly than revenues and the prospective deficit was nearly double that of 1974-75. Clearly, such a deficit could not be countenanced under the circumstances.

In the context of an economy beginning to pick up, a deficit of the order initially projected would have been a prescription for accelerating inflation. Its acceptance would have been tantamount to abandoning concern with inflation, discarding our wages policies, condemning the corporate sector to an attack upon its profitability and threatening the future jobs of thousands of Australiansall at a time when the first signs of improvement in most of those respects are beginning to appear.

We are no longer operating in that simple Keynesian world in which some reduction in unemployment could, apparently, always be purchased at the cost of some more inflation. Today, it is inflation itself which is the central policy problem. More inflation simply leads to more unemployment.

Some might argue that a large deficit could be offset by a tough monetary policy- but this would mean greatly increased interest rates, disruption in financial markets, further depression of business confidence and serious company failures. That is an unacceptable option.

We therefore rejected a deficit or the order implied by all the expenditure proposals before us.

An alternative approach, in its own way equally extreme, would have been to seek to pull down outlays sufficiently to bring the deficit well below that of 1974-75. That would have caused severe disruption to the economy. Economic recovery would almost certainly have halted.

True, such an approach would certainly have dealt a solid blow to inflationary expectations. But at what a cost!

The prescription which this course would have entailed is just as unacceptable as the other prescription of letting inflation rip. This Government rejects a policy of deliberately creating massive unemployment and widespread business failures in order to stop inflation abruptly.

We have therefore tried to find a middle way- a line along which we can achieve sound and sustainable growth while at the same time bringing inflation down gradually over perhaps two or three years.

In the outcome, this Budget holds the share of Australian Government outlays in the total economy steady. Even to restrain that share from rising further has involved us in many painful decisions.

We have sought to frame a firm Budget in which the rate of growth in outlays has been halved as compared with last year.

It is a Budget neither too lax, thereby inviting a renewed acceleration of inflation; nor too harsh, causing unconscionable loss of production and the human and social costs of massive unemployment.

WAGES AND SALARIES

The Budget is one major instrument of economic policy. Another major policy area concerns the growth in wages and salaries.

If wages and salaries continue to outstrip productivity increases, the productive capacity of the economy will decline and we shall all eventually be worse off.

It is too early yet to determine whether wage indexation will succeed in dampening the recent wage-price spiral. The signs are mixed. The Government intends to do what it can to make indexation work.

Meanwhile, however, it is clear that some wage and salary pressures are unrealistic and, when successful, harmful. It does employees generally no good to get higher and higher money incomes if the results are just higher prices, a severe squeeze on profits, a slump in new investment and a contraction of job opportunities.

Wage and salary earners' purchasing power is already being maintained through wage indexation and the indexation guidelines provide for increases to be sought on other specified grounds, including increases in productivity. To call as well for tax indexation, and at the same time expect the Government to provide better education, free medical services and so onwhich it can only do by increasing its claims upon our national resources- is to ask for the impossible.

Let me develop that thought a little. The average employee's real after-tax earnings in 1974-75 rose by 7 per cent. When the increase in publicly provided benefits in education, health, social security and so on is added in, his total real income rose by 9.5 per cent.

Now this really is a very high rate of increase. It cannot be sustained.

It is not possible to provide more and more government services or transfer payments from the Budget without ultimately having to pay for them through cutting back after-tax earnings via increased taxes. It is not possible to get quarts out of pint pots.

In this Budget, we have exercised restraint. That restraint needs to be shared throughout the whole community. There must be a community will to combat inflation. There must be action to back up that will.

REINING IN BUDGET OUTLAYS

Last financial year, outlays increased very sharply- by 46 per cent.

Whereas total Australian Government Budget outlays maintained a remarkably stable proportion of around 25 per cent of Gross Domestic Product in the decade to 1973-74, in 1974-75 that proportion increased to 30.5 per cent. There was a number of special factors present in that outcome, including the need for some fiscal stimulus during the year.

There is noting sacrosanct about the particular public and private sector shares of GDP. But sharp movements in these shares can be disruptive.

If Budget outlays this year were again to grow faster than total spending, a further decline in the private sector share of GDP would ensue. That would mean an accelerated deline in investment and productivity as well as a further contraction in job opportunities.

This Government is committed to the present 'mixed economy' framework. We want to strengthen that framework. To reduce unemployment lastingly, revovery in the private sector is essential.

Expenditure restraint in this Budget will lay the foundations for a desirable balance between the public and private sectors.

Total outlays are now estimated to increase by 23 per cent in 1975-76, half the rate of increase of last year. Little change is expected in the proportion of Budget outlays to GDP. This offers a challenge to the private sector to respond with robust attitudes towards expansion which should serve well those who adopt them.

Cutting back the increase in Budget outlays is not easy. Everyone favours expenditure restraint in the abstract; few favour it when it affects them personally.

Many articulate groups in the community champion their favourite causes and I know that we will soon be hearing from them. I hope that, when we do hear, they will help the Government and me by indicating what alternative expenditure cuts might have been made or what tax increases they would be willing to bear.

Meanwhile, in approaching the task, we have distinguished between programs of utmost priority; programs where very rapid increases in recent years now permit some consolidation; and programs which might be deferred for a time.

