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Tuesday, 21 August 1990
Page: 1153


Mr KEATING (Treasurer)(7.32) —I move:

That the Bill be now read a second time.

Australia has negotiated a difficult transition over the past 12 months-from an economy where spending and growth were overblown to an economy with lower activity and fewer imports.

Tonight I am able to report that we are emerging from this phase in fundamentally better shape having succeeded in this transition.

National Accounts data released tonight with the Budget show that the economy has slowed.

The trends are clear-exports are up and imports are down.

The current account deficit is falling and inflation is abating.

Economic policy has worked and is working.

The faith the Australian people exhibited in the Government at the election is now being repaid as the economy adjusts to a sustainable rate of growth without a catastrophic collapse.

This year inflation will fall further, the current account deficit will markedly improve and employment will pick up.

In short, the kind of outcome the Government was seeking, delivered without the misery and despair of high unemployment and a savage recession.

An outcome delivered by a Government which kept its nerve in the face of sustained sectional criticism, so as to produce a better result for the community as a whole.

A community which faced these difficulties with a great degree of understanding and forbearance.

An understanding that the reformation of the economy is a continuing and at times difficult task.

And forbearance that has allowed the necessary policies time to succeed.

The Government's task now is to build on that trust towards a more balanced and independent economy.

Tonight's Budget is about just that.

It builds on the fiscal achievements secured to date and maintains fiscal policy as the Government's principal weapon in the fight against the current account deficit and our overseas debt.

With a surplus of over $8 billion-the fourth successive surplus-it provides Australia with a period of sustained budgetary discipline unprecedented in its history.

It adds this further $8 billion to national savings to cut the call on overseas savings and hence overseas debt.

But not only does its rectitude provide an advantageous bottom line, it also underpins the fairest array of Commonwealth spending policies in the history of the Federation.

Included in these are the personal tax cuts announced during the election to be paid from January 1 next year costing the Budget $1 1/4 billion, as is the fulfilment of the Government's election commitments on child care, improved services for outer suburbs, and the environment.

Yet these outcomes are provided in the context of a slower economy which has placed additional pressure on outlays and dampened revenue growth.

With a similar surplus as last year, which was a year of high activity, the Budget is set to have a more substantial impact upon Australia and its economy this year.

This is particularly appropriate as the Government has now wound back official interest rates by four percentage points as the economy has slowed.

But we cannot let up on the restructuring of the economy made necessary by the high Government spending of the 1970s and early 1980s and the broken investment of that period.

Like many worthwhile contests, the fight with our economic problems will not be won in one championship round.

It will need to be fought over a number of bouts.

This Budget keeps us in the right financial shape to carry that fight into the 1990s.

BUDGET OUTCOME

Mr Speaker, the Budget will deliver in precise terms, a surplus of $8.107 billion.

This surplus-larger than last year's outcome-has been achieved with outlays and revenue to GDP falling.

This year revenue will fall to only 25 1/2 per cent of GDP, well below the last Budget of the Fraser Government.

This has been brought about by the fact that over the Hawke Government's seven years in office we have more than fully indexed the tax scales for inflation.

This Commonwealth surplus will ensure that Australia's public sector as a whole is in balance.

The net public sector borrowing requirement for 1990-91 will therefore be zero as once again the Commonwealth Budget surplus offsets the combined borrowing of all Commonwealth, State and local Government authorities.

This means that the whole public sector of Australia will borrow no new money and that total Commonwealth debt as a share of the economy will be cut further to be only a third of what it was five years ago.

OUTLAYS

Mr Speaker, I now detail the outlays side of the Budget.

This year outlays will be cut again to only 23 1/2 per cent of GDP, a reduction of 6 1/2 percentage points in six years.

These figures underline the enormous task undertaken by this Government to cut back public spending so that the Budget of the Commonwealth of Australia is today as tight and as fair as any in the world.

This is a proud claim for a country which only seven years ago had a runaway public sector brought into disrepute by over spending and abuse.

So great is the transformation, Commonwealth spending is now at its lowest level as a proportion of GDP since 1974, and in three years will be down to the level of the 1950s.

Yet this has been achieved while funding services that either did not exist 20 or 30 years ago, or if they did exist, were much less comprehensive. Areas such as child care, aged care, the family allowance supplement, schools, universities and environmental programs, are being supported and generously funded today from a Budget of early 1970s size.

It has made Australia a fairer and better place to live while meeting the requirements of broad economic policy.

The discretionary savings undertaken by the Government in this Budget round net to over $1 billion.

I now detail the major decisions.

