1987 tax plan
TRANSCRIPT
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INDEX TO LIBERAL PARTY TAXATION PAPERS
1 Overview Statement by the Hon John Howard MP,
Leader of the Liberal Party - "Get In Front Again"
2 Summary Table of Taxation and Expenditure Aggregates
3 Personal and Family Tax Reforms - Main Features and
Ready Reckoners
4 Business, Farm and Other Taxation Reforms
s5 Summary Table of Expenditure
6 Expenditure Savings - Explanation of Major Changes
7 Other Offsets to Taxation Measures
8 Asset Sales
_ 9 The Economy and Taxation-.Reform.
10 The Benefits for Families
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GET IN FRONT AGAIN
Statement by the Hon John Howard 1UPat the launch of the new Liberal Tax Policy
The tax reform and reduction program I am announcing today isa decisive change in the economic direction of Australia.
The new deal will help our country, individual Australians,families, farmers and businesses to get in front again.
The Liberal Party is presenting a clear choice for all Australianson election day: a choice between the big taxing, big spending
policies of the Hawke/Keating Government andthe path of less taxand smaller government under the Liberals.
An average Australian family will get a tax cut of 326 per weekunder a Liberal Government.
Our reform involves:
a reduction in the top marginal rate of income tax from49 per cent to 38 per cent;
a flatter two tiered tax structure of 25 per cent and38 per cent;-
. a clear bias within the personal tax scales towardsfamilies with children; and
an increase in the tax-free threshold from $5,100 to$5,900 which will protect low income earners.
A Liberal Government will also:
abolish Labor's capital gains tax;
abolish Labor's Assets Test;
abolish Labor's fringe benefits tax;
reintroduce negative gearing in a controlled form;
ease the tax burden on farmers' fuel costs andabolishexport inspection charges;
provide deductibility forbona fide entertainment expenses;and
modify the existing arrangements for the taxing of lumpsum superannuation payments
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In the corporate area our aim is to reduce the corporate ratefrom 49 per cent to 38 per cent. Initially the commitment isto reduce the rate to 42 per cent.
The documents released by me this morning expand in some detailon the funding of the proposed tax reductions.
All Australians will benefit from our tax changes, but familieswith children are themajor winners.
Our tax policy sets out to ensure that the economic burden offamily responsibilities is recognised.
All families with dependants will benefit. The heavier
proportionate tax burden of single-income families is recognised.
The flatter tax rates and new Child Care Allowance provide anincome-splitting effect for lower and middle-income families.All existing benefits for families are retained. New provisionsensure a real recognition of the value and worth of families.
For single- incomefamilies with children:
There will be a new allowance called a Child. Care Allowanceof $800 per year or more than $15 per week which will bepaid directly to the person at home caring for children.
The existing family allowance will be maintained.
The dependent spouse rebate will be retained at $1,000per annum.
For two-income families with children:
The Child Care Allowance will be paid at a variable rateaccording to the principal carer's income. The minimumpayment will be $400 per year (nearly $8 per week) wherethat person earns more than $5,900 per year.
The dependent spouse rebate will be available on the sameincome-tested basis as at present (reducing by $1 for
every, $4 of spouse income over $280).
'Existing family allowances will be maintained.
Sole parent families:
Will receive an increase in the sole parents rebate from$780 to $1,000.
Families without children:
The primary earner will receive an increase in the
dependent spouse rebate from $830 to $900 income-testedas at present (reducing by $1 for every $4 of spouseincome over $280).
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Family Allowance and Child Care Allowance will be paid by theTax Department as a cash payment or a tax credit rather thanby the Department of Social Security. This recognises that
these are not welfare payments. They are payments or allowancesoff tax which take into account that the costly responsibilitiesof maintaining dependants reduce tax-paying capacity.(Family allowances were instituted in 1976 in place of thetax deduction for dependent children. This like the newsystem we propose ensures all benefits flow to low-incomefamilies paying little tax.)
We believe in lower tax because of-the economic benefits tobe derived for Australia and Australians from its incentiveeffects, its encouragement to work harder and the greaterenterprise and national productivity which will flow from
these developments.We reject Labor's notion that existing levels of tax aresatisfactory. We reject the Keating doctrine that the taskof tax reform has been completed. We reject the Hawke/Keatingclaim that no further reductions in government spending areachievable.
The total cost of all the tax changes is $7.3 Billion overthree years. Savings from expenditure reductions total $7.8billion plus $900 million from more efficient tax collectionmeasures and anti-evasion practices; $900 million frompositive incentive effects from lower tax rates for businesses
and individuals; and $460 million saving to public debtinterest resulting from asset sales.
This produces a total of just over $10 billion over three years.In
.other words there is a surplus of about $3 billion whichby any measure will make a sizable contribution towards theelimination of the existing budget deficit.
There will also be a further $4 billion from the sale of assetsbut as I have always said, that will not be included in theoverall figuring as a method of financing the tax changes.
Our tax reforms will be paid for overwhelmingly from reductionsin government spending - we will stop taking people's money.
The details I am providing regarding reductions in governmentspending are the most extensive ever provided by an Australianpolitical leader in an election campaign.
Not only are reductions in taxation and reductions in thesize of government economically responsible but they areoverwhelmingly desirable and necessary.
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To put the matter in perspective, the spending cuts we will
implement mean that the size of government in Australiarelative to GDP will be a
pproximately 38 per cent. This isroughly equivalent to the 1981 level. Such a comparison
gives the lie to theGo
vernment's hysterical claims thatour proposed expenditure cuts cannot be achieved oral
ternatively, that in the process the whole infrastructureof government will be dismantled.
Our tax reforms will be made possible by:
unprecedented reductions in the size of government;
the el
imination of waste and inefficiency; and
the abolition of needless government bodies.
Let me mention several areas of e xpenditure reduction.
We propose inGovernment to reduce the overall size of theb
ureaucracy through a combination.of abolition of functions
and attrition in staff numbers. The number of departmentsunder a Howard Government will be reduced. Those departmentsto be abolished will include the D
epartments of:
Housing and Construction;
Arts, Heritage and Environment;
Sport, Recreation and Tourism;
Resources and Energy.
Residual functions of these departments will be trauslrredto other departments.
In addition to the abolition of bodies already disclosed,
today's documents announce the abolition of a number of othergovernment bodies.
We also propose on election to reverse the damage done to ourhealth care System by Medicare.
This will include:
returning to private health insurance funds the provisionof basic medical cover for present levy payers;
the introduction for all but the disadvantaged and verylow Income earners the requirement that the first $250of medical expenses be borne directly by the individualor family, whichever the case may be;
the abolition of bulk billing; and
the freeing up of the private health insurance market.
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I point out, however, that theie will be no change at all for
pensioners and those currently classified by the Governmentas disadvantaged.
They will incur no extra cost, will loseno existing benefit and can therefore ignore the dishonestscare campaign already being mounted by the Government.
Further details of our proposed changes in this area will beannounced by the Shadow Minister for Health during thecampaign.
In the social welfare area we propose that:
infuture a person who voluntarily leaves employment
must wait six months to receive unemployment benefits;
that eligibility for the supporting parents benefitwill terminate after the youngest child reaches theage of 10;
the tightening of eligibility criteria for sicknessbenefits.
These and other changes are estimated to save $970 million overa three year period.
There will be reductions in some areas of industry assistance.Furthermore,. we propose asset sales and privatisation of some
$4 billion over a three year period.
Consistent with sound practice, no allowance has been made forthe proceeds of these sales in the funding arrangements forour tax reforms. The only allowance - which is an entirely
proper one - is for reduced interest payments as the proceedsof the sales are to be used to reduce our accumulat2ti nationaldebt.
If our accounting approach were as shonky as the Treasurer'swe would include the asset sales in current revenue andexpenditure calculations and be claiming today that we proposeto reduce the expenditure by another $4 billion.
Never before has a political party prior to an electionproposed such a bold program of reform with such a frankexplanation of how it will be achieved.
Our reforms will win wide support.
The Australian people want bold, imaginative reforms. Theysee the Hawke/Keating Government as arrogant, high taxingand big spending.
Australia and Australians want smaller government, lower tax,greater incentive and more individual initiative. TheLiberal Government will deliver.
