PRIME MINISTER
ALP LUNCH LAUNCESTON, 23 OCTOBER 1984
E. O. E. PROOF ONLY let me say that having dealt with those two
issues of direct importance to the people of Launceston and
this region, that I would like to spend some time now in talking
with you about what has emerged as a fundamentally important
issue in this campaign in the light of yesterday's release
by Mr Peacock and Mr Howard of their so--called Tax Policy.
We have been told as Australian citizens over the last 18 months
that the Liberal and the Nationa. Party would produce a tax policyas
part of their general economic policy. And so, we were all
I believe waiting breathlessly, for some detailed exposition of
this policy. Now, of course we have all been disappointed because
the policy is exceptionally short on detailed exposition. But,
it is not short, if I may put it this way on basic concept and
philosophy. And I want today, here with you, to spend some time
in analysing with you what that basic concept and philosophy is,
what the economic implications are for every Australian, and
I will be doing this together with my friend, Paul Keating over the
days ahead. People of Australia are entitled in these next few days
to have a concentration of attention of analysis by us, the
Government, by the media, on these proposals of the Opposition.
And I certainly intend to undertake my -responsibility to the
people of Australia, to analyse with them, these implications.
Now, let me say at the outset that what is basically clear
as to the concept and intention of Mr Peacock and Mr Howard
is that there shall be a substitution to a considerable extent
from direct tax, income tax on some people towards significant
increases in indirect tax for everyone. Now, that's the essence
of what they are about. We are entitled therefore to ask
ourselves precisely what this means. Now the first thing that
I want to say to all of you to every concerned Australian, is
that what this necessarily means is a significant increase in
inflation. What we did in Government, and I put this by way of
background, is that our great contribution has been that in a
very short period of time, relatively, to-break the vicious cycle
of inflation, wages chasing prices'which meant further inflation
which had afflicted the Australian economy through the period
of conservative rule. Whenever the economy had got moving,
when there was sudden growth, then it broke down through inflation
which was fuelled by wage demands of unions wanting to see that
the increase in prices which had taken place under their'
unco-ordinated policies of the conservatives, would pick up iLn
wages. Now we broke, that vicious circle. I remind you of the .2
P. M.: cont.. facts. When we camne to office in March. 1983, this
country was on it's economic knees. We had the worst -Irecession
since the great depression of the 1930' s. But, it wasn't a
recession with* an oppressed level of economic activity like the
great depression in one respect.-because remember then, that there
was no inflation. But, with the conservatives of these latter
days we had the-worst of all worlds.-We had recession and very"
high levels of inflation. We inherited 11.2% inflation, and that
was about twice the average of the rest of the world. So you had
soaring unemployment, jobs disappearing, economic growth had
gone, economic stagnation, but inflation had doubled the rate of
the rest of the world. And it had that, because you didn ' t have
co-ordinated economic policy planning. You didn't have planning
which co-ordinated wages policy, tax policy, general Budget policy,
general macro-economic policy. And because you had this lack of
co-ordination you had the worst 6f all possible worlds. And
particularly you've had high and rising inflation. And that was
their pattern. Everytime it had any sign of recovery, it broke
down with this break-out of wages chasing prices and inflation
going up.
Now, let me remind you in this respect, of the views that was3
very explicitly put to the people of Australia quite recently
by Mr Howard. Mr Howard in 1981 addressed himself to this question
of the impact of increases in indirect taxation upon the inflationary
situation. I read to you from what Mr Howard said in the
House of Representatives on 12 March 1981. It referred to practical
difficulties. It said important, though his practical difficultie
future revenue considerations were.-the fundamental reason
for the Government's decision was it's concern at the impact on
inflation and inflationary expectations in any significant shift
towards greater reliance on indirect taxation. And that's pretty
clear. No qualification about it. Let me read it to you again.
The fundamental reason for the Government's decision was it's
concern at the impact on inflation and inflationary expectations
on any significant shift towards greater reliance on indirect
taxation. And yet that's what the very essence is, of what they
unleashed upon Australia. yesterday. Mr Howard went on, and I'll
just read this final sentence in this section of his speech to the
House of Representatives. He said therefore, and despite obvious
advantages from many other points of view, the : Government came
firmly to the conclusion that the inevitable squandering of the
gains made and the maintained in the fight against, inflation in
recent years was a price it was not prepared to pay. Now, I ask
you and I will be asking all Australian citizens to ponder what
Mr Peacock and Mr Howard are now saying out of their own mouths,
they are prepared to do to the people of Australia in;: the light
of that exposition. Mr Howard,, unequivocal in March 1981, that
if you had any sort of concern about inflation, then you had
to be certain that you didn't move to a significant increase in:
indirect tax, because that would mean further.' inflation.