SAVINGS MEASURES AND NEW POLICY

Mr Speaker, last year the Government announced its Retirement Incomes Policy-a sweeping package of reforms to provide security for all Australians in their retirement years.

To do this, we have totally excluded full-rate pensioners from the tax system, making it more worthwhile for them to sensibly invest their savings to generate extra income.

Yet many pensioners still disadvantage themselves by holding their savings in accounts that pay little or no interest.

Therefore, to encourage sensible savings practice, from March 1 next year the Department of Social Security will assess cash and deposits of pensioners and beneficiaries amounting to more than $2000 as earning an interest rate of 10 per cent.

If the rate of return is greater than 10 per cent, the actual rate will apply as at present.

Because many pensioners retain some savings in a low interest account for day-to-day convenience-running a cheque account for instance-the first $2000 of such deposits will be assessable at the actual rate of interest.

These changes mean a pensioner couple with $50,000 in a bank account earning 4 per cent could be $40 per week better off by being encouraged to put their savings in a higher earning account.

It is also important to appreciate that a single pensioner with no other income would need at least $20,800 deposited, and a married couple $36,400, before losing one cent of pension under these new arrangements.

To accompany these reforms the Government will expand the Financial Information Service for Pensioners so they can take advantage of these changes to improve their disposable income.

Mr Speaker, this Government has restored the integrity of the social security system.

The Minister for Social Security is tonight releasing a number of statements detailing further measures to tighten the administration of payments.

These include a six-week amnesty during which people who have not notified the Department of Social Security of changes in their circumstances may do so without having to refund any overpayments or face prosecution.

Following the amnesty the Government will implement measures to further tighten administration.

The existing tax file number system will be extended by the Department of Social Security to cover virtually all income tested payments.

This will occur under the strict supervision of the Privacy Commissioner.

These measures will save $120 million this year and $318 million next year.

Mr Speaker, the Minister for Community Services and Health is announcing tonight the most far-reaching restructuring of the Pharmaceutical Benefits Scheme since it was introduced.

Since 1948 this scheme has enabled all Australians to get the pharmaceutical drugs they need at an affordable price.

But today, scientific advances have resulted in a massive increase in the number and variety of health care drugs available.

It took almost 40 years-from 1948 to 1985-for the costs of that scheme to grow to half a billion dollars.

It took only another 4 years for the costs to grow by another half a billion dollars.

And in another three years those costs would have reached over $2 billion were we not to have acted now.

The alternatives are stark: reconstruct the scheme so that it remains fair for everyone, or lose the scheme altogether, so that access to complete health care would only be available to the wealthy.

The measures we are announcing tonight will cut the growth in spending on the Pharmaceutical Benefits Scheme by about $1 billion in the next two years.

Those measures include an increase in the general pharmaceutical charge from $11 to $15 per prescription, with a safety net of $300 after which the price will fall to $2.50 to a maximum of $50.

There will also be a new standard charge of $2.50 per prescription applying to all Social Security recipients and to all families who receive the Family Allowance Supplement.

This charge will be offset by a $2.50 increase to weekly pensions and a safety net to protect chronically ill pensioners or beneficiaries who require a large number of prescriptions.

These arrangements mean that for all those facing the $2.50 charge for the first time the charge will be at worst income neutral.

Pensioners will be protected by this change, and many will be better off.

Importantly, it will discourage the indiscriminate consumption of drugs.

Mr Speaker, this Government has already implemented landmark income support schemes to help lower income families with children.

However, we believe that in the current economic circumstances the community endorses the view that those who can afford to pay their own way should do so.

As a consequence, from January next year Family Allowance payments will be subject to an assets test.

This will mean that the Family Allowance will be withdrawn only if net assets, excluding the family home and debt, exceed $300,000.

In addition, the income test taper on the Family Allowance is to be abolished so that payments cut out for family incomes in excess of the income limit, currently $57,620 a year for families with one child.

Further, the assets test applicable to the more generous Family Allowance Supplement will be reduced from January 1 1991 from $322,000 to $200,000.

Mr Speaker, through the past seven years we have seen record levels of job growth and we have dismantled the barriers that have prevented many Australians from getting into work.

In the past, opportunities were closed to women for many reasons, not the least of which was the lack of decent and affordable childcare places.

Following the pledge we made in the election campaign, we will double spending on childcare over the next three years with a first instalment of $75 million this year.

And over the next 5 years we will create another 50,000 childcare places.

Mr Speaker, another election commitment honoured by the Government tonight is the abolition of the old unemployment benefit structure.