MELBOURNE
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TAXATION PAPER NO 2
SUMMARY TABLE OF TAXATION AND EXPENDITURE AGGREGATES
ISa)
1987-88 1988-89 1989-90
Personal Tax Cuts (from 1.2.88)Assets Test
Lump Sum Superannuation TaxFringe Benefits TaxCapital Gains TaxEntertainment TaxCompany Tax (from 1.7.88)
Negative Gearing
Rural Package
2100
70-
250-
-
-
-
85
5000
160-
400100__
80-
30
200
5000
1605
400
100
200
1150
80200
Total Cost to Revenue 2505 .5970 7295
Incremental Cost to Revenue 2505 3465 1325
Offset by:
Expenditure reductions 2175 3835 1800
Reduced interest paymentsresulting from asset sales - 230 ` ` 230
More efficient tax collectionmeasures and anti-evasionpractices 200 300 400
incentive effects ofreduced personal and
company tax rates 200 350. 350
-- Individual . 200 . 300 100
-'Company 50 . 250
Total Offsets 2575 4715 2780
Total Offsets lessincremental Costto Revenue 70 1250 1455
Deferral of Capital Works 200
Reduction in Budget Deficit 270 1250 1455
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M,
1
TAXATION PAPER NO 3
PERSONAL AND FAMILY-TAX REFORMS - MAIN FEATURES
Labor's four step tax framework with a top marginal rate of49 per cent will be replaced by a simple two step systemwith rates of 25 and 38 per cent.
No matter how hard they work or how much extra they earn,taxpayers will in future keep at least 62 cents of every
dollar they earn, to spend as they, not the Government,decide.
The new Liberal Bicentenary Tax Scales to be introduced on1 February 1988 are:
$ 0 - 5,900 - 0%$ 5,901 - 31,350 25%$31,351 and above 38% :
This will replace Labor's tax scales from 1 J'iIy af:
$ 0 - 5,1000%
$ 5,101 - 12,600 24%$12,601 - 19,500 29%
$19,501 -- 35,000 40%$35,001 and above 49%
Highlights
The tax free threshold will be increased by $800 `to$5,900. As a result some 200,000 current taxpayers willno longer pay any tax. This will be of tremendousbenefit to pensioners and all other low income earners.In fact, all Australians earning less than $114 per weekwill pay no tax .
In order to target the benefits of the tax freethreshold to those who need it, thethresholdwill be
gradually withdrawn. For every $100 a taxpayer earnsover $20,000, $52 will be subtracted from the tax freethresno.c. The threshold willbe totally withdLawLt aLan income level of $31,350.
Families will receive special consideration in ourproposals. The dependent spouse rebate will bemaintained at the level of $1,000. The next LiberalGovernment will also pay an additional $800 each ear,or $15.40 per week, direct y tothe person at omecaring for children. This will be called a 'Child Care
Allowance,
and will be additional to the familyallowance, which will be retained in full.
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we will recognise the costs of child care for two-incomefamilies with dependent children. A minimum Child Care
Allowance of $400 per annum (nearly $8 per week) will bepaid to the principalcarer earning over $5,900 perannum. More will be paid on a sliding scale up to amaximum of $800 as the carer's income drops below$5,900.
For families without children, the primary earner willreceive an increase in the dependent spouse rebate from$830 to $900 reducing by $1 for every $4 of spouseincome over $280.
Sole parent families will receive a sole parent rebate
of $1,000 per annum, replacing the present sole parent
rebate of $780 per annum.
The assets test on aged pensions will be abolished.Retirees will also benefit from the modification ofLabor's lump sum superannuation tax.
Ready Reckoners
The attached tables and charts provide dr tails on thepersonal income tax scales that will apfr1y.-aadst aLiberal Government.
Key points which arise from these data are:
- all taxpayers will receive weekly tax cuts( Chart 1)
- all taxpayers will therefore pay less tax
- low income earners receive the largest percentagecuts in tax payable (Chart 2)
the average tax rate tie the tax paid in eachdollar of income) of all taxpayers is reduced( Chart 3)
-the lifting of the tax free threshold from $5,100to $5,900 per year will mean around 20.0,000 fewerpeople will now pay tax
- there is a significant bias towards families,particularly those with dependent children. Forany given income level the size of the tax cuts( both in dollar and percentage terms) increasesprogressively from singles, to single incomecouples with nodependent children,to sole parentfamilies, to singleincome couples with dependentchildren.
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3
The bias in the system towards families can be seen inthe following example. For an income of $500 per week
(around average weekly earnings) singles receive a taxcut of $11.45 per week, single income families withoutdependent children receive a tax cut of $12.50 per week,sole parent families receive a tax cut of $15.67 perweek and single income two parent families with
dependent children receive a tax cut of $26.23 per week.
To illustrate the use of the attached tables for a
single person on average weekly earnings of around $500per week, their:
tax cut will be $11.45 per week
- tax paid will fall from $123.30 per week to $111.85per week
- tax bill will be cut by 9.3%
- average tax rate (le tax paid in each dollar ofincome) will fall from 24.7% to 22.4%
- tax cut will bealmost as great as the combinedHawke Government 1 December 1986 and 1 July 1987tax cuts and three times as big as the 1 July taxcuts.
For a single income two parent family with dependentchildren on average weekly earnings of around $500 perweek, their:
- tax paid will fall from $103.55 per week to $77.32per week
- tax rut will be $26.23 per week
- - tax bill will be cut by 25.3%
- average tax rate will fall from 20.7% to 15.5%
-tax cut will be double the combined HawkeGovernment 1 December 1986 and 1 July 1987 tax cutsand almost seven times the 1 July 1987 tax cuts.
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SINGLE INCOME FAMILIES
WITH DEPENDENT CHILDREN'
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a
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: i 1 1 ' L
CHART
-
1 : SINGLE. INCOME FAMILIES WITH DEPENDENT CHILDREN
LIBERAL'FAX CIJ i
---I)OLLL.NRSPER WEEK
70 ---
-
J Ill 1 1500 600WEEKLY INCOME
700 BOO
T f-
900 1000
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CHART 2 : SINGLE INCOME FAM I L I ES .WtTHDEPENDENTCHILDREN
LIBERAL TAX ClJT- % RE I) U CT I ON IN TAX PA I. 1 )Inn
90
FD
70
^- so
5D
40
20
1 0 -
0-
100
0 0
J i l l1 0 $ IA I IH
200 300 400 500 600 700
WER.KLY INCOME
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CHART 3 : SINGLE INCOME EAMILIESWITH DEPENDENT CHILDREN
AYERAGE TAXRATES -LIBERRAL V LABOR
(TAX PAII) IN EACH DOLLAR)
30
z
10
w
j]
10
--20
100
40
200 300 400 500 600 70D BOO 900 1000
WEEKLY INCOMEnLABOR -LIBERAL.
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SINGLES
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I14GLE [ 25'; f;Iii3%)i
TAXAELE---------
I N C O t?E------
TA,. F'A' AELE---------------
LiEEF:-,L---------
T A :: , GUT-
AVERAGE----------
-
----
LAEOf F . L 1 E. ERAL
-----
LHFGk. LI5ENHLFRO; ASH >=Rch1 JUL 87 :: OF 1 JUL E------- ---_-_ TOTAL ------
'IPER IFR . 3 PEr, g F Er. PER TAX
YEAP. WEEK WEEr. i- . EEt. F'h'^ ;^E^ LE
0 . 00 0.52
_-_
100.0
-----
G.S
-----
0 . 01 T b t ^-1:..2 2. " ^ 1.56 r4 F ti. 2 2.4150 7 1 2..12 . 2 1 3.31 2 . 4 3 i?. 73 ?125 1 c:. 52 15.4. 1. G G 1E.5 10.6c ^ . ^ C
200 1 r 4.::
_ "
24.52 21.71 2 . L
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1
50
40
02
30
CHART 1 : SINGLES
LIBERAL TAX CUT ---J) ( :) L,LARS PER WEEK
20
10
0 ( 1TT 7 T i1-T T7 T
00 z00 300 4-00 500 600 700 B00
WRI'KLY' INCOME
900 1000
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PER CENT
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PER CENT
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SOLE PARENT FAMILIES
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5+0LEF:.RENTFi*iILIE
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,:AND 3%)
T;-A5L.E INCOME TAB. PA,'A6LE LI6EF.HL TAX CUT AVERAGE TAX TE6--------------- ---------
LASOR
------
LITERAL
--------------- ---------
LABOR
------
LIBERAL
FROM AS A FROM
1 JUL 87 %OF 1 JUL 87------ ------ TC+T L ------ ------
IPEP. $ F $ PET: $ PER $ PER TAXWEEK------
YES::',------
WLL ,-_,.-_..