In all this we have protected the less well-off members of the community. Inevitably in the process, many desirable expenditures have been scaled down or postponed. We know this will concern and disappoint many. That is unfortunate, but in present circumstances it is also unavoidable.

The process of consolidation upon which we embark in this Budget will need to be continued through a planned approach to expenditures into the years ahead. Indeed it will not be until the next Budget that we shall be able to begin to reap the fruits of consolidation in terms of the increased budgetary flexibility which we need. I am therefore considering the institution of improved procedures to ensure that the future growth of government spending is consistent with both broad economic management requirements and with the Government 's highest priority social objectives.

OUTLAYS

Outlays in 1975-76 are estimated to total $21,91 5m, an increase of 23 per cent over actual outlays last year.

Let there be no misunderstanding. Certainly we have cut back the growth of public expenditure. But the outlays we are undertaking provide continuing support for programs of scope and imagination never envisaged, much less undertaken, by our opponents.

The cuts in proposed expenditure have been painful. But unfulfilled hopes should not obscure the realities of the range of reforms which already have touched- and will touch- every area of our society.

I propose here only to mention briefly the major expenditure proposals. Statement No. 3 attached to the Budget Speech sets out the expenditure programs in great detail. The facts given in that Statement will show, function by function, the detailed working out of the process of consolidation I have referred to.

Additional information will be announced by the responsible Ministers.

DEFENCE

Defence expenditure in 1975-76 is estimated at $ 1,800.1m.

Last year we approved the acquisition of a number of major items for the Services, including long-range maritime patrol aircraft, tanks and patrol frigates. Significantly greater expenditure will be incurred this year on capital equipment, improvements to defence installations and on housing for servicemen.

The Minister for Defence will make a detailed statement on Defence matters at a later time.

EDUCATION

One of the most important areas in the Budget is education.

In 1975-76, total outlays on education are estimated at $ 1,908m, an increase of $237m over last year.

In the first full year of office of this Government, Australian Government expenditure on education almost doubled. Last year, it almost doubled again.

We have therefore almost quadrupled expenditure on education in these two years, and we are maintaining in 1975-76 the high level of expenditure now reached. This advance since 1972-73 reflects our determination to make good the relative neglect of earlier years.

Our initiatives include pronounced increases in expenditure on schools and teachers colleges; expansion of technical and further education; acceptance of full financial responsibility for tertiary education throughout Australia; abolition of fees for tertiary and technical education and the introduction of new student assistance measures; and increased academic salaries adopted on the recommendation of the Academic Salaries Tribunal, with effect from October 1974.

This year, recurrent expenditure will be maintained at no less than the present real levels, but capital expenditure will be limited to essential projects.

Ordinarily, the 1976 calendar year would have seen the start of a new triennium for the financing of universities, colleges of advanced education and schools; and the technical and further education area would have been phased into triennial financing in July 1976. However, we have decided to treat the calendar year 1976 as a year outside the triennial progression.

During the period to December 1976 we will continue the programs of the education commissions and present practices on escalating appropriations for cost increases will be continued.

In the meantime, the education commissions will be asked to review their recent triennial reports and to bring in revised recommendations by March next for new triennial programs to commence in January 1977. The Minister for Education will provide more details later.

The remarkable quadrupling of the total education expenditure figures in just over two years has been only part of the record. Benefits in relation to the quality of education will continue to flow on a long term basis from the machinery we have established and the programs we have fostered. Budget Paper No. 8, on education, outlines our record of achievements in this area.

Care and Education of Young Children

The Government is providing $74m in financial assistance to community organisations and to the States towards the care and education of young children.

HEALTH

Medibank

Medibank was launched on 1 July last. $ 1, 445m is included in the Budget for this program.

This financial year, medical and optometrical benefits are estimated to cost $6 15m while the hospital side of Medibank is estimated to cost $822m.

Community Health

A sum of $65m is appropriated for services provided under the Community Health Program.

Hospitals Development Program

A further $ 108m will be made available to the States in 1975-76 by way of capital assistance for the development of public hospitals and related health care facilities.

The Australian Government will maintain its contribution at least at this level during each of the remaining 3 years of the program.

Nursing Home Benefits

It is proposed to increase the additional nursing home benefit in three States- New South Wales, Queensland and Western Australia. These increases represent the first step towards a common nursing home benefit rate for all States.

The effect of the increases will be that ordinary care patients in those States will receive a uniform total benefit of $66.15 a week. Rates of benefit for ordinary care patients in other States, which are already higher, will be maintained at current levels. The supplementary intensive care benefit will be increased from $21 a week to $30.80 a week in all States. This benefit has remained unchanged since January 1969.

The increases in both the additional and intensive care benefits will not apply to patients in Government nursing homes.

These increases, estimated to cost $10m in 1975-76, take effect from the first pension pay day in November.

Medical Research

The Government will increase by 39 per cent, to $24m, its support in the 1976-78 triennium for medical reseach under the auspices of the National Health and Medical Research Council. Expenditure in 1975-76 is estimated at $4.0m.

Additional payments totalling $lm will be made to the Florey and Walter and Eliza Hall research institutes.