He was right. Of course, what wei~ t further wrong however was,
that in the period after 1981, they steadfastly refused to adopt
a range of economic policies that would contain inflation any rate.
They refused to have any wages policy at all. They tried then,
right in that period,. 1981. Right in the middle of that period
they abandoned any wages policy at all, for centralised wages
system. They said, let's throw it open, let the trade unions
and the employers of Australia fight one another. Let the .13
P. M. cont. unions use their power. Let the employers use their'
power and let prices in the market, incl. uding the'price for ' Labour
be determined by that process. And that's why by the time we
came to office by the beginning of 1983 you had inflation at
double the rate of the rest of the world. Now, what you have
therefore yesterday, delivered to the people of Australia,
as a so-called tax policy was not a policy at all, it was a
nebulous paper which was no substitute for policy at all. It was
a real pig in a poke. We will vaguely say that we will cut
direct taxes by increasing indirect taxes, directly against the
specific warning that Mr Howard had properly given in 1981.
Of course, as it quite clear, it had no relationship to general
economic policy at all. Let me Just br: Lefly again refer to the
opening portions of Mr Howard's speech in March 1981 when he
then did seem to realize the relaitionship between. tax policy and
general economic policy.
This was what he had to say in the early stages of his speech in
March 1981. He said this, and I ask you as I will be asking
every Australian man and woman between now and 1 March, to
understand this. This is the truth according to Howard in 1981.
I quote him: " The taxation system is -an integral part of our
economic structure. As such tax changes cannot take place in a
vacuum. Taxation", he said, " government spending and budget
deficits and inflation", he had them all " taxation, government
spending, budget deficits and inflation are all directly
connected. Coping with them is part and parcel of the task of
running a modern economy." He said this: " the Government's views
on taxation cannot be divorced and are not divorced from its,
underlying philosophy". And he concluded that section by saying:
" Unless taxation changes are consistent with and achievable
within the existing economic framework, they will frustrate rather
than serve the Government's economic objectives."
Now let me spell out the implication and the truth of what
Mr Howard was then saying. Hle points at this nebulous bit of
paper on Australia yesterday as though that was some significant
self-contained statement about taxation. But it was nothing of
the kind. It had no details, but it was totally unrelated t~ o
the broad areas of economic policy as he had said in March J. 981,
any tax policy had to be.
Now let me spell out to you as citizens, not in terms of
sophisticated esoteric economic analysis, but in simple
straightforward terms which explain what that policy would rmean
for Australia if misguidedly the Australian people were to begin
to give them the chance of implementing~ it.
There would firstly be a situation in wrhich. a minority of the
people through income splitting would gfet an income tax reduction.
The great other sector of the Australian people would get none,
but all of us, including those who got th e dirpct tax cuts and
those who didn't, would be immediately faced with a significant
increase in the tax they paid as a result of the increases iLn
indirect tax.
But what would happen then? Once you had the increases in
indirect tax, prices would rise. Naturally that is what
follows. That is what Mr Howard said in 1981. That is why then
the then government decided against that approach.
What happens then when prices go up. Then naturally the
trade union movement, as it historically has done, moves to
have compensation through way of wage increases for that
increase in prices. And so you get the wage price spiral
which inevitably produces that higher level of inflation.
And there is no way and this is what must be understood by
each and every Australian there is no way that a conservati. ve
government would have any basis of negotiation with the trade
union movement to prevent that wages out-burst.
The distinguishing feature of your government today, ladies
and gentlemen, is that we have achieved -an historic accord with
the trade union movement which allows the condition in respect
of pay and other conditions of ernployment to be satisfied at
times other than by simply looking at money wage increases.
And that is relevant to our realistic tax policy, the benefits
of which will be going to the pockets of all Australian taxpayers
in the next few days.
You are going to Tt the largest real tax: cut that Australians
have had for very many years. The figures I repeat they
should be clearly in every Australian's mind that if we had
given you a tax cut which was only necessary to cover you for
inflation which had brought in bracket creep -the costs of that
in a full year would have been $ 1.3 billion -the cost of the
tax cut, the benefit of which you will soon be getting, will be
$ 2.1 billion. Now that is what we have done, and that is
equivalent to an $ 11 a week wage increase and that has been an
issue which has been worked out in consultation not only with
the trade union movement by this government, but also in
discussion with broader sections of the community.
