N. B:
CHECK AGAINST DELIVERY L
PROME MINISTER
FOR PRESS 12 SEPTEMBER, 1978
BUDGET DEBATE
The Budget which the Treasurer has brought down is a Budget
of responsibility and vision a Budget which has accepted
the need to take difficult decisions because this Government
recognises that failing to take these decisions would
squander our hard won gains in reducing inflation and
interest rates and end the progress towards economic recovery.
This is a Budget in which the long-term interests of
Australians have been placed above any consideration of
short-term political advantage.
The strategy which guides it is the one which this Government
has consistently pursued since being elected: a strategy
to revive the private sector and put Australia firmly on the
path to long-lasting real growth; a strategy to make our
industries competitive, tough enough to compete successfully
in world markets; a strategy to achieve low inflation and
high prosperity.
The only path to lasting economic growth lies in achieving
the essential pre-conditions for growth. The maintenance
of fiscal and monetary stability and a responsible approach
to wages will bring lower inflation, lower interest rates
and increasing confidence by investors, both local and
overseas.
Essential to the achievement of all of these objectives was
a lower deficit. We therefore had to continue our restraint
of Government expenditure and make sure that Australia's
taxpayers would receive full value for their tax dollars.
By rigorously scrutinising every programme, we held down the
rate of growth in Government spending to 7.7 percent, the
lowest for a decade. But beyond this, the low deficit demanded
by economic responsibility required an increase in indirect
taxes and the introduction of a temporary increase in
income tax.
We took that course because we were determined to act responsibly
in the long-term interests of this country, and because we did
so, this Budget will strengthen the confidence of investors,
employers and consumers. They know that this Budget will drive
inflation down further. / 2
-2
Inflation at an annual rate of 5 percent is within our
reach by mid-1979. This means that we will have brought
our inflation down much faster than most O. E. C. D. countries
in the last three years. It will also mean that, once
again, Australia's inflation is significantly below that
of the O. E. C. D. average. What we are determined to do
is lower our inflation further.
In a world in which competition for private capital and
overseas investment is intense and international trade is
weak, it is essential that Australia stand out as one of
the few strong economies in the world. This means we must
have low inflation. We must extinguish for good the fires
of inflationary expectations. Only in these ways can we
earn a growing share of world trade, and attract increased
investment capital from overseas leading to increased
employment. The Government' s approach was wholeheartedly endorsed last week
by the Secretariat of G. A. T. T. in its Annual Report.
The Report said, and I quote: " The inescapable conclusion
is that the industrial countries can only move towards
increased growth and employment and towards sustainable
payments positions and more stable exchange rates,
by reducing their inflation rates to the levels experienced
until the mid-1960' s".
With lower inflation our industries will get a larger share of
domestic markets, and an increasing share of export markets.
Domestic and overseas investors will both be encouraged and with
the increasing competitiveness of Australian goods and
increased investment we will have more economic activity and
more employment.
Our policies are based on a real concern for the unemployed,
unlike those policies put forward by the Labor Party who try
to use the unemployment issue for their political advantage,
promising fraudulent, illusory cures for their own political
gain. I
We know that there is no quick or easy solution. We have the
courage to stick to policies that will lead to lasting increases
in employment and I would like to repeat the view of G. A. T. T.:
" The inescapable conclusion is that the industrialised countries
can only move towards increased growth and employment... . by
reducing their inflation rates to the levels experienced
until the mid-1960' s". What G. A. T. T. is saying in fact is that
employment can only be improved if countries follow the
kinds of policies adopted by the Government.
Some people have called for the fiscal stimulus of much higher
Government spending. Today, this is not a realistic option.
It would simply result in an acceleration of inflation, and the
speedy. withdrawal of overseas investors. Instead of taking
this path of false stimulus, what we are doing is reinforcing the
recovery process of the private sector by lowering inflation
and hence lowering interest rates. / 3
-3
The Budget aims at providing a substantial sustained
stimulus to the private sector in the form of further
reductions in interest rates. Home buyers, farmers, businessmen,
builders, consumers and investors will all benefit from
this policy.