SOCIAL SECURITY AND WELFARE

Since this Government came to office a great stride forward in the field of social security and welfare has been taken. Now we must take stock of our programs and consolidate our gains.

To that end the Prime Minister has announced that the Government is to institute a review of Australia's income security system.

Social Security Benefit Rates

The standard rate of social service pensions and benefits will be increased in the Spring of 1975 by the percentage increase in the Consumer Price Index between the December quarter 1974 and the June quarter 1975; and again in the Autumn of 1976 by the increase in the Consumer Price Index between the June and December quarters of 1975.

This will mean a first increase in the standard rate of $2.75 a week. The combined married rate will be increased by $4.50 a week so as to maintain the standard rate at 60 per cent of the combined married rate. These increases will become effective from the first pension pay day in November.

The basic pension has increased by 80 per cent since the December quarter of 1972, well ahead of the rate of increase in average weekly earnings 56 per cent- and consumer prices- 41 per cent. The relative improvement compared to the average wage earner is even more pronounced in after-tax terms. Since the December quarter of 1972, the increase in take-home pay of the typical family man on average weekly earnings has been 50 per cent.

The increases proposed will maintain the real purchasing power of those greatly increased pensions and are estimated to cost $233m in 1975-76.

There will be no change in the rate of unemployment and sickness benefit payable to persons under 18 years of age.

The rates of additional pension and benefit payable for dependent children, including student children, are to be increased by 50c to $7.50 a week.

Abolition of the Means Test

For budgetary reasons the Government will not be able to complete the final stage of the abolition of the means test- for those aged 65 to 69 years- as quickly as it had hoped. Nonetheless we intend to make as much further progress as economic circumstances allow.

We have decided to abolish the means test for residentially qualified persons aged 69 years from 1 July 1976. The necessary legislation will be introduced in the Autumn sittings.

Repatriation Benefits

Since coming to office the Government has improved repatriation benefits substantially. Legislation providing further improvements will be introduced in the current sittings and in Autumn 1976.

Further information will be announced by the Minister for Repatriation and Compensation. Details are set out in Statement No. 3.

Aboriginal Advancement

The record level of expenditure on Aboriginal advancement achieved in 1974-75 will be exceeded in 1975-76; direct expenditure in 1975-76 is estimated at $193m, compared with $ 158m in 1974-75 and $98m in 1973-74.

HOUSING

Welfare Housing

In the light of the recovery in private housing now in train, advances totalling $364.6m will be provided to the States for welfare housing purposes in 1975-76. Bearing in mind the $ 10.4m advanced in June on the basis that it would be taken into account in this year's allocation we are thus maintaining advances in 1975-76 at the greatly increased 1974-75 level and well above the $2 1 8.6m allocated in 1 973-74.

Australian Housing Corporation

Responsibility for the Defence Service Homes scheme has been transferred to the newly proclaimed Australian Housing Corporation. An amount of $ 122.5m will be available for Defence Service Homes advances in 1975-76.

A further $20m has been provided for the Corporation in 1975-76. Together with the $25m remaining unspent from 1974-75, this will enable the Corporation to meet its administrative expenses and to undertake new programs in the housing field.

Details will be announced later by the Minister for Urban and Regional Development.

URBAN AND REGIONAL DEVELOPMENT

This year we plan to spend $442m on urban and regional development programs.

A comprehensive statement by the Minister for Urban and Regional Development is being tabled with the Budget papers.

Canberra

Expenditure on development for residential, commercial and community uses in Canberra this year is estimated at $43. lm.

Growth Centres $38.6m is being provided in 1975-76 for further works and planning by the AlburyWodonga Development Corporation.

Agreement has been reached with New South Wales for financial assistance for two further growth centres at Bathurst-Orange and the South-West sector of Sydney and $28.5m has been allocated for these centres.

Land Agreements

This program will help stabilise land prices. Expenditure this year is estimated at $53.6m.

Sewerage Program

This year a further $115m will be provided towards eliminating the backlog of sewerage services.

Woolloomooloo Redevelopment $ 14.67m is being provided to New South Wales to assist with land acquisition and site development in the Woolloomooloo Basin in Sydney. The Australian Government has also agreed to transfer, at no cost, land it owns in the area valued in excess of $ 1 1 m.

CULTURE AND RECREATION

$132m is being provided to the Australian Broadcasting Commission. Provisions are also being made for support for the Arts through the Australia Council and for the Australian Film Commission, International Women's Year, the National Estate and Nature Conservation programs.

Figures are given in Statement No. 3.

ECONOMIC SERVICES

Postal and Telecommunications Services Since 1 July 1975, the former functions of the Post Office have been undertaken by the Australian Postal Commission and the Australian Telecommunications Commission.

Increased postal and telecommunication charges to operate from 1 September 1975 have already been announced. The increased charges are necessary to cover significant increases in the cost of providing services and to enable each Commission to comply with the requirement, under its constituting legislation, to cover its costs and finance at least 50 per cent of its capital expenditure from internal sources.

The amount to be provided from the Budget to help finance the capital programs of the two Commissions comprises $14m for the Postal Commission and $403m for the Telecommunications Commission.

If the increased charges were not applied, then the costs they were to cover would have to be covered in some other way. That is, the Government would either have to increase direct or indirect taxes, or add to the deficit by printing money.