WEEO"
-_--_-WEEK fir;`8LE % g
iC'C 5214 0.000 0.00
_--_-_
0.00
_--_--
N.A.
------
0.00
------
0.0icy 651 0.00 0.00 0.00 N.A. 0.O 0.3150 7821 _ 0.00 0.00 0.00 N.A, 0.0 0.0175 9125 3.57 0.00 .3 57 100.0 2.0 0.0200 iO4ZS 2.53 '' G225 11 2 - 15.57 4. 7 S Z.79 4S.3 6.9 wS r y250 ;J:^5 cl :"0 15.03 c;,-y, 31.6 6. S 6.02'S 1.4339 29.23 1 .28 7.95 27.2 10 .66 7.7200 15x,42 3u.N5 d .53 E.55 ,` 24 ' a 12.2 5.2325 1646 43.'3 3 3. 7 5.55 = 'Z ..7' 13.5 10.4350 '.- Gi 4_ 50.9 04.03 10.95 _-2.i . , j ;. ^^ . .. ,375 1 : 553 5E. :
44
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c44 . C.l 1Z.0 D 20.7 ,r Tir b 12.3
400+ 20.5* ZS. 4 54.67 1:,6.7 20 n 0 Y
13.7425 221=3 73.34 64.17 14.17 12.1 i -- 5.1
450 23b.3 73.6? 14.6? i . b 2 . 9.6 1e, 44-5 47k7 92.34 033.27 15.17 15.4 20.7 17.5
C ( .10 26070 2.03.34 92.67 iL'G'f 14n 5 21.7 1'.13
525 2707 4 118.34 102.17 16.1? 1.3. 7 22.1, 1 9 . 5550
i25.3 3.1 .' ? 1!. C 13.0 23.3 20.3575 2931 1 2.34 121.3. 1 7.17 12.4 24.1 2 1.1F!+U 3i284148.34 133.6? 17,6 . 9 24. G1 C.
^-+^- c J 58.34 14:+.17 10.1 11.5 25 .3 22.4*350 3 591 1t . 34 143 .x7 16.6+7 12.1 25.`J' r^::.V*375 351-5 ' 1 C.*3b 153.17 1 9 . 51 1 0 . 9 2* . G^^eEi
00 3 uti G_ 193. 163.? 22ii.? 27. 24.175 vi1+.^6: C^+3 17.1? 25.03. 12.3 22.0 24.6750
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selif-Y 2 LLB2 L t 3 13 0 25 V
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$75 458: 273.68: 2=5 .17 41.51 lr._+ 31.690: ^^::^^e ^ :_ 3 ^ : 4 + _ . - '; . 2G i . mac: . 1 27.225 J L , 21,1.15 2 54.1 7 47.01 15. 6 2.6 27 5
4 53 218,43. 46:x.61 49.76 15.9 33.0 27.8575
r' C ,537 ,25.; 52.51 1Ei. 3L 33.4
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I
CHART 1 SOLE PARENT FAMILIES
LIBERAL TAX CUT-DOLLARSPER WEEK
^ ^ P0^0' 0^6^
% ' y/1/1111/ / / l l l l l /
100 200 300 400 500 600 700 800 900 1090
WE $KLY INCOME
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CHART. .2 : SOLE PARENT FAMILIES
LIBERAL TAXCUT-
1
% REDUCTION IN TAX FAI
90
80
70
z $ ^50
40
30
20.
10
D
IUU 200 '300 40D 500 600 700 600 900 1000
W31KLY INC01[B
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PER CENT
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SINGLE INCOME FAMILIES
WITH NO CHILDREN
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CHART 1 : SINGLE INCOME COUPLES WITH NO CHILDREN
LIBERAL TAX CUT---DOLLARS PER WEEK
so ----____. _______.
200
50
40
0
30`
20
10
0-'--
100 300 400 500 600 700 600 900 1000
WEEKLY INCOME
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Hzwu
CHART' 2 :SINGLE INCOME COUPLES WITH NO CHILDREN.
LIBERALTAXCUT-- =
% REDUCTION INTI'. ^X PAID
100 --- .-- . _
90
8D
70
s0
50
40
30
20
10-
0-
100 200 300 4.00 500 $[ID 700 600 900 1000
WEEKLY INCOME
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PER CENT
ry niV
N W W 4 1 ,O O Lfl C .r
- -i
J
rrni .
0
r
^r
C ^
^1
1
D tJ^ G SJ^
r.7
v
0
v0
p
^:p
' p oGx
oa
cv
00
co0v
00
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TWO INCOME FAMILIES
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TWO INCOMEFAMILIES
Tax Savings
Taxable Income Assumed Split of Two Income Two Incomethe Income of the Families Families with2 Earners Without Children
Children
$pw .. $pa - $pw $pw $pw
400 20,856 300 + 100 5.25 13.93
500 26,070 300 + 200 7.54__ 15.21
600 31,284 400 + 200 12.26 19.93
800 41,712 500 + 300 16.18 23.85
1,000 52,140 600 + 400 22.90 30.57
1,200 62,568 800 + 400 38}.4 ._ . 46.16
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1
TAXATION PAPER NO 4
BUSINESS, YARNS AND OTHER TAX REFORMS
1.Introduction
The future prosperity of all Australian families depends
vitally on a revival of investment in productive enterprise.An essential component of the new Liberal Framework for
Enterprise is a taxation system for business (includingfarms) that provides the incentive for new business activityand investment. The tax system must also be internationallycompetitive, to attract long-term foreign investment and
encourageAustralians to place more of their investment hererather than overseas.
The new personal tax structure will make a substantial
contribution to meeting those objectives. In addition, wewill introduce a new business tax structure to replace theexcessive burdens of the Keating package.
The essential elements of the new bussEand-farm tax
package are:
Reduction in the company tax rate from 49 per cent to 42per cent from 1 July 1988. The target of a Howard
Government is to get this rate down to 38 per cent as amatter of high priority.
Abolition of the Capital Gains Tax.
Abolition of the Fringe Benefits Tax in its entirety,
accompanied by new measures to prevent abuse of the
income tax system through the granting of non-cashbenefits that are not job related.
Restoration of deductions for legitimate business
expenses incurred in the earning of assessable income,but withstrict substantiation measures enforced to
prevent abuse.
Full rebate of excise for petrol used on farms.
Abolition of Labor's prohibition of negative gearing on
rental properties, and its replacement by a system
allowing deductions from taxable income on interest
incurred on borrowings up to 80 per cent of thevalue ofthe rental property.
2. Fringe Benefits Tax
The much lower rates of personal income taxes will result ina drift away from non-cash benefits provided only as asubstitution for cash remuneration.
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2
Labor's fringe benefits tax will be abolished.
However, where a non-cash benefit is clearly anddeliberately provided as a substitute for cash remuneration
that benefit will be taxed as income in the hands of therecipient as it should.
where a non-cash benefit is provided to enable employees to
discharge their duties, or for employers to carry on their
business, such benefits will fall outside the taxation
provisions and will be totally exempt from tax. Nolog-books or other unnecessary records will need to be
maintained for such items. The fact that there is someprivate use of items that are clearly used for businesspurposes will be irrelevant for these purposes._
Employers of people earning over a specified remuneration
package will be required to disclose, on the GroupCertificate, the benefits provided.
The following material is provided as a guide to theapproach that will be taken.
Motor Vehicles ' '- .
The basic proposition can be expressed by the question:
does the position essentially require a car to enable it to
be carried out, or is the car provided as part of aremuneration package with no genuine business use?
The exclusion mechanism will be decided upon in Government
taking into account the easiest administrative procedures.
Al]. motor vehicles not now subject to fringe benefits tax
will be excluded, for example, those designed to carry more
than 1 tonne or more than nine passengers.
Taxis, courier vehicles, panel vans, utilities, station
wagons and vans that are basically commercial vehicles whereprivate use is largely home-to-work travel and week-end use
will be. excluded. This would also include 4-wheel drivevehicles used on farms and to pick up supplies, from townwith incidental private use.
Cars that are essential to an employee performing his or her
duties, for example, travelling sales people, sales
representatives, Newsagents,maintenance technicians, stockand station agents, surveyors, inspectors, real estateagents etc will be excluded.
Simple procedures for determining the amount of income to betaxed will be provided.'
