RIME MNNTEER
FOR MEDJA rid ay_, 8 M ar ch 198 3
In line wqith the coir,; r-itmerit Igave last week, I: tod ay re] ease
details of Treasury projections of the B~ udget deficit for
the 1983/ 84 financial year.
The projections formy. the Treasury. estimate of a $ 9.6 billion
def icit for 1983/ 84, the essential. outline of which was m-iade
available to the Treasurer, Mr Howard, during the Course of
the election campaign but which w-. as kept secret. by hiin and
the then Prime Minister, Mr Fraser.
-The projections were prepared on the basis of " no change"
in t4-he policies that were in effect at t~ he beginning of the
election campaign.
They demonstrate beyond doubt that it is nonsense for mnembers
of the former Government to argue that the $ 9.6 billion deficit
forecast represents the " first bids" of Departments arnd
could easily have bheen trimnmed. They parti-cu] arly Idemr~ onstratcthe
absurdity of the claim by the former Prime M. nister that
" Icompetent Ministers would have knockcd $ 3 billion of-f that
figure before it. was ever p.. resented L. o Ca--binet'. 2/.
In fact, the Treaisury projections aire made on the basis sim, ply
of a continuation of the previous Government's policies and
make no allowance for any " bids" that Departments may have made
in a Budgetary context.
The previous Prime Minister, in his final message to the people
of Australia while in that Office, claimed that his Government
had left Australia " in a condition that is equal to, or better
than, any other Western country".
Nothing could be further from the truth.
The Fraser Government's legacy to the Australian people is
an economic shambles.
Compare Mr Fraser's boast to the assessment given to me by
the Treasury on March 6:
" The magnitude of the fiscal imbalance is unprecedented
in Australia during peace time, as is the level of
Government spending. The budget balance is projected
to deteriorate from near zero to more than 6 per cent
of GDP in a two year period. The speed and magnitude
of that deterioration is almost without precedent among
the major OECD countries in the post-war period".
If Mr Fraser and his colleagues are proud of that assessment,
we can only be grateful they didn't leave the country in a
condition about which they would be ashamed.
The figures in the attached document also serve to demolish
the remnants of Mr Howard's credibility.
t he 19 31/ S4 defiLcit metha 3 iLo hrotetrut0h.
Mr Howard chIose-to "-: ecp r~ ereal ficqu're secret cihsac
the penal ty for tadOecc2Q-Lion since.. the e] lecti n. The people
of Australia now knwhow much they can trust the DO-puty Leacder
of the Liberal. Part-,.~
It is , worth recalling, as well, the justification 1.1r Howard
used for arriving at the $ 6 billion figure. After he hada been
caught out, he told a pre~ cs: conferenice onl March 8:
' Somebody ho has been Treasu-rer fcr five years
is entitled in the course of a pross conference to
give soime, ordier of-imag-nitude based upon one ' s ow.. n
understanding-1 and one's olw. n personal estimates".
The obvious question is: could he really have been * so iqriora'nt
about what his Government's policies we,, re: doing to the Austra -1L all
economy that he could be $ 3 billion out in his estimate?
Mr liow-ard has a choice of admissions he wsa totally incompetent
Treasurer; or he engaged i n a imassive alecept'on.
my ow., n view is that an admission on both counts would,_ do a little
to res tore some or Mñ r 11oward's credibililty.
Canberra
D( F'AR1? V,, YI' ( W 1 iIiLASIJRY
MINUTE PAPER
Prime Minister
1983-84 BUDGET DEFICIT
You asked me to give you a concine account of the details underlying the
$ 9.6 billion estimate of the 1983-84 Budget deficit arising out of the
policies of the previous Government. That figure was contained in the
advance copy of our paper The Current Fiscal Situation and Outlook which
I gave to you and Mr Keating on Sunday, 6 March last.
2. As at Friday 4 March 1983, the 1983-84 Commonwealth Government
Budget deficit was estimated at $ 9,562 million. Total outlays were
estimated at $ 54,594 million and total receipts at $ 45,032 million.
These figures took no account of policy proposals put forward'by eithethe
outgoing Government or the Australian Labor Party in the course of
the election campaign.
3. The estimate of total outlays quoted above was provided to the
Treasury by the Department of Finance late on Friday 4 March. A summrnry
of those outlays with comparisona for 1982-83 is attached. Detail of
the outlays estimate including the status of the figures underlying the
aggregate and the method of data compilation by the Department oif Finance
will be available in the Department of Finance's " Report on the Forward
Estimates of Budget Outlays: 1983-84, 1984-85 and 1985-86" which you have
indicated your intention of publishing.
4. The receipts estimate was compiled by the Treasury, with inputs
from relevant revenue collection authorities, notably the Australian
Taxation Office.
5. So far as the receipts side is concerned, what follows as to the
basis of those figures will be self-explanatory. So far as the outlays
side is concerned, you have enquired about the status of those figures
and in particular whether they constitute merely " first bids" by
Departments for 1983-84.
