The Hawke Labor government was elected on March 5, 1983. Its first Budget was delivered five months later on August 23 by the new Treasurer, Paul Keating.
Although Keating was only 39 years old, he was serving his 14th year in Parliament. It was his seventh term as a federal member. This was the first of 9 Budgets he delivered before becoming prime minister in 1991.
Parliament was not telecast in 1983. Keating’s Budget speech was delivered in Old Parliament House and was only heard by people who tuned to the ABC’s second and third radio networks, known today as Local Radio.
The speech was more detailed than the generalised and political summary that takes place now. It took Keating 73 minutes to deliver his speech, compared to the allotted 30 minutes today.
The Opposition Leader at this time was Andrew Peacock, who had been in Parliament since 1966. Peacock succeeded Malcolm Fraser as leader of the Liberal Party after the election defeat in March. The Speaker of the House was Dr. Harry Jenkins, the Labor member for Scullin. His son, also called Harry, succeeded him in Scullin in 1986 and also became Speaker between 2008 and 2011.
- Listen to Keating’s Budget Speech (73m)
- Listen to an extract of Keating’s Budget lockup briefing to journalists (3m)
Hansard transcript of Treasurer Paul Keating’s first Budget speech to the House of Representatives on August 23, 1983.
Mr KEATING (Treasurer)(8.00) —I move:
That the Bill be now read a second time.
In doing so, I present the Budget for 1983-84.
RECENT ECONOMIC PERFORMANCE
This Government inherited an economy undergoing its worst recession in fifty years.
Activity, both in the farm and non-farm sectors, began to weaken almost two years ago, and was still falling when the Government came to office.
Gross Domestic Product has declined by 4.5 per cent from its pre-recession peak .
The labour market deteriorated even more sharply than this figure suggests.
Nearly three-quarters of a million Australians were already out of work when the Government took office.
Unemployment had risen by 263,000 during the previous twelve months.
Inflation, at 11.5 per cent, was running at more than double the OECD average and was accompanied by high interest rates.
Obviously, the economic policies of the previous Government had failed to come to terms with Australia’s deep-seated problems.
The policy of ‘fighting inflation first’ had not only failed to restrain the inflation rate but had laid to waste large areas of our industries, relegating hundreds of thousands to the misery and indignity of unemployment.
This Government sought and received a very clear mandate from the Australian people to put the country back on the path to economic prosperity and to deal with inflation and unemployment simultaneously-with a spirit of consensus and fairness that would give the strategy its greatest opportunity for success.
With those objectives in mind the Government embarked upon the National Economic Summit, the May Statement of economic measures, the Premiers’ Conference and now the Budget to build that consensus and hone the edge of its policies to turn those objectives into achievements.
The National Economic Summit endorsed the broad thrust of the Government’s economic strategy with particular support for the policy of fighting inflation and unemployment simultaneously.
At the Premiers’ Conference, an historic accord of all Premiers endorsed the Commonwealth Government’s approach to its forthcoming Budget.
The process of discussion, consultation and consensus has produced the first signs of optimism in a country wearied by broken promises, dashed expectations and depressed economic conditions.
This Budget seeks to build upon that optimism-to nurture it, to develop it, until consumer spending and business investment regain their appropriate momentum.
While that private sector spending is at a low ebb, the Government has accepted the need for a more substantial role for the public sector.
Its policy in this Budget is to provide the maximum fiscal stimulus to the economy consistent with its anti-inflation objectives but without placing undue burdens on interest rates or the balance of payments.
To this end, the Government took the opportunity in May of providing an early stimulus to the badly depressed building and construction industry, with measures directed at both private and public sector housing.
In fulfilment of one of its major election commitments it also established the Community Employment Program to assist the long term unemployed.
A similar approach was taken at the Premiers’ Conference.
Through both tax sharing grants and loan programs the Commonwealth assisted the States to increase their activity, including their large capital works programs.
This Budget builds on those earlier steps.
It is designed to provide a floor of activity in the economy while the private sector recovers.
There are already signs of a pick-up in that activity.
1983-84 holds promise of a considerable improvement in economic performance.
But our economic problems are deep-seated and they cannot be resolved quickly or by precipitate action.