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3
Loans
Small value loans, up to say $50,000, where it is the normalpractice of the industry to provide loans to employees, forexample, loans by financial institutions to employees will
be excluded.
All directors/shareholders ,loans from private companieswould be excluded where the loan is not connected with anyemployment.
Bridging finance provided to an employee who is transferredto enable a. house to be purchased would be excluded.
All other low interest loans that are part of an employee's
remuneration would give rise to taxable income.
The taxableincome will be the discount of interest from the
lowest housing loan rate of the Commonwealth Savings Bank.
Housing
All remote area accommodation provided tar - I i ob*- empLoyeesto carry out their duties, for example, on-site farm andmining accommodation will be excluded.
Accommodation provided to employees transferred to country
areas (including regional centres) where the type ofemployment is such that the employee is expected to moveresidences during his or her career, for example, bankmanagers and clerks, school teachers, police officers,clergy, etc will be excluded.
Where employees are transferred from one metropolitan regionto another, for example, Melbourne to Sydney, any
accommodation provided for a period of time, say, 18 monthsor for the period of transfer if it is defined (with anupper limit on the time frame of, say, three years) will beexcluded.
The taxable income of other accommodation provided will..simply be the market value less any rent actually paid.
School fees
Anypayment of school fees will be fully subject to taxunless:
the employee is transferred overseas; or
the employee is transferred to a non-capital city withinAustralia; and
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4
it is necessary to change the circumstances of the
child's schooling because of that transfer, for example,
to place the child in a boarding school because suitableschooling is not available in the place at which theemployee is transferred.
Discounted goods and services
Such items will be excluded because it promotes goodwill
between the employee and employer to enable employees topurchase goods in which their employers deal.
This will be subject to the proviso that the discount does
not exceed the cost of the item (whether it be purchased,manufactured or processed) to the employer.
Private expenses paid by employer
Private expense payments will be fully subject to tax, ifthe expense item is one for which the !:eml.ayee could haveobtained a tax deduction (for exampl.;: -gtof.esionalsubscriptions, telephones etc) the employee could still doso to cancel out the amount included in his-or herassessable income.
These items would be treated just like a cash allows-rice iscurrently treated, that is,
included in assessable. incomeand any deductions against the payment would be claimed onthe annual tax return.
.Overseas travel
Expenses of a spouse travelling overseas are already dealtwith in Section 51AG.
Any pure non-business expenses connected with overseas
travel would be caught under the private expense paymentsmentioned above.
Religious andnon-profit organisations
Nofringe benefits tax of any kind will apply to anyreligious or non-profit organisation.
3. Capital Gains Tax
Labor's capital gains tax will be abolished. Assets
purchased after 19 September 1985, but not sold before
12 July 1987, will be free from Labor's capital gains tax.
We will ensure that speculative gains are not free from taxby retaining the current Section 26AAA.
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Such an arrangement will protect and encourage long terminvestment by farmers, small businesses and others but
ensure that speculative profits are not free from tax.
Reduced tax collections for virtually the entire 1987-88year will accrue when income tax returns are lodged during1988-89.
4. Entertainment Tax
Legitimate business related expenses will be allowed as taxdeductions under a Howard Government subject to the strictsubstantiation of those expenses. Such things as the date,place, purpose and attendees will need to be recorded in
order to justify the deductibility of these expenses.
As with the present substantiation provisions, the lack ofthese records will result in no deduction being allowed.
We will consider a.reasonable cap on the amount ofentertainment cost in Australia other than that related toforeign business visitors if any problas^ aris.in this-.areain the future.
The full year cost to revenue of these i;hanges vt1.1 be$200 million.
5. Company Tax
The rate of company tax will reduce to 42 per cent with effectfrom 1 July 1988. This measure is a vital ingredient in the newFramework for Enterprise which will be created by the nextLiberal Government. It will contribute substantially to areinvigorated investment climate in Australia and to enhancedcompetitiveness of Australian business, both domestically and onexport markets.
Payment of reduced company tax for the 1988-89 year will occur in1989-90.
The ultimate objective will be to reduce the rate further to38 per cent, in line with the top marginal rate for individuals.
6. Rural package
The next Liberal Government will totally rebate the cost ofexcise for petrol used on farms. The full year cost will be$145 million. Strict procedures will be implemented to guardagainst abuse.
In addition the remaining costs of export inspection services,
currently paid for by farmers, will be abolished. The full yearcost of this measure will be $55 million.
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7. Negative Gearing
Labor's prohibition of negative gearing on rental properties has
been a disaster for people seeking rental properties. Rents havesoared and the availability of rental properties has evaporated.
we will repeal Labors prohibition on negative gearing on rentalproperties. Labor's prohibition will be replaced by a systemwhich allows deductions from assessable income for interestincurred on borrowings of up to 80 per cent of the value of the
rental property. If the interest on such a loan plus the othernormal tax deductions relating to that property result in a taxloss, that loss will be deductible against income from othersources.
The full year cost of this decision will be $80 million.
8. Assets Test
The next Liberal Government will abolish Labor's Assets Test.The full year cost of this decision will be.
. , -U Q million.
.Lump SuaSUPCLdili*UaL1VA ?&A
Labor's lump sum superannuation tax Ji1L^b'.&odified. We willtax such lump sums at the lowest tax rate under our-new tax plan,25 per cent, rather than Labor's 30 per cent. The existing taxof i5 per cent on the first $55,000 of a lump sum received after55 years of age will be maintained to provide a concession to lowincome earners.
The pre 30 June 1983 taxation arrangements will not be altered.
The cost of these arrangements in the next three years will benegligible - no more than $5 million in 1989-90.
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TAXATION PAPER NO 5
SURNARY OP TABLE 'GP EXPENDITURzSAVINGS
Savings Additional Additional TotalAchieved Savings Savings Savingsin
1987-88in1988-89
in
1989-90over 3 year1987-88 to1989-90
$m $ m $ m $m1 Abolition of variousbodies/grants 80 120 - 200
2 Changes to the healthsystem 315 485 - 80O
3 Direct Governmentsupport for industryand business 150 190 90 430
4 Savings in the social
Welfare area 190 460 320 970
5 Payments to the Statesand Territories 250 750 500 1500
6 Salaries and Administration 300 600 300 1200
7 Improved Cost Recovery 40 80 ' 60 180
8 Program Cuts 850 1150 530 2530
Total 2175 78103835 1800
As %1987-88 Outlays ( 2.7%) (5.0%) (2.5%)
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s -m 1
TAXATION PAPER NO 6
EXPENDITURE SAVINGS EXPLANATIONOF !MAJOR SAVINGS
1. Abolition of Various Bodies/Grants ($200a)
The next Liberal Government will abolish a number ofexisting bodies and grants to non - Government organisations.Commitments which have already been announced are theabolition of:
Human Rights and Equal Opportunities Commission Constitutional Commission - -
Commission for the Future National Health and Occupational Safety Commission Economic Planning Advisory Council Prices Surveillance Authority Termination of expenditure arising from the Labor
Government's commitment to the Australia Cardproposal
Foreign Investment Review Board Coal Industry Tribunal Advisory Council on Prices and Incomes
Other bodies to be abolished, or grants to be terminated,include:
Public Service Board Australia Council - reduced role Australian Film Commission National Parks and Wildlife Service (restrict to
Commonwealth Territories) Grant to Australian Conservation Foundation Independent Airfares Committee National Estates Grants Schools Commission Grant to Australian Federation of Consumer Organisations Trade Union Training Authority - abolish/sell Various trade union grants (immigration, arts, industry
etc) as identified by the Waste Watch Committee Lobbyists Register Public funding of elections Bureau of Resource Economics Argyle diamond valuer - subsidy Bureau of Transport Economics Joint Coal Board (withdrawal of Commonwealth
involvement) Sports Commission
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2
2. Changes to Health System ($800*)
The present Medicare system is a shambles. Over-servicingis rampant; there is no incentive on either providers orreceivers of services to restrain demand; costs have risensharply: queues for public h"spital beds have become anational disgrace. Disadvantaged people have beenparticularly penalised by Medicare - contrary to itsintended purpose -- and hundreds of thousands of them havehad to take out private insurance to guarantee access tohospital care. Medicare has proved to be edifraud.
The. next Liberal government will end the Medicare monopolyand return basic health insurance responsibilities to the
private sector. Choice and incentive will be restored andsubstantial reductions will be made to both the expenditureand revenue sides of the Budget.