6. The first thing I should say on that matter is that the Forward
Estimates processes, which culminate in the production by the Department
of Finance each year at about this time of the Report on the Forward
Estimates of Budget Outlays for the following three years, are quite
separate froi: the " first-bids" processes which typically get under way in
Departments at about this time and which are keyed to submitting such
" first bids" to the Department of Finance usually around the end of April.
7. The Forward Estimates processes revolve around the provision by
Departments, usually by aroun.! mid-January of each year, of those
Departments' best estimates of the amounts considered necessary by
Departments to maintain approved oigoing programmes and activities.
While there is no doubt ways some element of " fat" in those figures
C O N F DE N T I A L
also, they are formal ly.' u nre: I . ted to thi " first bid. s" processes for the
imnediatelv foliowing year. I can only say that on tlin occasion as on
ni l others, the Forward lEstim. iten document hajsi, so fur as T am aware,
been compiled by thr D.-partment of Finance on a wholly traditionai oasis.
8. The outlays and r-eceipts estimates were based on economic
paramuterH generated by I hu. Treasury, and provided to the Department of
Finance and reveniue co! Iection authorities in mid-February 1983. Two key
parameters were averag, weekly earnings, then estimated to increase at an
average annual rate of 6 1/ 2 per cent in 1983-84, and prices, then
estimated to increase at an annual average rate of 6 per cent in the same
year. 9. These parameters were revised upwards slightly ( by around / 2 a
percentage point in each case) by the Treasury in early March. The
receipts estimates were adjusted upwards by Treasury at the same time to
reflect this parameter revision. Because, I understand, of the
mechanical processes involved, no adjustment was made to the outlays
estimate. In the short run ( eg a single financial year), an increase in
wages and prices tends to increase Budget receipts by a greater amount
than Budget outlays. Therefore, the use of slightly different parameters
on the two sides of the budto in this instance meant that the estimated
Budget deficit of $ 9.6 billion was somewhat understated.
The attached table compares estimated 1983-84 Budget receipts with
estimates of 1982-83 Budget receipts. Total 1983-84 Budget receipts were
estimated at S45032 mil ion, 6l2 million or 1.4 per cent highier than the
then estimated 1982-83 receipts outturn.
The re: nainder of this note discusses individual Budget receipts
est imate s.
Customs duty
Imports
Collections of customs-duty on imports wer. estimated : o increase by $ 110
million or 5.5 per cent in 1983-84. The estimate reflected a forecast
increase of 6.8 pc-r c. nt in the value: of endogenous imports in 1983-84.
Coal exports
Receipts from duties _ n exports of coal were estimated at 63 million, 37
million or 10 per cent lower than estimated receipts in 1982-83. Thne
estimated dlecline was attributable the full y: ar effect of abolition
of the $ 1 per tonne duty rate announced on 29 July 1982 and projected
subdued demand for Australian coking coal.
Excise duty
Total collections of excise duty ( incluaing crude oil and LPG duties)
were e, t imated at $ u278 million in 1983-84, a decline of 6.4 per cent on
estinated 1982-83' J col ection'r. CONFIDENTIAL
Crude oil and IPG duties 1%? 82 1983--4 Change on 1982-83
sUtim ate Estinat e
$ S m Sm
Crude oil 1458 2870 -588 -17.0
LPG 50 55 -I -1.8
Total receipts from crude oil and LPG duties were estimated to decline by
$ 589 million or 16.8 pr cent The estitmate tor the crude oil levy was
based on maintenance of an exchange rate of SA USO. 96 ( broadly the
exchange rate prcvailing just prior to the election now overtaken, of
course, by the 8 March 1983 devaluation) and assumed a fall in the price
of Saudi marker crude oil put at that time at US4 per barrel from I April
1983. Le production estimates underlying the revenue figure were based
on . i projected 6 per cent reduct ion in excisblc production and a shift in
the dietribution of production towards lower excine categories of
product ion.
Receipts from the duty on natural lv occurring LPG were estimated an about
the same money level as in 1982-83. The estimated decline in production
was offset by the full year effect of higher prices prevailing follawing
the I January 1983 adjustment.
Other encise duties
The estimate for excise revenueq, oth. r than on crude oil and LPG, was
$ 3353 million, 1163 miilion or 5.1 per cent higher than estimated for
1982-83.
The estimate reflected the full year gain to revenue from the increased
rates of duty on beer, tobacco products, motor spirit and distillate
announced in the 1982-83 Budget and the expansion of the taxable base
following the removal of the excise exemption for distillate used
off-road. It also reftected an additionai I cent per litre surcharge cn
rates of duty for motor spirit and distillate from 1 July 1983 earmarked
for expenditure under the Australian Bicantennial W) ad Development ( ABRD)
Program. Further details are available if required.
Sales tax
Revenue from sales tax in 1983-84 was estimated at 13850 million, an
increase of 10.8 per cent. Private consumption expenditure was estimated
to increase by arotund 7 1/ 2 per cen! in 1983-84. The * sales tax estimate
was adjusted to reflect the broadened tax base, effective from I January
1983, and the full year effect ot the increased rates announced in the
1982-33 Budget. Further details are available if required.