Let me demonstrate the advantage to home buyers. On, say,
a home loan of $ 25,000 being repaid over 25 years, each
one percent reduction in interest rates will mean a saving
in the order of $ 17 a month or $ 5,000 over the period
of the loan. The 0.5 percent reduction achieved earlier this
year presently yields a saving of $ 9 a month. I am confident
that it will not be long before further savings are available.
In the case of industrial companies raising debenture capital,
the reductions in interest rates on new issues over the last
year have been up to about 1.25 percent, thereby helping to
contain costs and to stimulate investment.
The overwhelmingly favourable response in the Australian financial
markets to the Government's Budget strategy should be clear
to all. It is seen in the very large subscription of $ 780 million
to the August loan much the greater part of which has
come from non-bank sources. This has set us well on the way
to financing the 1978-79 Budget in a non-inflationary manner.
It is another clear sign of market expectations of falling
interest rates. The Budget has also renewed the confidence
of the overseas business community in our economy.
On 21 August, at the notorious Sydney rally which dissolved
into violence violence for which the Leader of the Opposition
frantically tried to disclaim any responsibility, Mr. Hayden
said that under this Budget business conditions will be much
tougher.
Well, let's hear what the Australian Chamber of Commerce had to
say on the Budget they're a rather more reliable source
for estimating the Budget's effects on business than Mr. Hayden.
The Chamber said: " Business accepts the argument underlying
the Budget, namely that inflation remains Australia's number
one economic problem, and that the way to improve the employment
situation is to reduce Government deficit financing and to
give encouragement to private enterprise to expand... The smaller
than expected deficit should ease the pressures on the money
market, and help clear the way to lower interest rates.--This
should help stimulate demand for capital for housing and business."
It's clear that Mr. Hayden is wrong in his statement about this
Budget's impact on the business community. But it must be
said, in all fairness to the Honourable Gentleman, that he does
concede the advantages of our new health arrangements.
In his alternative Budget, he endorses our changes. They
greatly simplify the health system, provide basic universal
health cover, help to contain health costs, give people a
choice as to how they will meet their health expenditures,
and protect pensioners and other socially disadvantaged groups.
/ 4
-4
Those in real need will not find this a harsh Budget.
Expenditure on key programmes for the aged, handicapped,
and children have recorded significant increases.
To take only some cases: expenditure on aged, invalid,
widow's pensions and supporting parent's benefits up
by 11.5 percent to $ 4,643 million; expenditure on
subsidised pensioner housing is up 40 percent; assistance
to organisations providing facilities for handicapped persons
will rise by 37 percent to $ 52 million. Increased funds
are provided for the Commonwealth Rehabilitation Service
and the Handicapped Child's Allowance is extended to
students aged 16 to 25 who do not receive an invalid
pension. There is a sharp increase in funds, as a result of the
Galbally Report, to meet areas of need in services for
migranzts. In Home Care for the Aged, even though the
subsidy rate has been varied to meet greatly increased
demand, total spending will still increase 14 percent
to over $ 10 million. That makes a rise of 83 percent
in home care for the aged in the last three Budgets.
I have said that all taxpayers will be required to pay a
temporary increase in income tax this year. Despite this
temporary income tax increase, let me emphasise and
demonstrate why this Government is a low tax Government.
This financial year, taxpayers will be paying over $ 3,000 million
less in personal income tax than they would have paid if the
1975 Hayden tax scales had still applied. The total personal
income tax savings to taxpayers over the three financial
years to 1978-79 will be about $ 6,400 million.
Let's take the example for 1978-79 of a man on estimated
average weekly earnings with a dependent wife and two children.
Compared with the old Hayden days, he will be better off by
$ 13 per week: $ 6 less income tax; $ 7 because the family allowance
is so much more than the old child endownment. His disposable
income is substantially greater because of our reform of the
tax rates, our introduction of indexation, and our
enlightened policy towards the family.
Even with the temporary income tax increase, the growth in
personal income tax collections in 1978-79 will be significantly.
less 6.7 percent than in 1977-78 9.7 percent.
In both years, tax collections will have risen more slowly than
personal incomes, reversing the trend towards a rising tax
burden which has persisted so long.
In addition to these tax cuts, large tax reductions have been
made available to companies and businesses. This financial
year for example the investment allowance and stock
valuation adjustment will have a cost to revenue of
over $ 700 million. In the light of these figures, the temporary
income tax increase in this year's Budget is relatively
small no one could doubt that the Government has a
fundamental commitment to lower tax.