Alternatively, the Goverment could cut-back further on existing programs but it is clear that additional cut-backs would be extremely difficult to make.

Air Transport

It was announced in the 1973-74 Budget Speech that the Government proposed to increase the rate of recovery of the costs of providing and operating airport and airway facilities to 80 per cent within 5 years. It was then estimated that a recovery rate of 70 per cent should be reached in 1975-76.

Despite increases in air navigation charges, very little progress has been made towards this objective. Currently about 55 per cent of costs are being recovered.

The Government does not believe that the general taxpayer should continue to subsidise air services and proposes to achieve its objective of 80 per cent recovery by 1977-78. Action will be taken to increase the recovery rate to 70 per cent this year.

This will require increases in air navigation charges substantially greater than the maximum 15 per cent annual increase referred to in the 1973 Airlines Agreement. The airlines have undertaken in the Agreement to negotiate such changes as are necessary to achieve the objective of 80 percent recovery by 1978.

Rail Transport

An amount of $5 1.9m is being provided to finance the new Australian National Railways Commission's 1975-76 capital works program, compared with expenditure of $ 14.6m by the former Commonwealth Railways in 1974-75. This includes work on the railway between Tarcoola and Alice Springs, and on the Adelaide to Crystal Brook standard gauge line. It also includes funds for the Tasmanian railways and for the South Australian railways.

A further $40m is being provided to the Commission as a subsidy to cover its estimated losses in 1975-76; the Tasmanian and nonmetropolitan South Australian railways are expected to account for about 80 per cent of this loss.

Urban Public Transport the Australian Government has so far agreed to provide $138m under the terms of the Urban Public Transport Assistance Agreement to assist the States to upgrade their urban public transport systems.

We expect to provide some $43m this year towards the cost of presently approved projects.

Shipping

An amount of $56.9m is being provided from the Budget to help finance the Australian National Line 's capital program.

Provision is also made for subsidy payments of $lm for the operations of the Empress of Australia between the mainland and Tasmania and $3.9m in respect of northbound general cargo services between Tasmania and the mainland.

Freight rates on this latter service are being maintained at present levels pending receipt of the Report by the Nimmo Commission of inquiry.

Roads

A total of up to $445m will be made available for roads in the States in 1975-76. This provision should ensure that the real level of our outlays for this purpose is maintained this year.

Pipeline Authority

An amount of $67m has been provided for advances to the Pipeline Authority for expenditure on the Moomba-Sydney natural gas pipeline and associated works. The pipeline is expected to be completed early in 1 976.

Wool

As already announced, the Government has authorised the Australian Wool Corporation to continue to operate a minimum reserve price equivalent to 250c per kilo clean for 2 1 micron wool during the 1975-76 season. An amount of $80m is included in the Budget for advances to the Corporation; the Government will also guarantee further borrowings of $70m from private sources.

While we judge that this $ 150m should be adequate, we shall of course keep the position under close review.

Beef

In addition to existing measures, we will provide $ 19.6m for the joint Australian Government/State Government scheme of carry-on finance at concessional rates of interest.

An extra $8m will be provided to the Commonwealth Development Bank to supplement the $20m provided to the Bank last year to lend to seriously affected beef producers.

As already announced, the question of further short-term assistance for beef producers has been referred to the Industries Assistance Commission.

Rural Reconstruction

The Government is providing $50m in 1975-76 to facilitate the adjustment of certain rural industries to changing market conditions through the Rural and Fruitgrowing Reconstruction Schemes and the Dairy Adjustment Program. These schemes expire on 30 June 1 976.

The question of possible future arrangements is under examination by the Industries Assistance Commission.

Mining Industry

Pending the passage by the Parliament of a new Petroleum and Minerals Authority Bill, $ 10.4m has been provided in the appropriation of the Department of Minerals and Energy to meet commitments entered into by the former Petroleum and Minerals Authority.

The appropriation for the Australian Atomic Energy Commission in 1975-76 includes approximately $4.7m for uranium exploration in the Northern Territory.

Australian Industry Development Corporation

The capital stock of the Australian Industry Development Corporation is to be increased by a further $25m to $75m.

Provision is made also for $50m to be on-lent to the Corporation from the proceeds of official overseas loans.

Regional Employment Development Scheme

In present circumstances, no new projects are being approved. There remains, however, a large volume of commitments, in respect of which an amount of $ 135m is included in the Budget. This will provide continuing employment on previously approved REDS projects for some time.

Industrial Training

The Government is allocating $88m this financial year to its various manpower training programs, including NEATS and support for apprenticeship training.

Immigration

We have decided to double the migrant contribution towards assisted passage costs, to an amount of $ 1 50 per family or single person.

GENERAL PUBLIC SERVICES

Legal Aid

To extend the availability of legal aid we are proposing to establish a further 28 regional offices during 1975-76.

Total expenditure on legal aid in 1975-76 is estimated at $ 16.7m; this includes $3m on legal aid for Aboriginals.

Foreign Affairs and Overseas Aid

Outlays from the Budget on foreign aid, excluding defence co-operation, are estimated to increase from $334m in 1974-75 to $385m in 1975-76.