I ncom,: tax ind ividui s
It was estimated that collections of income tax from individuals would be
virtually unchanged ( increase by 0.1 per cent) in 1983-84. In addition to
gross PAYE col lections, this tot. al comprisel compomnents which are based
mainly on taxable incomes in 1982-83 ( PAYE refunds and collections from
othvr individuaIs). C 0 N F DE NT I AL
14
PAYE ins tal ment deduct ions
Gross PAYK reci pt wvre st i t d( to increase by 4.8 per cent in
1983-84. The 1983-84 estimate was, aq noted earlier, based on an assumed
increase of 7 pur cent in average weekly earnings and a decline of I per
cent in wage and salary earner employmnent. The estimate reflected
significant estimated full year costs to revenue of the rate scale changes
and other PAYE tax concessions provided in the 1982-83 Budget. At the
time the 1982-83 Budget was brougJht down, it was estimated that the full
year revenue costs of these measures would be around $ 2850 million
compared with a then stimaited cost of around $ 1670 mi. llion in 1982-83.
Part of the concessions to eligible taxpayers were assumed to be reflected
in PAYE refunds and tax paid by ' other individualsn' in the following year.
PAYE refunds
Retf. nds in 1983-84, which are in respect of tax assessed in 1983-84 on
1982-83 incomes, were estimated to increase by 22.0 per cent. A large
Selement in this i nc. rease derived from those perncnal incomne tax
concessions announced in the 1982--83 Budget which taxpayers have chosen to
take as refunds rather than as redLctions to PAYE instalments in 1982-83;
notably with respect to home loan interest and the increase in dependnt
spouse rebates.
Other individuals
Receipts, from other individuals were estimated to decrease by 12.4 per
cent in 1983-84, compared with an, estimated increase of 11.6 per cent in
1982-83. Part of the 1982-83 increase was, however, attributable to thie
increased penalty rates for late payment, estimated to yield, on an
essentially " one-off" basis, $ 42' mi l1i1o n in 1982-83. The provisional cax
component of the estimate was based on the estimated taxable income of
provisional taxpayers in 1982-83 increased by a loading of 10 per cent and
applying the 1983-84 rates and dependent rebates. 1982-83 pre-budget and
Budget measures in this area were estimated to cost revenue $ 202 million
in 1983-84.
''" Income tax companies
Company tax collections were estimated Lo d: cline by 9.0 per cent in
1983-34, reflecting a broadly comparable estimated decline in company
assessable income in 1982-83 ( th base for tax collections in 1983-84).
Special tax to recover evaded copanv and division 7 tax
Because of delays in implementing the ' bottom of thie harbour' legislation
relating to strips of untaxed company profits and unpaid Division 7 tax,
the 1982-83 Budget estimate of million was revised downwards to $ 100
mi llion. The bulk of the proceeds of the tax weru expected to be received
in 1983-84.
bank accounts ,. bi i t. x
Impl . mentat ion of the t: ax w d elayedl From I J. n. iary 1983 to 1 April
196i3. The tax will b, fully operat i onmal in 1983-84 and was expected to
yield 200 million in . hat year.
C 0 N F I D E NT I A L
ITax deductions from p. nventq for labor and services
It was announced in the 1982-83 Budget that a tax deduction at source
system would be applied from 1 July 1983 to payments for labour and
services not subject to PAYEI deductions in industries where evasion of tax
on such payments was known to be significant, with a yield thcn estimated
at $ 500 million. The tax was not likely to be fully implemented in
1983-84 and details of its application and exemptions remained to be
settled. The net gain from the tax was now estimated at $ 300 million in
1983-84, representing an estimate of the excess of deductions from cash
payments over the self-assessment credit that would be allowed i. n respect
of these payments against provisional tax.
Non-tax revenues and other taxes, fees and fines ( net)
Non-tax revenues ( interest, rent and dividends, net receipts from
Government enterprine transactions and sale of existing assets) and other
taxes, fees and fines ( net) were entimated by the Department of Finance at
$ 4092 million, 7.2 per cent high-r than estimated 1982-83 collections.
12. T ama of course conveying a copy of this minute simultaneously to the
Treasurer for his information.
J. O. Stone
Secretary to the Treasury
18 March 1983 CONFIDENTIAL
COMM() NW*. ALTH IUD) GET OUTLAYS 1982-83, 1983-84
R: vined Forward Increase on
EstimaLe Estimate Preceding
Year
m $ in
Function 1982-83 1983-84
Defence 4729 5158 9.1
Education 3800 4076 7.2
Health 3471 3809 9.7
Social Security and Welfare 13994 16374 17.0
Housing 730 699 -4.3
Urban and Regional Development
nec and the Environment 123 102 -16.4
Culture and Recreation 524 595 13.5
Economic Services 3676 4240 15.3
General Public Services 3394 3707 9.2
Not Allocated to Function
A Payments to or for the States,
NT and Local Government:
Authorities nec 10904 11678 7.1
B Public Debt Interent 3420 4061 18.8
C Allowance for Wage and
Salary Increases
( non-de fence)
Total Not Allocated to
Function 14323 15834 10.5
TOTAL OUTLAYS 48765 54594 12.0
CON FIDENTIA L
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