Pensioners and non levy payers will continue to be fullyprotected; the Commonwealth Government will meet theirhealth expenses as at present. Such people representroughly one quarter of the population and consume one thirdof total health services. -
To ensure that high income earners eorttfnut ta-contribute tothe health care costs of low income earners, -b generalhealth care levy of 1.25 per cent will be retained.
The revenue from that levy meets only half the cost to theCommonwealth of health care for levy payers, with the restcoming from general taxation revenue. The Wholeof thehealth care costs of pensioners and non levy payers comesfrom taxpayers generally and this will continuue.
The proceeds of the levy will be used to assist levy payersinto health insurance with competll,ive private funds.Residual levy funds from higher income earner& (after thecost of their private insurance has been met) will, in theinterests of overall fairness, partly subsidise the privateinsurance costs of low and middle income earners.
On top of this, the existing substantial Commonwealthcontribution to the costs of levy payers' health care willcontinues in future it will be paid by way either of tax
rebate to taxpayers or subsidy to insurers.
However, the Commonwealth's costs will be reduced by therequirement that individuals and families meet the by$250 of medical expenses eachear. This arrangement, knownas a Front End Deductible (FED) scheme, is similar to the
present Pharmaceutical Benefits Scheme. In part it will actas an incentive against excessive demand for medicalservices and will also considerably reduce the cost of
private health insurance.
To protect the tax cuts for low income earners, financialassistance will be available to reduce the impact on them of
the $250.F!D arrangements.
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The present benefits provided by the Commonwealth throughMedicare to levy payers utilise the whole of the levy($1.8 billion) plus an additional $1.9 billion of taxpayers'funds (a total of $3.7 billion) . As levy payers will in
future be paying the first $250 ofmedical expenses perindividual or family covered;-ths Commonwealth's netexpenditure will be reduced by at least $800 million.
The remaining level of Commonwealth expenditure($3.7 billion less at least $0.8 billion) will be availableto provide rebates to taxpayers or direct subsidies toinsurers.They Will guarantee that the cost of privatelyinsuring for the health and hospital charges presentlycovered byMedicare is affordable.
The summary of these transactions is as follows:
PresentCommonwealth Costs of Medicare:
- -
Services to pensioners and non levy payers $1.7bServices to levypayers $3.7b
Total $5.4b
Present Sources of Funds for Medicare:
1.25% of Medicare levy $1.8bGeneral tax revenue $3_.6b
Total $5.4b
Proposed Cost of Liberal Health Care Scheme:
Services .to pensioners and non levy payers( unchanged) $1.7b
Services to others $3.7bless savings from FED scheme(at least) -$0.8b $2.9b
Total $4.6b
Source of Funds for Liberal Health Care Schemes
General health care levy.(.l.25%) (unchanged) $1.8bAdditional tax rebates or subsidies
to insurers $2.8b
Total $4.6b
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These measures will generate savings in 1987-88 of
89 and
4
3. Direct Government Support for Industry and BusinessIY JVA
A fundamental purpose of the new incentive driven taxationsystem will be to improve the investment climate forbusiness, particularly for._.export oriented activities.Australians want high and rising living standards. Thesignificance of business is that it, and it alone, canachieve increasing community prosperity. The reduced rateof corporate tax - and the various other elements ofimproved economic management - will enable
,business toprosper which in turn will deliver higher living standardsand enhanced job opportunities. -
In return for this improved overall 'business environment,some of the existing concessions and support measures forindustry and business will be terminated or reduced. Suchaction will help to provide "a more level playing field"which business itself has increasingly sought in recentyears.
Examples include:
Restrict railway subsidiesReduce industry bounties to the eorpormtdr *ector Abolish fertiliser dumping assistanceTerminate Export Market Development Grwrt ecreme Abolish Petroleum Products Prices scheme Reduce the role and the cost of Austrade
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4. Savings in the Social Welfare Area ( $970m}
The Liberal Party remains committed to a generous socialwelfare system for the genuinely disadvantaged within the
Australian community. At the same time, savings can andshould be made in a number of programs by re-assessingeligibility criteria and by cracking down on fraud andabuse. In this way, assistance will be more effectivelytargetted to those in need. Moreover, important signalswill be generated which, over time, will redirect somedeveloping community attitudes away from the notion thatdependence on government for primary income maintenance isappropriate. As part of its overall incentive orientedapp roacn, thenext Linerai government wiii re-estaoiisn anethic of self-reliance and responsibility for oneself andone's own.
Within this framework, savings will be made as-follows:
Unemployment Benefits
At present, there are 605,000 recipient .of. unemploymentbenefits, the annual cost of which is ;$Ld'
-
billion. The
best and most enduring way of reducing pwambers will. bevia the creation' of new jobs from the immc stas
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6
The next Liberal Government will ensure that there is
effective application of the work test and adherence toother departmental rules. it is estimated that theincidence of fraudulent employment payments through falseidentity, payments to people who are fully employed,payments
to full-time students and so on, is in the order ofeight per cent.
In the caseCES officersto maximise
of people who repeatedly fail job interviews,will accompany them to some future interviewstheir chances of success_
The result of recent reviews, targetting areas known to behigh in recipients involved in fraud and avoiding the worktest rules, has been staggering - nearly one in three ofthose assessed have lost unemployment benefits. For the75 per cent of unemployment. beneficiaries who are male,under the age of 35, on the 'single without dependent'benefit rate, and with a previous employment history, thepotential to reduce the number of
beneficiaries wouldconservatively, on the-basis of the
recent e:p rience, beone in eight. Applying the same measueeis ttt.::the -rest of theunemployed population can be ant
icipateotar.. uce thenumber of beneficiaries by one in fiftlea: -_
People who may be placed in positionsof particular hardshipas a result of these changes to unemployment benefits-will,of course,be. eligible to
apply for Special Benefits in thenormal manner.
Overall, these various changes willreduce paymentaofunemployment benefits by $510 million over the 1987-88 to1989-90 period.
Sickness Benefits
At any period of time, there are around 65,000 sicknessbeneficiaries. There are 140,000 new beneficiaries each
year, implying that the rate of turnover is relatively high.The annual cost to the community of providing sicknessbenefits is -$410 million; three-quarters of recipients aremale
s,.two-thirds are under 45 years of age-, two-thirds areon the 'single without children' rate and one-third'receivebenefits for more than twelve months.
The next Liberal Government will enforce an administrativerule which will use compensationpayments to reduce the
Social Security benefit.
A more diligent application of e ligibility rules and a morecon
scientiousreview of existing cases will result in anestimated eight per centreduction in beneficiaries.
Rent assistance will be available after 13 weeks, not sixweeks as at present, to bring it into line with rentassistance for unemployment beneficiaries.
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These three measures will generate total savings of
$60 million over a three year period.
Supporting Parent Benefits
There are currently 180,000 people on supporting parent
benefits; 94per cent are women and, of these, 28 per centare unmarried mothers. The youngest child of 38,nnnrtviplents is age* iv years or over. The annual cost to thecommunity of providing supporting parent benefits is $1.4
billion.
The next Liberal Government will implement a number ofmeasures to restrict the payment of supporting parent
benefits. _ -
The first requirement is to amend the Family Law Act toenable an improved system for the assessment and collectionof maintenance payments from the non custodial parent to thesupporting custodial parent of the child on whose behalf
supporting parent benefits are paid. There is also a needfor improvements to be made to cover.s&ituations outside the.
Family Law Act. -
At present, more than half the issued maintenance orders arenot complied with, and fewer than 30 per cent of custodialsupporting parents receive regular cash payments from non
custodial parents. In addition, maintenance levels -
often do
not reflect the cost of raising the child, with the Courtsfrequently ordering "topping up" payments to supplement
supporting parent benefits. This was never intended.
The Liberal Party's proposed amendments to deal effectivelywith these problems - to the extent that they come withinthe ambit of the Family Law Act - has already been put to,and passed by, the Senate as a Private Member's Bill.immediately following the election, the Bill will be debatedand passed by the House of Representatives. An adequatecollection system to give effect to these arrangements will
be developed.
Second, recent departmental reviews have resulted in one in thirteen supporting parents being removed from the rolls.
This reflects a combination of inadvertence and abuse. Suchreviews will be intensified and are expected to result inone in sixteen of present recipients becoming ineligible.