Papua New Guinea will continue to be the major recipient, receiving an estimated $2 10m in 1975-76.

Further details are included in Statement No. 3 and in the separate document being tabled with the Budget papers.

Ceiling on Staff Growth

Our measures to restrain the growth in spending apply particularly to staff growth. As already announced, the growth in full-time staff employed under the Public Service Act in 1975-76 is to be limited to a ceiling increase of 2.8 per cent.

After allowance for the expected increase in staff on leave, the ceiling increase in operative staff is effectively 1.5 per cent. This compares with increases in operative staff of over 4 per cent in 1972-73 and 1973-74, and over 5 per cent in 1974-75. Government authorities financed from the Budget have been requested to operate within an overall ceiling increase of 2.2 per cent.

Administrative Savings

We are also imposing stringent restraint on administrative expenditures. Overall, the provisions for administrative expenses for Departments and statutory authorities (other than business undertakings) financed from the Budget have been reduced by about 10 per cent.

Particular examples of restraint include economy class domestic air travel for Members of Parliament and Government employees -

Mr Killen - Does that include the Prime Minister too?

Mr HAYDEN - I knew I would touch a tender spot. Particular examples of restraint include economy class domestic air travel for Members of Parliament and Government employees, restrictions on the use of Government cars, reductions in overseas travel, non-replacement of existing office furniture and fittings and restrictions on overtime working and engagement of consultants.

It is estimated that these measures will produce savings totalling about $35m in 1975-76. They will not only make a significant contribution towards reducing the deficit, but will also induce greater efforts by Departments and authorities to improve efficiency and avoid waste.

PAYMENTS TO OR FOR THE STATES AND LOCAL GOVERNMENT AUTHORITIES AND NATURAL DISASTER RELIEF

General Purpose Funds for the States

At the Premiers' Conference on 19 June 1975 the Australian Government undertook to improve the financial assistance grants arrangements with the States.

These improvements took the form of an addition of $220m to the grants otherwise payable in 1975-76, with this amount to be subject to escalation under the formula in subsequent years, and of an increase, in 1 976-77, in the socalled 'betterment factor' from 1 .8 per cent to 3.0 per cent. It is estimated that the financial assistance grants payable to the States in 1975-76 under these new arrangements will total about $3,185m, an increase of $81 lm or 34.2 per cent over the grants paid in 1 974-75.

In addition, the Government has accepted recommendations by the Grants Commission that special grants totalling $38.8m be paid to Queensland and South Australia in 1975-76.

The Government also agreed in June to support a 1975-76 Loan Council program for State Governments of $l,291m which, after adjustments are made for special factors, represents an increase of 20 per cent over the program for

1974- 75.

Local Government Grants

The Government has already announced its acceptance of the recommendations contained in the Grants Commission's second report on unconditional financial assistance for local government totalling $79.9m, or 42 per cent more than last year.

Natural Disaster Relief

It is presently estimated that expenditures by the Government on natural disaster relief in 1975- 76 will total $57.6m, of which $48. lm will be for relief measures arising out of the devastation of Darwin by Cyclone Tracy.

Included in this latter amount are $33m for continuation of compensation payments to Darwin residents and $12m for the maintenance of various relief measures, including emergency accommodation and loans to small businesses.

We have also established the Darwin Reconstruction Commission, and provided $99.7m for the Commission's construction program in 1975-76.

RECEIPTS

In deciding on our revenue measures we took it as essential that there be some reduction in both personal and company income tax. At the same time we judged it necessary to reduce the potential deficit somewhat.

Consequently, we have determined on a mix of tax measures, some of them increasing the revenue and some reducing it. Their net effect is to increase total tax revenue in 1975-76 by an estimated $207m. Details are given in Statement No. 4.

I turn now to the individual tax measures.

Beer

It is proposed to increase the duty on beer immediately by the equivalent of 4c a 10 ounce glass. The estimated revenue yield in 1975-76 is $234m.

Potable spirits

Duties on potable spirits have been increased considerably over recent years and the present scope for further increase is not great. It is proposed to increase the duty on potable spirits immediately by the equivalent of lc a nip. It is also proposed to complete the third and last step in the phasing out of the differential between the rates of duty on brandy and other potable spirits. The estimated revenue yield of these measures in 1975-76 is $ 12m.

Tobacco Products

The duty on tobacco and cigarettes will be increased immediately by the equivalent of 6c an average packet of 20 cigarettes, with equivalent increases on other tobacco products. The estimated revenue yield in 1 975-76 is $75m.

Crude Petroleum

The present price of domestically produced crude oil is about one-quarter of the landed price of imported crude. The low domestic price is not conducive to rational resource usage. Yet is does not necessarily follow that increases in the domestic price should be reflected fully in corresponding increases in prices to Australian producers: the rise in world oil prices has occurred largely because governments in OPEC and other producing countries have greatly increased their taxes on production.

The indigenous crude oil absorption policy, which runs for a period of 10 years from 17 September 1970, provides for a review of price after 5 years. The Government is considering and will be announcing shortly the price arrangements which will apply from 17 September next.

Meanwhile, the Government has decided to impose a levy of $2 per barrel on production of crude oil, condensate and naturally occurring liquified petroleum gas, with immediate effect. The levy will not fall on natural gas or refinery products although, of course, its price effects can be expected to spread through into the latter.