The key task of our policy therefore is to facilitate a sustained recovery that wears away the unacceptably high level of unemployment we are now experiencing.
But this Budget is also about fairness and equity-about a re-ordering of priorities.
It focuses assistance on those who have suffered most from the recession and on those areas so long neglected by our predecessors.
Today’s unemployed are victims of events beyond their individual control.
It is unconscionable that they also be made victims of government indifference.
Later in my Speech I will announce substantial increases in benefits to the unemployed.
The Community Employment Program also makes its contribution in this area.
It is directed at the longer term unemployed who, because of their lack of recent work experience, are particularly disadvantaged in job- seeking.
We have also taken steps to fulfil our election pledge to introduce Medicare which will share the costs of health care for all Australians more equitably.
Fairness also requires that those who are evading their obligations to society by avoiding tax are made to pay their share.
The existing system and structure of taxation has developed in a fragmented and ad hoc fashion.
The substantially increased weight of taxation overall makes the need for efficiency in tax arrangements all the more pressing.
The Government has given this high priority both in the measures announced in May and those I will be announcing tonight.
Before turning to the detail of our outlays proposals, I note that the burgeoning cost of our predecessors’ programs, if left unchecked, would have severely circumscribed our ability to meet our own high priority commitments.
On taking office we were advised that, on unchanged policies, the tentative Budget outlook for 1983-84 was for a deficit of $9.6 billion-including an increase of 12 per cent on 1982-83 outlays as then estimated.
However, it became clear during the Budget process, in the light of more recent estimates, that outlays would be more than $800m higher than indicated in the forward estimates.
A full reconciliation of the revised forward estimates with the original is provided in an Appendix to Statement No. 3 in the accompanying Budget Paper No. 1.
If that had been the only change to the Budget estimates we would have been facing a deficit in 1983-84 of $10.4 billion rather than $9.6 billion.
But because of several factors, including the higher growth estimates now in prospect, in part because of events put in train by this Government, the revenue estimates have increased by about $1.4 billion.
Given that the residual deficit of $9 billion was higher than the Government had considered acceptable, our new expenditure initiatives could only be financied by cutting back on our precedessors’ programs or by increasing taxes.
Because of the fiscal position the government inherited we were not prepared nor able simply to add our own programs to those of the previous Government.
Rather, we have sought-and achieved-a substantial re-ordering of priorities.
In doing so, we have reduced prospective expenditures, to the extent of almost $1220m in 1983-84, on those programs which supported organisations or individuals who could reasonably be expected to provide for themselves.
Similarly, we have made revenue savings on program-related tax expenditures amounting to $230m in 1983-84; these include the income tax rebate for basic health insurance and the tax rebates for housing loan interest.
On present estimates, a further $390m will be provided by the Medicare tax levy .
The combined effect of these measures is to reduce the prospective 1983-84 Budget deficit by $1840m.
Our decisions on new programs and additions to existing programs are estimated to add about $2490m to outlays in 1983-84; these include the introduction of Medicare, the Community Employment Program, our initiatives on public housing, measures to ease the plight of the unemployed, and a wide range of other initiatives-some already announced and others which I shall outline this evening .
We have also provided substantial real increases in payments to the States and in a number of other areas.
After allowance for the offsets I have just mentioned, totalling $1840m, the net cost of our new expenditure initiatives is about $650m.
I repeat, therefore, that we have achieved our objectives for new programs, not by simply adding them on, but by a genuine re-ordering of priorities.
Details of individual programs are set out in Statement No. 3 and other Budget statements: more information will be provided, as appropriate, by the Ministers responsible.
Under Medicare, to operate from February 1984, all Australians will be covered automatically for the costs of basic health care regardless of their income.
Medicare will be a simple, equitable and universal system of medical and hospital cover; the additional outlays involved in its implementation are estimated at $600m in 1983-84 and about $1800m in a full year.
Taking account of our decisions announced in May and estimated revenue from the proposed levy on taxable income, the net cost of Medicare to the Budget is estimated at $35m in 1983-84 and about $80m in a full year.
The Minister for Health will introduce relevant legislation during the present sittings of Parliament.
To counter medical fraud and overservicing, a special Surveillance and Investigations Program will be introduced in 1983-84; expenditure in this Field will double to $8m.