As from July 1991 unemployment benefits will cease to exist.

In its place will be a short-term Job Search allowance and a Newstart allowance for those unemployed for 12 months or longer.

The Government will provide the opportunities people need to get back to work-and we will insist that they take advantage of these opportunities.

As part of this reform the rate of payment to jobless 18 to 20-year-olds living at home and without children will be reduced from the full adult rate.

A similar strategy of positively encouraging the disadvantaged into self-fulfilling work will be applied by replacing the Sickness Benefit and Invalid Pension with a Sickness Allowance and a Disability Support Pension-a new structure of income support complemented by training and rehabilitation opportunities.

There will also be a more rapid cost recovery of tertiary education charges by increasing the rate of repayment by higher income graduates through the taxation system-the assets test on Austudy will also be tightened.

Mr Speaker, given increasing disparities in home prices between cities, the First Home Owners Scheme is no longer proving an equitable way of assisting home buyers.

It is to be abolished from tonight. The Commonwealth will be providing funds for additional deposit assistance for low income earners to be administered by the States.

Existing commitments under the First Home Owners Scheme will continue to be met.

Mr Speaker, the standard of behaviour of some individuals in Australia's corporate sector has fallen short of what should be expected by the general community.

The Commonwealth Government will ensure that corporate activity will be regulated and supervised in the interests of ordinary shareholders and investors.

From January 1 next year Australia will for the first time have a single corporate regulatory authority-the Australian Securities Commission.

An extra $210 million will be provided over the next four years-resources for corporate regulation will increase by nearly 50 per cent.

Mr Speaker, the Commonwealth believes that the States should carry full responsibility for managing their debt.

Consequently, tonight's Budget incorporates the proposal put at the Loan Council meeting for the States to refinance all maturing debt presently held on their behalf by the Commonwealth.

REVENUE

Revenue as a share of the economy is more than two percentage points lower than its peak of four years ago.

In world terms Australia is now a low tax country.

The Organisation for Economic Cooperation and Development last week announced that we are the third lowest taxed country in the developed world.

This has been achieved by making the size of government in Australia much smaller, thereby requiring a lower tax share to finance it.

At the same time, the Capital Gains Tax, the Fringe Benefits Tax, the abolition of entertainment as a deduction, the taxation of foreign source income and the abolition of rorts have made the Australian taxation system one of the fairest and most secure in the world.

As a result, we have been able to cut personal and company tax rates.

And as I indicated at the outset, further personal income tax cuts, equivalent to $7.75 a week for a worker on average earnings are included in this Budget.

CRUDE OIL

Mr Speaker, as recent events in the Middle East have emphasised, Australia's oil reserves are a scarce resource that must be carefully husbanded in the national interest.

In order to maximise production and revenue from the Bass Strait field over its remaining life, the arbitrary excise and royalty system is to be replaced with the Resource Rent Tax.

This will result in a substantial cost to revenue in the initial years but will subsequently provide a positive taxation flow.

The Government will also provide a substantial boost to exploration activity by allowing exploration costs to become deductible on a company-wide basis for RRT purposes.

TAX AND THE ENVIRONMENT

Mr Speaker, in the Environment Statement last year, the Prime Minister undertook to review aspects of the interaction of the tax system and the environment.

In the past, mine site rehabilitation and the dismantling of oil production platforms have been regarded as capital costs and thereby not a deductible expense.

Tonight I announce that mine site rehabilitation and platform removal expenditures incurred from July 1 1991 will be deductible.

Full tax deductibility to combat land degradation will also be extended to all rural businesses earning income from the land, and will also cover the erection of fences for the prevention of such degradation.

Finally I announce that the Treasury will undertake a review of the taxation treatment of other environment-related capital expenditures incurred by business.

SMALL BUSINESS

This Budget also includes measures to help small business.

From August next year companies with sales tax liabilities of less than $50,000 a year will be able to remit payments quarterly rather than monthly.

And from April 1 next year the threshold for annual instead of quarterly payment of the fringe benefits tax will be lifted from $1,000 to $3,000.

Taxes on business inputs generally will be reduced by exempting from sales tax computers used in manufacturing.

PROVISIONAL TAX

To keep the tax system fair, provisional tax arrangements will be extended to remove scope for high income earners deferring tax payments on wage and salary income at the expense of ordinary taxpayers.

This practice has been particularly prevalent in relation to directors' fees, commissions and bonuses, and short-term, contract employees and will raise $370m this year.

ECONOMIC CONDITIONS AND PROSPECTS

As I indicated at the outset, Australia is now emerging from a period of very high but unsustainable economic activity.