The estimated revenue yield in 1975-76 is $280m.

Export Duty on Coal

Following the sharp rise in oil prices, coal prices have risen dramatically in the past two years, in many cases trebling. In consequence, very large windfall profits are currently being earned by the export sector of the coal industry. The Government considers it reasonable that part of these increased profits should be channelled to the community by means of an export duty.

Price movements for various classes of coal have not been uniform but higher quality coking coals have experienced much greater price increases than other coals. It is therefore proposed to levy export duty of $6 per tonne on these high quality coking coals and $2 per tonne on other coals, with immediate effect. To protect buyers in respect of prices recently renegotiated, approval to export will be in terms of those prices and no consideration will be given to adjustment of prices to take account of the duty.

The revenue yield from this duty in 1975-76 is estimated to be $ 1 20m.

Details of this and the other levies I have announced will be given later tonight by the Minister representing the Minister for Police and Customs.

Company Tax

The Government has had before it the recommendations on business taxation contained in the Mathews Report on 'Inflation and Taxation'. These are important recommendations with complex ramifications and there is a need for further study of them before final decisions are made. Meanwhile, we are acting to alleviate business taxation and we have been aided in coming to our decisions by the Mathews Report.

The first of the Mathews recommendations related to the valuation of most trading stocks for taxation purposes. Its primary purpose was to ease pressures on business liquidity in inflationary periods.

After careful consideration we have decided that it is not at this time possible to act on this recommendation, partly because of its enormous revenue cost but also because of the complexity and difficulty involved in giving effect to the Committee's proposal to defer tax for individual firms on the basis of each individual firms 's changing stock values. Very serious practical problems would also be created for both industry and the Taxation Office in implementing the Committee's suggestion that deferred tax be collected when stock values fall or when businesses change hands. It has not been possible to this time to resolve these difficulties.

We shall, of course, keep the question of business profitability and liquidity under careful notice but, in all the circumstances, we have turned to the other alternative in this area which was mentioned by the Mathews Committeenamely, a reduction in company tax.

The Government has decided to adopt this alternative and proposes to reduce the general rate of company tax by 2.5 per cent to 42.5 per cent. The new rate will apply to 1974-75 income and will cost an estimated $ 120m in 1975-76.

We have also decided to continue the system of doubled rates of depreciation beyond 30 June 1975 and extend it to all sectors of commerce and industry. We have here taken note of the Mathews Committee's advice that: 'Accelerated depreciation and investment allowances are appropriate policy options for a government which wishes to influence the level or the pattern of private investment . . .

The doubled rates of depreciation will be made applicable to all new plant other than motor cars and utility trucks, including plant used in industry such as transportation and construction that were excluded from the 1974-75 double depreciation provisions and from the investment allowances granted from time to time by the previous Government. The first cost to revenue of this proposal will fall in 1976-77 and will approximate $7 5m.

Our decision to opt for double depreciation rather than the indexation of depreciation allowances as recommended in the Mathews Report reflected our view that it was desirable to introduce immediately a clearly understood aid to business investment. The indexation recommendation would introduce some complex new elements into the depreciation provisions and there is a need for further study as to how a practicable and equitable scheme might be worked out.

Meanwhile, the double depreciation provisions will without delay greatly help the business sector in the planning of its investment and cash flows.

Personal Income Tax

At this point I say simply that we have decided to introduce a radical new personal income tax system. We have undertaken fundamental reform of the tax system with one overwhelmingly important objective- the achievement of a more equitable distribution of the tax burden.

Before explaining the features of the new scheme, I want to explain the rationale behind what is perhaps the most revolutionary change since the inception of our personal income tax system. Yet one fact will highlight the direction we are taking more than anything else I might say. Under the new system nearly half a million existing taxpayers will be freed from tax entirely. Those earning least in the community will be exempted from personal tax.

A very large number of taxpayers will benefit by the changes we are making. But what is of greatest satisfaction to the Government is the fact that those in most need will benefit substantially.

In the best of economic times inequalities could not be removed in one sweep. We make no pretence of doing so now. We do say that the new system represents a very considerable advance.

The existing personal income tax system has persisted almost unchanged for over two decades and has about reached the end of its tether.

Criticism of the present arrangements has rightly focused upon the excessive marginal rates which are imposed upon taxpayers on average incomes. For example, a taxpayer on average weekly earnings with a dependent wife and two dependent children and average other deductions would lose 44 cents of each dollar of his pay in higher taxation if the present rates were maintained. If he had smaller deductions his marginal rate could be as high as 48 cents in the dollar.

In deciding what to do about this state of affairs we had several choices. The Mathews Report recommended that this year we introduce tax indexation or, alternatively, introduce a new tax schedule with a commitment to index it in future. The Asprey Report recommended that a quite different type of rate scale be introduced, with an initial marginal rate much higher than at present and with much lower marginal rates at intermediate ranges of income.

So far as the rate scale is concerned, what we are proposing is based on the Asprey concept. But before going on, I should explain the Government's attitude to tax indexation.

It would not be possible to introduce tax indexation this year because of the very great revenue cost. In any case, the present rate scale is wholly unsatisfactory as a basis for indexation. Consequently we are taking up the Mathews suggestion of introducing a new tax scale to apply this year.