SOCIAL SECURITY AND WELFARE
This Government places very high priority on improving the lot of the most disadvantaged in our community.
The welfare of this group deteriorated sharply, and its numbers increased substantially, during the seven years of the Fraser Government.
We reject that Government’s expenditure priorities and we reject their macroeconomic policies which added drastically to the ranks of the unemployed.
But the damage cannot be repaired overnight.
The measures I shall now announce, together with those I announced in May, represent first steps in re-establishing priorities in favour of those in the community who have suffered most from recent economic conditions.
Further details will be provided by the Ministers for Social Security and Veterans’ Affairs.
Unemployment and Other Benefits
The Government has already increased, from May 1983, the rate of unemployment benefit for single persons aged 18 and over by $4.25 per week to $68.65 per week , at a cost of about $100m in 1983-84.
The Government has now decided to increase the rate again in November 1983 by $ 4.95 per week, or by $2 a week more than needed to allow for inflation, to bring the rate to $73.60 per week.
Commencing in May 1984, this rate will be automatically indexed for increases in the Consumer Price Index; at that time, a $2 supplement will again be provided.
On current reckoning, this will amount to a further increase of about $4.80 per week.
The total increase since this Government came to office will be around $14 per week or more than 21 per cent; over the same period the combined married rate is likely to have increased, with existing indexation arrangements, by about 16 per cent to around $148.90 per week.
The rate of unemployment and sickness benefit payable to single persons aged under 18 years, which has been increased only once since 1975, will be raised by $5 to $45 per week in November 1983.
To encourage unemployed people to seek casual and part-time work, the income test for unemployment and sickness benefits is to be liberalised from March 1984 .
Beneficiaries will be allowed to earn $20 per week rather than the present $10 per week without any reduction in the benefit they receive; and the upper limit of the non-benefit income range over which the benefit is reduced on a 50 per cent basis will be increased from $60 to $70 per week.
These Budget measures are estimated to cost $118 million in 1983-84 and $276 million in a full year.
Other measures which I shall announce shortly will also benefit the unemployed.
Assistance for Families
Supplements for Children of Pensioners and Beneficiaries
The rate of additional pension and benefit for the 800 000 children of pensioners and beneficiaries, which has been increased only once since 1975, will be increased by 20 per cent to $12 per week from November 1983; the maximum rate of Family Income Supplement will be increased by the same amount per child.
To ensure that such assistance is not reduced by the impact of personal income tax, all additional assistance for the children of unemployment, sickness and special beneficiaries will be made non-taxable from 1 March 1984 at a full-year cost of $20 million.
For beneficiaries who are standard rate taxpayers, this exemption will mean a reduction in tax of up to $3.60 per week for each child from March 1984.
The comparable payments to pensioners, supporting parents and employed persons with low family incomes are already exempt from income tax.
The Government will also legislate to provide for a uniform rate of mother’s/ guardian’s allowance of $8 per week payable to sole parent pensioners and supporting parent beneficiaries; we will extend, from May 1984, this non-taxable payment to single unemployment, sickness and special beneficiaries with dependent children.
The Government will be allocating $10 million in 1983-84, rising to $30 million in 1984-85, for high priority new and expanded projects and initiatives under the Childrens Services Program.
The cost of these various measures to assist families is estimated to be $77 million in 1983-84 and $141 million in a full year.
Assistance for Those Living in Remote Areas
Most pensioners and beneficiaries living in remote areas of Australia can take little or no advantage of the Tax Zone Rebate.
To redress this, the Government has decided to introduce a new payment for pensioners and beneficiaries living in Tax Zone A of $7 per week for single people $12 per week for married couples and $3.50 per week for each dependent child.
These allowances, which will be payable from May 1984 and will be non-taxable, are estimated to cost about $3 million in 1983-84 and about $16 million in a full year.
The Government is determined to make Australia a fairer society.
We must reform our taxation and welfare systems so that tax burdens are spread throughout the community on the basis of capacity to pay, and welfare payments are provided according to needs.
Since taking office, the Government has moved decisively to enhance our equity objectives in the retirement incomes area.
In my May Statement, I announced the introduction of an income test on the component of age and service pensions for persons aged over 70 which was previously paid free of any income test.
We have also reformed the tax treatment of superannuation.