One consequence of that phase was a sharp reduction in Australia's unemployment rate.

Now that the economy has paused for breath, unemployment is expected to rise a little.

Even so, the number of people in work is expected to increase over 1990-91.

In other words, we will succeed in doing what we set out to do-to slow the economy without impairing longer-run growth prospects or jeopardising the economic and social advances of recent years.

The commendable incomes restraint of the Australian community is acting to ensure that workers do not price themselves out of jobs during this period of slower economic activity.

At the same time, the historically high rate of business investment of the past two years is finally providing us with the capacity to trade our way out of our troubles.

Fresh statistics released tonight show that as last year progressed a growing proportion of Australia's economic growth was generated by the export and import replacement sectors.

In this financial year, that trend will be even more dramatic.

All of this year's expected GDP growth of 2 per cent will be provided by these net export sectors.

This will in large measure be generated by growth in export volumes of 7 1/2 per cent-the largest since 1986-87.

At the same time our imports are forecast to fall by 3 per cent.

The overall effect will be a reduction in Australia's current account deficit of around $3 billion, with the current account to GDP ratio falling by over 1 percentage point.

And just as the economic slowdown helps our trade accounts, it will also help to reduce inflation.

By June next year the rate of increase in the consumer price index will have fallen from around 8 per cent today to 6 per cent.

That forecast is consistent with an inflation rate for the financial year on average of 6 1/2 per cent.

Of course, the present Middle East situation is a source of some uncertainty-for both the domestic and world economies-and our forecasts have had to assume a higher world price for crude oil.

But it is important to keep this matter in perspective.

Oil is not nearly as large a factor in the world economy as it used to be and, to date, price changes have been much more moderate than experienced at the time of earlier price shocks.

This is important because the inflation outcome relates to our wages policy.

Earlier this year we negotiated a wage arrangement which should see wages grow at 7 per cent in 1990-91.

This was premised on inflation falling to 6 per cent, as we are now forecasting.

If oil prices were to rise dramatically we should of course need to reconsider matters.

But any reconsideration would need to be in the context of reducing inflation while seeking to maintain disposable income.

These are all matters that would be put to the Industrial Relations Commission.

MONETARY POLICY

Mr Speaker, the economic developments of the past year have established a platform for sustainably lower interest rates.

Official interest rates have been reduced four times this year, moderating the stance of monetary policy as activity and spending have slowed.

In the year ahead we will ensure that monetary policy maintains the right balance so as to prevent a needless falling away in activity and employment and to create the environment where growth and employment can steadily strengthen.

However, our approach to interest rates will be tempered by our on-going concern not to rekindle demand pressures that could threaten progress in cutting inflation and the current account deficit.

CONCLUSION

Mr Speaker, while prime attention is focused on broad goals to do with the current account, inflation, unemployment and interest rates, it is also important to improve the way our economy functions on a day to day basis.

Much has already been achieved from the floating of the dollar in 1983 to the fundamental modernisation of industrial awards and union structures that is going on today.

Our taxation system now no longer penalises those who invest to produce income rather than speculative profits.

Tariffs have been reduced, encouraging our industries to become more competitive.

Far-reaching reforms are already taking place on the waterfront and in aviation and shipping.

The Government is determined to extend these reforms to other areas where the public sector is involved with industry and business enterprises.

The guiding light will be to make government business enterprises innovative, efficient and competitive to ensure that they are not holding back our industries and are delivering a proper level of services to the community.

This must involve all levels of Government.

But make no mistake. Governments can only do so much. Private business must also be part of this process.

Mr Speaker, I cannot over-emphasise the commitment required of both the Government and the nation if we are to overcome the deep-rooted structural weaknesses of the economy.

Our problems developed as a result of decades of economic neglect and we will not resolve them quickly.

Australia is not part of any trading bloc. There is no easy market waiting to comfort us.

The intransigence in the current General Agreement on Tariffs and Trade round is evidence of that.

We will have to make it by ourselves. Fortunately for us, we can.

But we must capitalise on the substantial gains made to date.

The economy has to be able to produce more and not rely so heavily on imports.

Spending will have to be kept in check for a substantial period to create an exportable surplus.

But these goals can only be accomplished if broad economic policy is kept tight.

This Budget will more than uphold its end of that bargain.

As I said at the beginning of my speech, it is a Budget that will keep us in the right financial shape as we enter the 1990s.

It will give us a very solid foundation for whatever we as a nation have the courage to undertake.

I commend the Budget to the House.

Debate (on motion by Dr Hewson) adjourned.