For the motorist, the rise in petrol prices will be offset
by the large fall in the price of new cars resulting from
our sales tax cuts. As the recent barrage of advertisements
indicate, the price of a standard saloon previously
retailing at $ 7,000 will fall by over $ 500. Such a reduction,
for the average motorist, exceeds five years' added petrol
costs.
The decision will be a tremendous boost to the automotive
industry a major employer. The Federal Chamber of
Automotive Inidustries predicts that an additional 20,000
motor vehicles will be sold this year as a direct result of
the cut in sales tax.
This is a Budget of responsibility; a Budget in stark contrast
to the document the Leader of the Opposition pretentiously
referred to as " The Alternative Budget". Never has an
Opposition shown so clearly that there is no responsible
alternative to the course being pursued by the Government.
The Opposition cannot even be said to have learned nothing
from the past they're now trying to re-write history.
The Leader of the Opposition, in his * reply to the Budget,
said with a straight face that 1974 was a " buoyant"
year, and he's right all sorts of key indicators were
floating through the roof in 1974. Inflation was up to
16 percent. Unemployment was up from 103,000 in December
1973 to 267,000 in December 1974. Average weekly earnings
were up 28 percent. Commonwealth spending was up in 1974-75
by 46 percent. P. A. Y. E. receipts were up 43 percent. The
overdraft rate was up from 9Aj percent to 11 percent.
Mr. Hayden looks back with yearning to those balmy days of
1974 when Labor was in Government and the economy out of control.
Who said nostalgia isn't what it used to be.
But still, we shouldn't complain too much about the " Alternative
Budget". We have been waiting all year to know what policies
Labor was coming up with. We need never have wondered.
They haven't changed. They still have not learned. His
alternative' Budget is a rehash of the same old recipe for
economic disaster that Labor cooked up in its three years of
office: more public spending; bigger deficits; and the
imposition of penal and retrospective taxes on the business
communi ty.
The Leader of the Opposition, through his usual advanced
arithmetic, purported to show that the Budget he would have
brought down would have a deficit of $ 3.6 billion. A deficit
as large as this would be irresponsible. It would accelerate
inflation, force up interest rates, undermine the prospects for
sustained growth and destroy the confidence of domestic and
overseas investors in the Australi-an economy.
In fact, Labor's deficit for 1978-79 would not be $ 3.6 billion,
but over $ 4.5 billion. His revenue proposals would raise only
a fraction of the $ 1,490 million he claims. He wants to raise
an additional $ 400 million by abolishing the investment
allowance. / 6
-6
The investment allowance in 1978-79 relates almost
entirely to expenditure incurred by taxpayers in good
faith in earlier years. No money whatsoever could be
raised in this financial year from the abolition of this
allowance, unless, of course, the Leader of the Opposition
intended to make a retrospective adjustment, penalising
plant and equipment already installed and in use.
It is time the Leader of the Opposition came clean.
He should tell -us whether he intends to make it retrospective,
or whether his figures are wrong, or whether he simply
doesn't know what he's talking about.
He wants to raise an additional $ 340 million from, and I use
his precise words, " a levy on windfall profits flowing to
oil companies because of the Government's policy of crude
oil pricing". I pointed out,' to his great enbarassment, that
his figures were crook. He has now attempted a further
explanation of his proposal. He says: " We have not suggested
taxing them which would produce a lag we propose a
levy". There is a very clear distinction here. He proposes
to strip revenue off oil producing companies in Australia,
regardless of their profitability. He says he cannot wait
he must divert oil producers' revenue back into Government
coffers ' imimediately". He now says he would not do this through
the tax system which would of course involve a lag, but
by an arbitrary change that took no account of the costs of
exploration and development expenditure already undertaken
or committed.
In brief, Mr. Hayden would not bother with the question of
whether oil producing companies were or were not making a profit.
As I said yesterday, we are informed that the estimated
after-tax profits of oil producers from crude oil production will
probably not even amount to $ 300 million in 1978-79. In short,
a $ 340 million slug by Mr. Hayden against these major
businesses in Australia would be a brutal assault. It would be
guaranteed to put paid once again to the oil search in Australia.
