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Democrats urge Coalition to consider a two stage approach to tax reform.

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Senator Meg Lees

Australian Democrats

Parliamentary Leader


July 28, 1998



Democrats urge Coalition to consider

a two stage approach to tax reform


The Democrats have called on the Government to consider whether tax reform might best be undertaken in two stages, with changes to the indirect tax system deferred until the economy fully recovers from the Asian crisis.


The Democrats, who are likely to regain the balance of power in the Senate after the next election, have an open mind on tax reform. However, the Democrats are urging the Government to consider that in the current economic environment, the timing of the package could be as important as the design of the tax package itself.


“We should, however, proceed immediately to reform our ramshackle income tax system. Both the Coalition and the ALP have acknowledged the need to do this - and one way or another the Senate will have to deal with this after the next election,” said Senator Lees.


“I would urge the government to consider delaying an overhaul of the sales tax system, or introducing a GST, until the economy is in the best possible shape.


“The introduction of a GST, while the Australian economy is trending downwards because of the Asian crisis, is likely to increase unemployment in the short-term,” said Senator Lees.


“Japan, New Zealand, Britain and Canada all introduced a GST in a flat economy which, in all cases, had the effect of pushing unemployment dramatically upward in the short term.


“The evidence is that a GST will have the short-term effect of increasing inflation and unemployment, even though in the longer term employment may recover if export and investment effects kick in,” she said.


“I question whether it would be good policy to make such a disruptive policy change when unemployment is already rising.


“The details of the economic forecasting and modelling of the effect of a GST will be the first major test of policy honesty under the much-touted Charter of Budget Honesty.


“Australians need to know, well ahead of the next election, exactly what they are in for when they vote on the tax reform proposals of the major parties.


“The Democrats reiterate that we have an open mind on tax reform and what it might comprise. We recognise the need to fix the tax system but we are still waiting for the full details of the packages to be put on the table,” said Senator Lees.


For further information:

John Schumann 0419 867876

Senator Meg Lees 08 82958911