But Mr Howard and Mr Peacock have said they will smash the Accord
no consultations. That is not on. I go back to this business of
saying, let the fight take place in the market place. If the
fight takes place in the market place then that * means, as I say,
wages, chasing prices, higher inflation.
So Mr Howard was right in 1981 when he said tax policy must be
related to the-whole panoply of economic management and the
great mistake they made yesterday is to believe that the
Australian people are going to buy a return to the misery of the
past, to the unco-ordinated policies of the past which brought
this great country to its economic knees, where we had the
worst recession since the 1930' s, stagnation. Now it is no
accident that we turned that round. WE: turned it round with
your co-operation, with the co-operation of the whole community,
and particularly through its great orgarnisations, the business
organisations and the trade unions.
And we realised the truth. And you, the peopl'e of Australia,
accepted it that if you are going to turn the economy round
then you have got to co-operate and consult together and have
integrated policies, your tax policy related to your budget
strategy, related to your wages policy.
In the result, Australia has turned around from recession to
having in the last twelve months the highest rate of economic
growth in the world has turned around from having double the
inflation rate of the rest of the world to a position where
now we as Australians can boast the fact that our inflation
rate has been more than halved and brought back in current
underlying terms to somewhat less than the world average.
We have turned it round from a loss of 200,000 jobs, an increase
of a quarter of a million in unemployment, to a reduction in
unemployment, and an increase of 260,000 jobs.
To interest rates having been brought down and all that
happened, my friends, because you, the Aus'tralian people, not
just as individuals, but through your organisation, the business
men and women, and as workers in thle trade union movement,
decided rightly with us that the time has come to do two thi'ngs.-
to work together rather than fighting one another to put
Australia first in that sense and because you accepted the
truth of what we were saying that you had to ha ye integrated
policies tax policy integrated with budgetary strategy, government
spending and the like.
Now, there is one other aspect that I want to go to and that is
that Mr Howard said in what will now become that famous speech of
12 March 1981 he said I remind you, he said this: " The
Government's views on taxation can not be divorced, and are not
divorced from its underlying philosophy".
Well that is true, and that underlying philosophy of the
conservatives came through yesterday. Because according to
my Treasurer's calculations, not disputed by Mr Howard last nig~ ht
on the program they shared together I would stand, at my level
of income as Prime Minister I would stand to benefit by $ 66 a
week to me out of this philosophy of the conservatives and thait
would b~ e paid for by the relatively lower income people in this
country. Now we just don't happen to believe that if we are going to ha-ve
a cohesive society which is going to continue to work together
to produce the great e ! conomic results that we have under this
government, you are going to continue to do that if Prime Ministers
should get $ 66 a week cuts out of a tax policy while people lower
down the list, not only get nothing, many of them, but would in
fact in net terms be worse off because of the significant increase
in tax they have paid . through the increase! s in indirect taxes.
So my friends I repudiate, and I believe you will repudiate, a:.-Id
I believe the overwhelming majority of Australians will repudiate
this nonsense, this regressive backward, unacceptable philosop'h. y
which was put to the people of Australia yesterday. It will
mean as I say, inevitably a return to the days
inflation which made our economy uncompetfitive, , fhich produced
economic stagnation, which produced lo'ss of jobs, and inflation
at double world levels. / 6
Under the approach of this Government we have shown that
tax policy must be integrated with economic Policy generally
and we are not and I believe you are not going to accept
that return to the unacceptable days of the past.
My friends, I have taken some time in dealing with that issue!
because I believe that you as concerned Australians want to
know what it is that has happened in the past. I have explained
that to you. I think you share our pride in the fact that
Australia is winning again, that we have turned the economy
round, importantly that we have turned it around together wit~ h
the great elements of Australian society working together
the trade unions, the business, the Stat. local government,
working with the Commonwealth Government.. We have shown tha:
there is a better way to put Australia a~ t the top of the wor: ld's
economic growth table and we have done it in a way which combines
economic efficiency with a consideration of equity.
I believe it is appropriate that under the tax cuts that will
be coming in in a few days time that I only receive about $ 2 and
a bit, whereas the average wage and salary earner in this country
will be receiving $ 7.60. 1 think that you think that that is
fair. I certainly think it is fair. Anid I think it is totally
unacceptable philosophy that the alternative should be that : I
should get something like $ 66 a week increase out of the new
social tax policy and people lower down the level would not only
not get a tax cut but in net terms would be worse off.
That is not the way you create a cohesive society. That is not
the way you get Australians working together. That is not the
way you have Australians winning as it is now under this
Government. So, my friends, ( tape ends)