Third, the age of children for which supporting parent
benefits will be payable will be reduced. Previously, thequalifying age was up to 25, provided the child wasdependent. Recently the qualifying age was reduced to 16.
Supporting parent benefits are not intended to be apermanent form of dependence on government. In most cases,this is what occurs, with the recipient either returning to
the workforce or remarrying after a reasonable period. The
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next Liberal Government will terminate eligibility for
supporting parent benefits when the youngest child reachesthe age of ten. Those who lose supporting parent benefitsunder this criteria will, of course, be eligible forunemployment benefits, subject to the work test.
These three measures will generate savings of $400 millionover three years.
. -Total welfare Savings
Total savings in the areasof unemployment benefits,sickness benefits and supporting parent benefits willbe
$970 million - $190 million in 1987-88, $460 million in1988-89 and $320 million in 1989-90.
No reductions will be made to aged pensions or variousdisability assistance programs..,-
Family allowances will not be reduced. They form part ofthe profamily bias within the taxation systea and arenot awelfare measure. Payment of family allowance>s-.will betransferred from the Social Security Depactmaat and paidfrom the Taxation Office.
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5.Payaents to the States and Territories ($1,500a)
Current payments to the States and the Territories areapproximately as follows;
($b)
General purpose payments to the States/NT 1987-88 15.1Specific purpose payments to the States/NT 1987-88 9.0Payments for ACT Administration 1986-87 0.9
$25.0
Over the four years of the Hawke/Keating Government, theCommonwealth's own expenditure has grown by approximatelyfive per cent per annum in real terms. Growth in paymentsto the States has been about half this rate. Neither ofthese rates of growth are appropriate to Australia's presenteconomic circumstances or can be sustained. If the size ofgovernment is to be reduced, expenditure. .t all levels mustbeprogressivelywoundback. ;= .=;_' ^
The next Liberal Government will reduce_paysteats to theStates and the Territories by six per cent over the threeyear period 1987-88 to 1989-90. This will represent a totalsaving of $1,500 million.
As the overall reductions planned for total Commonwealthexpenditure are approximately 10 per cent, it follows thatthe reduction in the Commonwealth's own expenditure (ieexcluding payments to the States) will be 12 per cent. Thisrepresents double the restraint being expected from theStates - which is the reverse of the ratio of the past fouryears.
Immediately following the election, the Premiers' Conferencewill be reconvened to settle reductions in payments for theremaining nine months of 1987-88 ($250 million or 1 percent). The Premiers' Conference will also consider furthertransfers of functions and payments which would be moreappropriately carried out at the State level and which willreduce waste and duplication between the Commonwealth andthe States. (See Part 8 below). Several State Premiershave called for such transfers and an end to pastduplication between Commonwealth and State activities.
Continuing firm restraint will also be maintained on Stateborrowings, via the Loan Council.
The outcome of the Premiers' Conference will be incorporatedinto the States Grants (General Revenue) Act 1985, whichalready requires amendment following the May Premiers'Conference.
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These reduced payments will in no way constitute ajustification for the States to increase their own taxes andcharges, or to increaseborrowing programs. Instead, whatis required isthe same searching scrutiny of all Statefunctions and programs as that which will be undertaken bythe next Liberal Federal Government, to ensure that waste,over-staffing and unnecessary programs are progressivelyeliminatedand atimetable of relevant asset sales to the
private sector is developed. The most notable example ofthe potential for reform and substantial savings is in thearea of State railways, which presently incur aggregateannual losses of a staggering $3 billion.
Recognising the higher proportion of salary payments andrelated staff costs at the State, as opposed to-theCommonwealth, level and the difficulty of making quickreductions in such payments, cuts to the States andTerritories will be phased gradually over a -three year
period. This also explains the lesser restraint beingimposed on the States than the Commonwealth itself.
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6. Salaries and Administration Costs ($1,200m)
Salaries and Administration costs of the Commonwealth whichare paid pursuant toAppropriation Bill No 1, amount to$8.2 billion in 1986-87. They will approximate $9 billionin 1987-88. Excluding the salary costs of AustralianDefence Force (uniformed) personnel (which are to beexcluded from cuts) and salary and administration costs ofthe Departments of Veterans' Affairs (which will also be
virtually excluded from cuts) and Social Security (which arelargely covered by Part 4 above) leaves somewhat more than
$6 billion.
The next Liberal Government will institute an immediate andtotally comprehensive pruning of these costs. The overalltarget will be to achieve cost savings in 1987-88 of fiveper cent - $300 million - a further ten per cent saving in1988-89 ($600 million) and a further five per cent saving in1989-90 ($300 million).
These targets, while bold by previous public sector
standards.
,are relatively modest compared with what is
regularly achieved within the private sector when economic
circumstances dictate.
However, we will not be relying entirely on the efforts ofthe Public Service itself to achieve the targets. It will
be essential to enlist considerable outside support fromprivate enterprise to work with Public Service managers. Inthis way the considerable expertise built up by private
enterprise over the past decade in reducing overheads in anincreasingly competitive climate can be applied in the
public sector. Traditional public sector approaches will
not suffice.
Savings will arise from a number of sources. A number ofexisting Commonwealth Departments will be abolished andothers will be merged. Departments to be abolished includeHousing and Construction; Arts, Heritage and Environment;Sport, Recreation and Tourism; and Resources and Energy.Residual functions of these Departments will be incorporatedin other Departments. The general approach to restructuringthe Public Service, including new Departmental arrangementsand interrelationships, has alreadybeen described in thenext Liberal Government's Public Administration Policy -"Management of Government - the Liberal Approach".
Some Departments have a higher salary and administrativeoverhead than others.- This fact, and the changing roles of
various Departments, will mean that a singleacross-the-board target for every Department is neitherappropriate nor desirable. instead, individual targets willbe allocated for each Department sufficient to achieve theglobal outcome. Each Minister will be required to achieve
those targets. Cost overruns in one area will be recovered
from additional savings elsewhere.
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The initial objective will be to reverse the growth inpublic sector employees which has occurred during the periodof the Hawke/Keating Government.
As far as possible, natural attrition will be utilised toachieve reductions in staff numbers. The present attritionrate withinthe Australian Public Service is six per cent,which equates to around 12,000 employees each year.Excluding the Departments of Veterans Affairs and SocialSecurity, members of the Australian Defence Force and staffaffected by the decisions covered in Part1 above, aconservative estimate of net staff reductions arising fromnatural attrition would be 50 per cent, or 18,000 over thethree years to 1989-90. The savings from the direct salarycosts and directly attributable non salary on-costs of theseemployees would be $700 million or more. - -
Where natural attrition is not sufficient to achieve therequired objective in a particular area, every effort will
be made to accommodate existing employees in other parts ofthe public service.
Additional savings will be achieved via the abolition of.current inflexible and uniform flexitime axrangements($90 million), tightening invalidity retire,aent procedures(where, as documented bythe Waste watch Committee, more
people in many Departments and statutory authorities retireon grounds of invalidity than by reaching the retirementages $100 million) and eliminating abuse and wasteassociated with maternity leave assistance (where 40 percent of recipients do not return to work at the end of theleave period; $20 million). These issues are explained in
more detail in the "Management of Government - the LiberalApproach".
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7. Improved Cost Recovery ($180m)
A number of activities are undertaken by the Commonwealth
which presently either run at a loss or do not achieve anappropriate degree of cost recovery. Other activities,especially in the cultural area, are suitable for greatersponsorship by the corporate sector.
Some examples include:
greater cost recovery of aviation services provided bythe Commonwealth;
wider sponsorship and/or improved cost recovery for theAustralian Institute of Sport and the National StandardSports Facilities; - -
improved private sector involvement and cost recovery ofcommercially viable activities of CSIRO and the Bureau
of Meteorology and certain National StandardsMeasurement operations; -
wider corporate sponsorship and cost recovery for thecosts and activities of the National Gallery, NationalLibrary, National Science and Technology Centre andNational Film and Sound Archive;
improved cost recovery for services provided bx_thepresent Department of Local Government and
Administrative Services such as catering services; moreefficient use of motor vehicle, freight and transportservices; greater use of idle capital equipment; andenhanced rent from public utilisation of Governmentbuildings;
improved cost recovery for services and publications ofthe Australian Bureau of Statistics.
Savings of at least $40 million will accrue in 1987-88, afurther $80 million in 1988-89 and a further $60 million in1989-90.
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8. Proq aUCuts ($2,530.)