As for next year, no Government can commit itself to a precise measure a year hence when the revenue implications are so large but the circumstances of that future time are not foreseeable. However, in framing the 1976-77 Budget the Government will take full advantage of the greater flexibility- including greater flexibility in adjusting for price increases- which this year's reform of the tax system will offer. Indexing of the new scale will thus be available as an option next year.

Meanwhile, so far as this year is concerned, I mention that the new scale will actually reduce marginal tax rates of taxpayers on average weekly earnings by more than would be the case if the present scale were indexed. That is, what we propose will produce a better result than tax indexation so far as the marginal 'tax bite' is concerned.

I turn now to the proposed new system. The Asprey Report drew attention to the low marginal rates of tax on low incomes and suggested that they be increased. It added: 'The most important advantage of an initial step of some magnitude is not that it raises much tax from the taxpayers whose total income is confined within this step; it is rather that a sizeable minimum average rate is thereby struck for all higher incomes. Without a significant rate on the lower steps, much higher marginal rates than otherwise must be imposed further up the income scale . . .'

This approach, of course, involves raising more tax from so-called low income earners. Many such people depend solely on their own incomes and could hardly be expected to pay more tax. Certainly this Government does not expect them to do so.

But many others in this income group are members of multi-income households who might be supposed, on general social grounds, to be capable of contributing further.

We have therefore devised a system designed to retain the desirable features of the Asprey suggestion but to exclude the undesirable income distribution features. Material is available describing the new system in detail. Here I outline its main features.

First, there will be a new and much simplified rate scale, with only seven steps instead of the present fourteen. The marginal rates will begin at 20c in the dollar on taxable incomes up to $2,000 rising to 27c in the dollar on incomes from $2,000 to $5,000 and 35c in the dolar on incomes from $5,000 to $10,000. The marginal rates rise in four further steps to reach a maximum of 65c in the dollar at a taxable income of $25,000.

On incomes from $6,000 to $25,000 marginal rates generally will fall, the greatest fall being in the $8,000-$ 10,000 income range, where the drop is from 48c to 35c in the dollar.

Secondly, every individual taxpayer, whether or not he or she has dependants or spends on items which attract deductions, will receive a minimum concessional rebate of $540. This will protect low income earners from the impact of the higher marginal rates at low income levels.

The minimum concessional rebate does this by, in effect, increasing the minimum taxable income from its present $1,041 to $2,520 per annum. The introduction of this rebate will make possible the elimination of the present age rebate and the new scheme provides for that.

Thirdly, the present concessional allowances for dependants will be replaced by much more generous dependants' rebates. For a spouse the rebate will be $400; for children it will be $200 for the first child under 16 and student children redefined to include all children under 25 receiving full-time education, and $150 in respect of other children.

There will be a separate rebate of $200, known as the Sole Parent Rebate, for parents without partners, such as widows or widowers or unmarried persons, who have the sole responsibility for maintenance of dependent children.

Fourthly, with some exceptions 1 shall mention, the existing concessional deductions for private expenditures will be converted to rebates calculated at 40c in the dollar of the amounts allowable under the present law. However, the minumum concessional rebate will be regarded as covering the first $540 of rebate claimable, other than for dependants. The effect of this will be that taxpayers whose rebatable expenditures are less than $ 1 ,350 will not need to itemise them as they will be covered by the minimum concessional rebate.

There will be certain exceptions to these rebate arrangements, as follows.

The existing housing loan interest deduction scheme will remain in its present form; that is, allowable deductions as presently prescribed will reduce taxable income.

The existing provisions for gifts to charities and school building funds will also remain unaltered.

There will be separate Zone Allowance Rebates over the above the $540 minimum concessional rebate for taxpayers in the prescribed zones.

Finally, the allowable deduction for education expenses, now one of the concessional deductions to be converted to the rebate basis, will be increased from $ 1 50 to $250 per student child.

It is not possible to outline all the benefits of the new tax system in this Speech. The main attractions, however, are as follows: nearly 500 000 taxpayers will be freed from tax entirely; there will be a very big increase in minimum taxable incomes- for example, to $5,372 in the case of a taxpayer with a dependent wife and two dependent student children; there will be a very big drop in marginal rates of tax on incomes in the range into which most full-time employees fall; taxpayers with dependants are heavily favoured as compared with the present system, particularly in the lower income ranges. For example, in his statement announcing tax cuts last November, the Prime Minister gave as an illustration the taxpayer with a dependent wife and two dependent children earning $100 a week. If his other deductions were 10 per cent of his income his tax payable would have declined from $568 in 1973-74 to $264 in 1974-75. Under the new arrangements such a taxpayer is freed from tax entirely.

We believe that the new system is both more equitable and more adaptable for revenue raising and economic management purposes.

Because of the extensive changes it entails, it will not be possible to have the proposed system in operation for PAYE purposes until 1 January 1976.

The cost to revenue of the new system I have outlined cannot be as simply summarised as is usually the case. On a true 'full year' basis, the cost to revenue will be $205m.