Perhaps we should expect one of the architects of the previous
attack against these companies to dream of having another go.
Mr. Hayden says that he wants to raise $ 300 million by imposing
a capital gains tax. The Honourable Leader of the Opposition
may recall that the Government of which he was a Minister,
announced it would introduce a capital gains tax in 1974.
Mr. Crean couldn't say how much it would raise, gave no estimate
of the possible revenue yield, and admitted that its introduction
would be delayed because:-' There are many complex technicalities
involved and extensive anti-avoidance provisions will be
required". Eventually the whole misconceived idea was abandoned.
Now, apparently, there are no complex technicalities, no
difficulties in introducing immediate legislation, no problems in
realising immediate large gains to the revenue.
7
The Leader of the Opposition blurted out that Labor would have
tried to introduce the Capital Gains Tax at the time of the
last General Election. Well, they certainly didn't tell the
people of Australia about that during the election campaign.
Not that of course, I doubt for a moment that Labor had the
covert intention to impose such a tax the moment the polls
were declared. But even with the worst will in the world,
they could not have introduced it immediately.
There are a great many questions raised by Capital Gains Tax.
Would the tax apply only to realised gains? Would allowance
be made for inflation which creates fictional but not real
gains? Would the tax fall only on gains accruing after the
announcement? Would capital losses be deductible against
capital gains?
Mr. Hayden in a stroke of genius has cut through all these
fundamental questions. Given his economic audacity, these
basic questions must seem mere quibbles. Now he says he wants
to have a provisional gains tax on individuals. The mind
boggles. But two things are clear it would simply not
be possible to raise revenue from a capital gains tax in
1978-79 even given the ALP's rapacity. It is also clear
that under the Alternative Budget, no one would be making
capital gains for long.
Next, the Leader of the Opposition wants to raise $ 150 million
this year from a so-called resources rental tax. It is not
clear how a tax of this sort could have been introduced in
the 1978-79 Budget to yield as much as $ 150 million in this
financial year.
The Leader of the Opposition seems to have no conception of
the difficulty of developing a complex measure of this type,
enacting it, and of setting up the necessary administrative
machinery. He also appears to have a-distorted view of what could be raised,
particularly as he has also proposed separately to impose a tax
on the so-called " windfall profits" of the oil producers.
The Leader of the Opposition wants to impose a penal tax on
family trusts to raise $ 100 million this year. This Government,
unlike the last, has already moved to close loopholes in the
abuse of such trust arrangements. So what is now proposed?
When parents die, they often leave their assets in trust
for their children until they reach adult age. Is this to
be subject to a penal tax rate? Parents or grandparents
sometimes put funds in trust to meet the expenses of their
childrens or grandchildrens education. Is this to be
taxed at a penal rate? A married couple who have been
unable to have children of their own may invest money in
trust to help meet the costs of the upkeep of their
nephews, nieces or godchildren. Is this to be penalised
too? / 8
Mr Hayden says that he would raise $ 200 million by increasing
the taxes of the top 2-3 percent of income earners. Taxes on
all incomes over $ 25,000 would be substantially increased.
The highest marginal rate under Labor would be 72 cents in
the dollar. Even Mr Whitlam never suggested that.
The whole weight of responsible professional opinion, both
in Australia and abroad, is against the imposition of
penal rates of tax on high incomes. The Asprey Committee
suggested that an appropriate long-term target would be to
reduce the highest rate to 50 percent. The Mathews Committee
concluded that " rising marginal tax rates encouraged tax
avoidance and evasion, and may lead to substantial economic
waste because tax avoidance becomnes a basis of investment and
employment decisions." The Jackson Committee ( of which
Mr. Hawke was a member) warned that a society " neglects
at its peril rewards for skill and responsibility".
Professor Henderson, in his major report to the previous
Government, proposed a guaranteed income scheme under which the
highest marginal rate of income tax would be 60 percent.
The Leader of the Opposition has sought to deceive the Australian
people by overstating the additional revenue he could raise
by all these means this year by $ 1 billion or more.
Mr. Hayden's deficit would turn out to be at least $ 4.5 billion
and you could add another billion to that because with a couple
of dozen Labor Ministers intent on a spending spree, this
would lead to an explosion of Government spending that no
Labor Treasurer could withstand.