All programs and activities, apart from those which havebeen dealt with separately, will be closely sc
rutinisedimmediately after theelection. The overall target whichwill be met will be:
a five per cent reduction in program costs in 1987-88 a further sevenper cent reduction in 1988-89 a further 3.5 per cent reduction in 1989-90.
The present cost of programs to which this review will applyiscalculated as follows:
( $b) ( Sb)1986-87Budget outlays
less: General purpose grants to the States 15.075.0.
Health ( Medicare grants andMedicalbenefits)Social
Security 3.
Public Debt Interest 16.85V
eterans' Affairs 7.53
. Defence . 7
7.5 54:4
20.6In 1987-88, this will be an estimated $22 billion.
To extract the program component of this total, relevant salaryand administration costs dealt with in Part 6 need to bededucted, as follows:
($b) ($b)Total salary and adm
inistration costs 1987-88less:
costs associated with Veterans Affairs,9Social Security andADF salaries 3
ADF administration
1 4
5
Therefore, net Program Costs subject to restraint$ 17b
1987-88 reductions (5 per cent)$860m
1988-89 reduction (7 per centof the remainder)
$1,190A
1989-90 reduction (3.5 per centof the remainder)
$530m
Total savings over the three year period will be $2,530 million.
These will be spread over 25 current Departments.
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Global reduction targets will be allocated to responsibleMinisters, each target relating to the estimated reductinnpotential of the Department concerned. Each Minister willbe required to achieve these targets in line with the
Government's overall social and economic priorities. Costoverruns in one area will be offset by additional savingselsewhere. The overall savings, although differing fromDepartment to Department, will conform with the percentagetotals set out above for each of the three years 1987-88 to1989-90.
As with Part 6 (Salaries and Administration) private sectorManagement expertise will be enlisted to assist Ministersand public sector managers to identify savings and designprograms to achieve those savings.
Total savings from program cuts will be greater-than savings
achieved from other areas of Government expenditure. Inpart this reflects thefact that the total cost of programsdealt with under this section is in turn greater than othercomponents of Government expenditure (with the exception ofpayments to the States and Territories).. Most of thedecisions relating to programcuts.made withinthefirst six months of the next Libera1:G V, a, is term of .office, with the resultant saviag^;ccetsrriag in 1987-88($850 million), particularly in:I?fl-89- Yas concludedthat 40 per cent of the gross revenue losses have beenactually recouped as a result of the Reagan reforms.
In Australia, research by sascand and Porter, and byApps
and Savage, has reached similar conclusions. They concludedthat high marginal tax rates act as a major disincentive Luwork, especially for high income earners and lower incomeearning spouses (see "Changing the Tax Mix"edited byJohn Head, Australian Tax Research Foundation, 1986).
The changes to personal taxation which will be implementedby the next Liberal Government involve reductions in boththe marginal and the average
-rates of tax, compared withthose of the Hawke/Keating Government.
*There is no doubtthat the net incentive effects will be positive. On thebasis of conservative assumptions, it is estimated thatadditional personal income tax collections of $600 millionover three years will result: this is equivalent to around1.5 per cent of likely personal tax receipts in 1987-88, and12 per cent of the gross revenue loss from reduced taxrates.
This is more conservative than conclusions of the recentwork of the National Priorities Pcoject, as reported in thebook "Spending and Taxing", and which related to a slightlydifferent personal tax structure:
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The improved incentives to work are estimated, on thebasis o plausible estimates of labour supply
elasticities for different categories of individuals, togenerate 4 per cent of personal income. On the basis ofpresent levels of private income, and the proposedindirect tax rates and the new marginal tax rates,roughly $2 billion of additional tax revenue will begenerated, thereby offsetting around 40 per cent of therevenue effects of the tax cuts themselves."
Companies too will respond to reduced tax rates, but indifferent ways. They will invest more, increase employment,and expand: additional investment, profits and jobs will inturn increase taxation revenue and boost overall economicgrowth, with substantial second-round and multiplier effectsthroughout the economy. With an internationally competitivetax regime, Australia can expect to attract a larger sliceof international private fixed investment. Australiancompanies with an international perspective will invest morehere rather than abroad, and foreign companies will beencouraged to locate here.
The second incentive effect involves .t*mt of tax avoidanceand evasion. it is undeniable that progressively increasinglevels and rates of taxation have had a profound effect inencouraging businesses and individuals to seek ways aroundthe taxation system - whether legally or illegally.Punitive taxation arrangements havesometimes encouraged
honest Australians and businesses to behave in ways ofdubious validity. To that extent, the focus of past effortsto strengthen anti avoidance and anti evasion measures hasaddressed the symptom rather than the cause of the problem.This is in no way to excuse dishonest practices, but itsimply recognises the reality of the way people behave whenthey are pushed beyond reasonable levels of taxation.
The nextLiberal Government's taxation system - with a38 cent top marginal tax rate and a 42'cent corporate taxrate - will substantially reduce existing incentives toevade and avoid taxes. Individuals and businesses alikewill be more prepared to declare income for taxationpurpose's . when they know that they will never be required topart with more than 62 per cent or 58 per cent respectivelyof their pre-tax income.
It is estimated that, in the corporate sector alone, aconservative $300 million in additional tax collections willaccrue in years 2 and 3 from this positive means of dealingwith avoidance and evasion. This is equivalent to around3.5 cent of likely company tax collections in 1987-88.
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I
TAXATION PAPER NO 8
ASSET SALES
The next Liberal Government will undertake a sensible andachievable program of asset sales within the guidelines forPrivatisation which are spelt out in "Policies forBusiness". These guidelines include the following:
there must be demonstrable benefits to consumers and/ortaxpayers
the position and job security of existing employees willbe given special consideration, and sale of shares toemployees will be encouraged wherever possible
the quality and availability of services to remote areaswill not be allowed to deteriorate
any large scale sales will. ae -timi& as as to avoiddisruption of capital markets
sale proceeds will not be used to finance new Governmentexpenditure but will be directed tewards reducing theaccumulated public debt.
The principal assets which willbe sold during the firstterm of the next Liberal Government are^
.
the following:
Australian Airlines
Qantas (49%) domestic airport terminals Australian Industry Development Corporation OTC (49%)AUSSAT Housing Loans Insurance Corporation Snowy Mountains Engineering Corporation Medibank Private Pipeline Authority CSIRONET.
Thesesaleswill raise approximately $4,200 million -$1,000 million in 1987/88; $2,500 million in 1988/89; and$700 million in 1989/90. As indicated above, proceeds willbe used to reduce the Government's unacceptable level ofoverall indebtedness. They will not contribute directlytowards reductions in the Budget deficit.
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TAXATIONPAPER NO 9
THE ECONOMYAND TAX REFORM
1. The Mounting Tax Burden
The taxation burden in Australia is excessive and is increasing:
- In 1986-87, Commonwealth taxation receipts areestimated to be around $64.9 billion. Twenty yearsago the. corresponding figure was $4.4 billion.
Inconstant 1986-87 prices, the CommonwealthGovernment raises some $40 billion more in taxtoday than it did twenty years ago.
- As a percentage of gross domestic product,Commonwealth taxation receipts are estimated to be24.8 per cent in 1986-87 - the highest level inAustralia's peace-time history. in 1966-67 theco
rresponding figure was 18.9 percent.
This taxation burden has built upto. finance an excessive andincreasing size of Government
-
In 1986-87, Commonwealth Government outlays areestimated to be around $75 billion. Twenty yearsago the corresponding figure was $5.6 billitn-: In
constant 1986-87 prices the Commonwealth Governmentspends some $43 billion more today than it didtwenty years ago.
- As a percentage of gross domestic product,Commonwealth outlays are estimated to be 28.7 percent in 1986-87. In 1966-67 the correspondingfigure was 24.2 per cent.
Thison-going increase in the size and role of Government and the
accompanying taxation,burden has occurred under all G overnment's
although Labor Governments have been easily the worse offenders:
-
Adjusting for inflation, tax receipts increased by7.$ per cent per year under Whitlam, 3.3 per centper year under Fraser and 4.7 per cent per yearunder Hawke; while
- Commonwealth outlays increased by 9.7 per cent peryear under Whitlam, 2.1 per cent per year underFraser and 3.8 per cent per year under Hawke.
2. The Need for Genuine Tax Reform,
High and increasedlevels of Government spending and taxation inAustralia has:
- reduced incentives to work, invest, take risks andcreate wealth;
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2.