However, an additional advantage of the new system to taxpayers is that it will permit a large reduction in the present degree of overdeduction of PAYE tax instalments- and a consequential reduction in refunds which, this year, are estimated at $ 1,025m. That will assist the monetary authorities by reducing seasonal swings in revenue flows; it will also reduce the need for taxpayers to make, as it were, involuntary loans to the Government.

The combined effect of the taxation measures I have outlined and of the more accurate PAYE deductions which they make possible will be a substantial reduction in PAYE tax instalments for most taxpayers from the beginning of 1976. The precise instalments to be applied will be determined in due course, but I mention, for purposes of illustration, that the rise in the takehome pay of a wage-earner with a dependent wife and two children, and earning between $ 100 and $ 1 50 per week, will be well over $5 per week. There will be small rises- generally of less than $1 per week- in the PAYE instalment deductions of some taxpayers without dependants.

The total estimated cost to revenue of the scheme in 1975-76 if $395m but, of this $365m is attributable to the more accurate PAYE deductions which the new arrangements will permit.

Property Income Surcharge

It is proposed to abolish the property income surcharge with effect from this income year. There will be no cost to revenue in 1975-76; the cost in a full year will be $25m.

BUDGET OUTCOME

In aggregate, Budget outlays are estimated to increase in 1975-76 by $4,084m or 22.9 per cent to$21,915m.

Receipts are estimated to increase by $3, 852m or 25 .2 per cent to $ 1 9, 1 1 7m.

The estimated deficit is thus $2,798m and the domestic deficit $2,068m.

THE POST-BUDGET ECONOMIC OUTLOOK

Given the budgetary decisions we have made, what is the economic outlook for the period ahead?

Some indications are provided in Statement No. 2 attached; here I pick up the key points.

Reflecting our policy decisions, government spending at all levels will show only modest real growth.

With the exception of business investment expenditure, which remains the weakest area of prospective demand, other components of domestic spending should show a strengthening trend and prospects for exports are also reasonably good. Imports have been quite subdued but will probably pick up during the year.

In recent months, consistent with the need to avoid sudden and disruptive changes in the monetary aggregates, the Reserve Bank has acted to gradually restrain the growth in bank lending and liquidity. Nonetheless the liquidity of the banking system should be sufficient to meet the basic immediate needs of the economy for finance without being fully accommodating to inflation.

In this Budget fiscal policy has been brought into better balance with monetary policy; both have now appropriately shifted from earlier strong stimulus to postures of moderation.

Against this background, real Gross Domestic Product is forecast to increase by about 5 per cent in 1975-76, after falling by 2 per cent in 1974-75. Prospects for employment should improve, but the improvement is likely to be gradual.

The course charted has its risks and the possibility of temporary reverses cannot be ruled out. Our commitment to what I earlier called a middle way between the two extremes makes that inevitable. What I do say is that, if there is an equal commitment in the community to play its part in steering the economy back to a firmer footing, we shall be able to overcome any such temporary problems.

On the matter of prices, the increased duties on beer, tobacco and potable spirits will increase prices as stocks are worked off. There will also be price increases, which cannot be calculated with precision, resulting from the passing on of the crude petroleum levy into the prices of motor spirit and other products. The increased postal and telephone charges to come into operation from 1 September next will also add a little to the CPI in the December quarter.

The Government is fully aware that, in itself, the effect on prices is unwelcome. What were the alternatives?

One alternative would have been to let the deficit rise even further. That would have been more inflationary and would have thrown an undue burden onto monetary policy.

Another alternative would have been to refrain both from raising these indirect taxes and from reducing company and personal income taxes.

We considered that course equally untenable.

In theory, another alternative would have been to cut our expenditures by a further $500m or $600m. We examined that possibility but concluded that it was impracticable.

I can only say that I hope that those who suggest the contrary will bring forward specific suggestions as to where we could have reined in expenditures even more stringently than we have.

In drawing attention to these price effects, I add that it is the Government's firm view that, for the purposes of wage indexation, increases in prices resulting from tax measures of the sort that I have announced should be discounted. It would be self-defeating if the system of wage indexation were to attempt to insulate the community from tax measures designed to redistribute resources for the benefit of the community in the form of improved public facilities in fields such as education, health, welfare, personal benefits, urban improvement and so on. These improvements must be seen as a real improvement in people's living standards and are a non-money form of addition to their incomes.

In its submissions in the recent wage indexation hearings before the Arbitration Commission the Government foreshadowed the likelihood that it would make submissions on this matter in future quarterly hearings.

Notwithstanding these direct price effects of the indirect tax measures, we look for a continuing downward shift in the underlying rate of inflation during 1975-76. It can hardly be more than a slow winding down within that timeframe; but our time-frame must extend beyond the immediate confines of this financial year. 1975-76 is therefore seen as a year of consolidation. Economic growth will only be restored by way of gradual policies firmly grounded upon an effective anti-inflationary foundation.

CONCLUSION

In this Budget the Government has endeavoured to give a lead to the community.

If inflation is to be curbed there are no soft options- only a choice between more or less difficult ones.

For our part, our hope is that with a community appreciation of the need for restraint, we can make a real start on getting inflation under control and further raising living standards for everybody.

I commend the Budget to Honourable Members.

Debate (on motion by Mr Malcolm Fraser) adjourned.

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