There is evidence of extensive and increasing avoidance of the pension income test by people who do not need the pension.
One reason for this was the removal of the assets test in 1976.
The Government has decided to reintroduce a test on both income and assets along similar lines to the test that applied before.
An outline of the new test will be announced shortly by the Minister for Social Security.
For the moment, I simply say that the exemptions will include the following types of assets:
– the pensioner’s home or principal residence;
– a car for personal use by each pensioner;
– personal effects including furniture, household effects, a caravan, a boat, jewellery, works of art; and
– other assets to the value of $1500 for a single pensioner and $2500 for pensioner couples.
Allowing for administrative processes, the new test will not operate until about 12 months after legislation has been passed.
Meanwhile, the Government has decided to remove the exemption from the pension income test of certain income received from friendly societies, which has been increasingly exploited for the purpose of gaining or increasing pension entitlement.
Removal of the exemption will take effect from 1 November 1983 and is estimated to save about $7m in 1983-84 and $10m in a full year.
Pensioner Fringe Benefits
The Government has decided to take action on the fringe benefit income test to reduce incentives for income test avoidance.
This test, like the pension income test, will be based on income and assets; in the meantime, the Government will introduce automatic indexation of the income limits on a twice-yearly basis in line with increases in the Consumer Price Index.
This will help to maintain entitlement to concessions for eligible pensioners whose incomes increase from time to time because of inflation.
Assistance for the Handicapped
The Government has decided to introduce, from December 1983, a spouse carer’s pension. This will allow the husband of an age, service or invalid pensioner wife to receive assistance, on the same basis as wife’s pension, where the husband provides care and attention for an extended period on account of his wife’s severe physical or mental disability.
Sheltered workshops, activity therapy centres and training centres for the handicapped will be eligible for certain increased subsidies towards staff costs , and a new bonus of $500 will be paid to people previously receiving sheltered employment allowance who successfully transfer to open employment.
The total cost of the spouse carer’s pension and the additional assistance for the handicapped is estimated to be $4m in 1983-84 and $10m in a full year.
The Government recognises the pressures on voluntary agencies at this time to provide additional emergency relief.
To assist in meeting those pressures, the amount provided to assist such agencies will be doubled to $5m in 1983-84.
Care of the Aged
The Government is determined to reduce the extent to which Australians rely on inappropriate and expensive institutional care for the elderly and infirm.
Pending the development during 1983-84 of detailed proposals on community care and the completion of a review of funding guidelines for nursing homes, the Government has decided to restructure the existing personal care subsidy for hostel care and to relate assistance more closely to the needs of hostel residents.
We also plan to develop geriatric assessment units and to provide funds for essential research.
The cost in 1983-84 is estimated at $9m
Assistance for Migrants
In 1983-84 an additional 60 grants at a cost of $778 000 will be provided under the Grant-in-Aid Scheme to assist ethnic and other community organisations to employ social welfare workers to provide services to migrants.
The additional grants will bring the total number of grants under the scheme to 200 by June 1984.
Assistance for Aboriginals
The Budget provides $207m-an increase of 28 per cent-for Aboriginal advancement programs administered by the Department of Aboriginal Affairs.
These funds will be directed towards expanding the role of the National Aboriginal Conference and expanding existing programs for Aboriginals in the fields of employment, health, legal aid and community management and services; special programs will also be developed to assist Aboriginal fringe dwellers.
Other spending specifically to assist Aboriginals will total about $167m in 1983-84, an increase of 22 per cent; for example, grants of $52m are earmarked for Aboriginals under the welfare housing program, and $7m is provided under the Community Employment Program for Aboriginal employment.
Reflecting the state of the economy and the measures I have announced tonight, total outlays on Social Security and Welfare are estimated to increase by 19.3 per cent in 1983-84 to $16 843m.
Consistent with our general approach of re-ordering priorities, the substantial improvements to our welfare system which I have just outlined have been achieved at a net cost of only $107m in 1983-84.
EMPLOYMENT AND TRAINING
The Government has already announced several initiatives which will put people into work quickly, and which will also result in worthwhile improvements in the country’s infrastructure, notably in such areas as roads and country town water supplies.