Sole parent families:
Will receive an increase in the sole parents' rebate from
X780 to $1,000.
Families without children:
The primary earner will receive an increase in the dependent
spouse rebate from $830 to $900 income-tested as at present
(reducing by $1 for every $4 of spouse income over $280).
Family Allowances and Child Care Allowances will be paid by the
Tax Department as a cash payment or a tax credit rather than
by the Department of Social Security. This recognises that
these are not welfare payments. They are payments for allowances
off tax which take into account that the costly responsibilities
of maintaining dependants reduce tax-paying capacity. (Family
allowances were instituted in 1976 in place of the tax deductionfor dependent children. This like the new system we propose
ensures all benefits flow to low-income families paying little
tax.)
These are not measures of middle-class welfare. They are an
important step towards fairness for all Australians, most of
whom in the course of their lives marry and voluntarily assume
responsibility for the support of both spouse and children.
They accept heavy financial burdens in doing that and shouldhave to pay less of the tax burden while they are doing so.
All families will also directly benefit front lower tax rateswhich will leave them with more of their incomes with which to
look after themselves.
0000000
Li
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- increased inefficiency, duplication and waste inGovernment;
- stultified productivity;
-
reduced the choice of taxpayers as to where theyspend their incomes;.
- increased the costs and reduced the competitivenessof Australian businesses;
-
increased the size and role of the public sector atthe expense of the private sector;
-
increased the incidence of tax evasion andavoidance.
All of these factors have contributed to a worsening in theperformance of the Australian economy.
They have made our economy sluggish andA&tlexible.
They have contributed both directl ''build-up in our external
imbalanceyiaefndfractly to the massive
*at_:-year s .
Our current account deficit in 1986 stood it $L4.6 billion or5.9 per cent of GDP - the greatest imbalance since--the
early
1950s. This was the second highest deficit in dollar terms ofall western developed economies (after only the United States)and the second highest as a share of GDP (after only Norway).
Our stock of foreign debt has tripled from $36 billion inJune 1983 to a record $105 billion in December 1986.
This means we now owe foreigners the equivalent of 42.4 per centof our national ouput or around $26,000 for every Australianfamily. The interest payme
ntsalone on the debt now consume over20 cents in every dollar of export income.
Clearly, our external imbalance is of majorremain the challenge of all Australian governments
for
will
to come. many years
To tackle it effectively, Australia must become more
productive,more competitive and more innovative.
We must increase incentive in our economy - incentive to work,incentive to invest, incentive to take risks and create wealth.
There can be no doubt that this will require major structuralreforms.
As we approach our bicentennial year, the challenges that we faceas a nation are large. Our future p r
osperity and that of ourchildren will be shaped by the directions we take the economy inthe next few years.
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3
The Liberal Party strongly believes that winding back the massivesize of Government and reducing the record taxation burden are
essential items on the agenda of that reform.
The net impact of the Liberal strategy for taxation reform andexpenditure reduction on our external
- imbalance will besignificantly beneficial.
It is a necessary and vital step towards increasing incentive andproductivity.
Given the current low level of personal savings and currentimport penetration ratios for consumer goods, imports of consumergoods would potentially increase by a maximum of around$200-$250 million, or only around 0.5 per cent, in the year
following the income tax cuts.
This is hardly the shattering 'surge' that the Treasurer hasargued there might be.
More importantly, any boost to imports arising from the cuts topersonal income tax would be swamped by the beneficial effects tothe current account deficit due to:
- reduced Government consumption expenditure andlower transfer payments arising from the cuts inGovernment expenditure announced in the package;and
- reduced imports and increased exports generatedfrom the significant boost to the competitivenessof Australian businesses with the lowering andsimplification of their tax burden.
The Liberal Party's Policies for Business document contains amore detailed decision of the other areas of reform essential tothe process of adjustment, and the reinvigoration of theinvestment climate in Australia. 1
The right time for such reform is now - not later. It is not aquestion of whether the economy can afford such reform at
present, it is a question of whether it can afford to delay suchreform any longer.
3. The Havke/^ceating Government's Tax "Reform"
The Hawke/Keating Government's pathetic attempt at tax reform didnothing to address the central issue - the ever mounting taxation buen. Instead, it increased the tax burden further, liftingtaxation receipts from $40.8 billion in 1982-83 to $64.9 billionor from 23.9 per cent of GDP to 24.8 per cent.
Both in real terms and as a percentage of GDP, tax receipts in
the past three Hawke/Keating Budgets were the highest inAustralia's peace-time history.
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4
Genuine tax reform must involve a reduction in the overalltaxation burden on the economy.
Tax reform without tax reduction is no reform at all.
This necessitates a reduction in the size of Government.
Messrs Hawke and Keating have claimed that taxation reform hasbeen completed. They have tossed in the towel before the fighthas started.
How can tax reform be completed when in the current financialyear, tax receipts as a share of national output will be apeace-time record?
How can tax reform be completed when the great majority ofAustralian families will be paying a higher share of their incomein tax after the 1 July income tax cuts than they were inMarch 1983?
How can-tax reform be completed when Australian businesses havehad imposed'
-
upon them a number of new and increased taxes whichhave increased their cost structures and reduced theircompetitiveness at a time when the exact opposite is required?
Recent comments by both the Prime Minsiter and the Treasurer arean open acknowledgement that their Government does not haveeither the desire or the capacity to reduce the ove-rall taxation
burden and substantially reduce the size and role of Governmentin our economy.
The next Liberal Government will undertake the task which theHawke/Keating Government has failed.
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. a'f
t
TAXATION PAPER NO 10
THE BENEFITS FOR FAMILIES
One of our longstanding commitments in tax policy has been to
restore the bias in favour of families with dependants. The
cost to individuals of meeting responsibility to family
members is high yet it is more than a private expense. It isessential to the health of our country.
Functioning, caring families are the core of our society yet the
financial burden on them has been steadily growing as the labor
Party has failed to adjust the dependent spouse tax rebate and
family allowance, and trimmed family allowance for some families.
The Anglican Home Mission Society stated last March that 80%of the broken marriages it dealt with in the latter-part of1986 involved serious financial problems.
Research by the Institute of Family Studies has shown that asingle-income married couple on $51,000 a year with three
children has a disposable income 'equivalent to a single personearning $24,000, which is about AWE.
Our tax policy sets out to ensure that the economic burden offamily responsibilities is recognised.
All families with dependants will benefit. The heavier
proportionate tax burden of single-income families is recognised.The flatter tax rates and new Child Care Allowance provide an
income-splitting effect for lower and middle-income families..
All existing benefits for families are retained. New provisions
ensure a real recognition of the value and worth of families.
For single-income families with children:
There will be a new allowance called a Child Care Allowanceof $800 per year or more .than - $15,per week which will bepaid directly to the person at home caring for children.
The existing family allowance will be maintained.
The dependent spouse rebate will be retained at $1,000per- annum.
For two-income families with children:
The Child Care Allowance will be paid at a variable rateaccording to the principal carer's income. The minimum
payment will be $400 per year (nearly $8 per week) werethat person earns more than $5,900 per year.
The dependent spouse rebate will be available on the same
income-tested basis as at present (reducing by $1 for every$4 of spouse income over $280).
Existing family allowance will be maintained.
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2 .
Sole parent families:
Will receive an increase in the sole parents' rebate from
&780 to $1,000.
Families without children:
The primary earner will receive an increase in the dependent
spouse rebate from $830 to $900 income-tested as at present
(reducing by $1 for every $4 of spouse income over $280).
Family Allowances and Child Care Allowances will be paid by the
Tax Department as a cash payment or a tax credit rather than
by the Department of Social Security. This recognises that
these are not welfare payments. They are payments for allowancesoff tax which take into account that the costly responsibilities
of maintaining dependants reduce tax-paying capacity. (Familyallowances were instituted in 1976 in place of the tax deduction
for dependent children.. This like the new system we propose
ensures all benefits flow to low-income families paying little
tax.)
These are not measures of middle-class welfare. They are an
important step towards fairness for all Australians, most of
whom in the course of their lives marry and voluntarily assume
responsibility for the support of both spouse and chi.ldren.
They accept heavy financial burdens in doing that and should
have to pay less of the tax burden while they are doing so.
All families will also directly benefit from lower tax rates
which will leave them with more of their incases with which to
look after themselves.
0000000