The Leader of the Opposition's proposals gave us an insight into
the depth of his expertise and economic knowledge. An insight
into his financial naivety and incompetence, his failure
to think through his own policies. Even the operation of a simple
pocket calculator is beyond him. No wonder he was Mr. Whitlam's
favourite Treasurer.
A deficit of such a magnitude would be utterly disastrous for
jobs, for confidence, for inflation, for interest rates. But
what is even more disturbing about Labor's alternative proposals
is the basic philosophy which lies behind them.
Labor believes that if you knock profits, destroy business
incentive, shatter confidence in private enterprise, you can
still increase money wages and still keep jobs. This
demonstrable fallacy was the real tragedy of the Labor years.
When you look at the Leader of the Opposition's latest proposals,
it is clear that they would do the same all over again. All the
new Hayden taxes and levies are aimed at the heart of
productive enterprise, at employment-creating industry, at the
businessman, small and large, at the individual who has shown
initiative and effort. These imposts would severely damage
the economy and harm Australia. 9
Labor's set of tax proposals those on capital gains and
higher marginal rates are directed at destroying the
personal incentives to save and achieve. Confiscatory taxes
would be imposed on those with enterprise and initiative and
effort. It is Labor's continual problem. They can't stand
success; they must penalise it. They are entangled by the
politics of envy.
They can't stand individual success and they can't stand
to see efficient private enterprise developing Australia.
That isxwhy they want to bring in an exorbitant resources
tax, a tax that would stifle all mineral development. That
is why they want to impose a crude oil lev of 340 million on
oil producers, a levy that would halt oil exploration, and make
our future depend on overseas supplies. That is why they
want to impose a $ 300 million capital gains tax, which would
stifle all incentive to achieve and expand. That is why
they would impose a penal tax on trusts for families, a tax
hitting small business and farms. That is why they would end the
investment allowance to stop Australian enterprise increasing
its efficiency and its competitive position in world markets.
After examining the total confusion which the Leader of the
Opposition's proposals represent, it is easy to see what the
Honourable Member for Gellibrand meant when on 30 June of this
year he said, and I quote: " There is considerable uncertainty
within the Party as to what course we should not adopt".
" This... . is a reflection of not only the disillusion that
accompanies loss of Government and electoral defeat, but
also of the recent realisation that economic issues are far
more complex than seemed previously to be the case"
The dawning realisation by the Labor Party that economics is
a complex subject seems to have confused them more than ever.
The Honourable Member of Adelaide has called for interest
rate cuts, while the Leader of the Opposition's irresponsible
proposals would send interest rates through the roof.
The Government's Budget is dedicated to the growth and
development of Australia. It reduces the deficit to a
responsible level; for the second year running, tax collections
are to rise more slowly than personal incomes; it achieves the
lowest increase in Government spending for ten years; it provides
simple and equitable health financing arrangements which protect
everyone against serious illness, and those most in need against
all medical and hospital expenses; it provides increased
assistance in real terms for the aged, for the handicapped, for
migrants, for families.
This Budget plays an essential part in our long term strategy
to create a tougher and more competitive economy. We are not
prepared to squander our hard won gains against inflation and
our progress towards full economic recovery.
By bringing down a sound and responsible Budget by taking
the tough decisions which were essential to the long term
interests of this nation, we have taken another step towards
restoring long lasting growth and prosperity to our country.
With inflation down to 5% the end of this financial year;
with interest rates coming down; with increasing confidence
amongst investors both here and abroad; with an encouraging
inflow of private capital, the Australian economy is now well
on the way to overcoming the damage caused by the three dark
years of Labor.
We are now out-performing many industrialised nations of the
world in reducing inflation. We have already, over the past
three years, instituted fundamental social reforms which have
served the interests of families and those in need.
Australia is the country of opportunity, of natural wealth,
of enterprise. The opportunity is now within our grasp to
create a society of growth and development, of prosperity
and enlightenment, of stability and security.
Our aim is nothing less than to establish in Australia an
unequalled quality of freedom and opportunity for individual
Australians, of compassion and effective help for those in
need, of a country which meets the fundamental needs and
aspirations of all Australians. o 0o-