In 1983-84 we expect to spend $958m on employment and training schemes-80 per cent more than in 1982-83-which, when fully operational, are expected to result in employment and/or training opportunities for about 300 000 people a year.
Other spending aimed at increasing the supply of housing, Commonwealth office space and roads, maintaining the Commonwealth’s assets and assisting the steel industry and steel-producing regions will also boost employment substantially.
Our housing programs provide increased, and more flexible, assistance for first home buyers and substantial additional funds for public housing.
These programs, the details of which have already been announced, will lead to increased housing activity in both the public and private sector.
This increase in activity is expected to create at least 30 000 additional jobs .
Total outlays from the Budget on housing in 1983-84 are estimated at $912m, an increase of 23 per cent on 1982-83.
Contrary to the failed approach of our predecessors, this Government supports the use of expansionary fiscal policy during economic downturns, including by way of capital works spending which directly stimulates employment.
Substantial capital works spending is warranted by the overall slack in the economy, and in particular by the spare capacity at present in the construction sector.
Further, after seven years of neglect under our predecessors, during which capital spending became the scapegoat for the lack of genuine expenditure restraint, there is a heavy backlog of urgently needed public works.
Reflecting these factors, expenditure on civil works financed directly from the Budget is to be $390m in 1983-84, an increase of 16 per cent over 1982-83.
Moreover, in total, direct capital expenditure and capital grants provided in the Budget will increase by about 22 per cent to $3700m in 1983-84.
There will be a major upgrading of our airports, including the relocation and upgrading of civil aviation facilities at Darwin at the total cost of $95m and the commencement of a new international terminal at Perth, to cost $48m.
New aviation works to be started in 1983-84 form part of a program estimated to cost $213m over the next four years.
We shall embark on a major Commonwealth office construction program which will stimulate the construction industry and hold down our rapidly increasing expenditure on rental accommodation.
Offices will be commenced in Townsville, Thursday Island and Lismore, and in Glenorchy and Bellerive in Tasmania.
We shall also call for expressions of interest from the private sector with a view to proceeding with lease/purchase office development, as appropriate, at Parramatta, Newcastle, Wollongong, Dubbo, Rockhampton, Mackay, Cairns, Fremantle , Port Pirie and Devonport.
Repairs and Maintenance
Expenditure on repairs and maintenance (including funds under the Community Employment Program) will increase by 29 per cent to $220m in 1983-84.
This labour intensive and geographically dispersed program will create jobs and will begin to redress the serious decline in the physical condition of Commonwealth assets that has been allowed to develop in recent years.
TRANSPORT AND COMMUNICATIONS
Total 1983-84 Budget outlays on transport and communications are estimated at $ 1705m.
Because of the effect of once-only capital injections for Qantas, TAA, ANL and AUSSAT in 1982-83, this is about 3 per cent below 1982-83 spending.
Grants to the States and Northern Territory for roads will total $1233m in 1983 -84, an increase of 45 per cent.
This includes $70m earmarked for expenditure on local roads under the Jobs on Local Roads element of the Community Employment Program.
Expenditure to improve road safety in Australia is to be increased in 1983-84 by 56 per cent to $6.1m.
The Government is undertaking a comprehensive review of Australian National Railways’ operations with a view to improving its efficiency.
Meanwhile, the $85m provided towards operating losses in 1983-84 compares with a subsidy of $106m in 1982-83.
In 1983-84 our direct spending on education is planned to rise by about 11 per cent to $4211m; most of this-about $3515m-will support programs administered by the Commonwealth Tertiary Education and Schools Commissions.
The Minister for Education and Youth Affairs has already announced funding details for these programs in calendar year 1984; they include measures directed towards increasing the participation rate of young people in post-compulsory education.
The Government has decided to increase the main allowances under student assistance schemes from the beginning of 1984.
The allowance payable under the Secondary Allowances Scheme will rise by 20 per cent; for TEAS and the other schemes, the increase will be between 5 per cent and 7 per cent.
Income test requirements for all schemes will be eased with limits being increased by 6 per cent for 1984.
The cost of these increases is estimated at $21m in 1983-84 and about $41m in a full year.
To increase the number of trained Aboriginal teachers, the Government has decided to make available within the Aboriginal Study Grants Scheme a special allocation of 100 teacher training awards, to be available to mature age students; benefits will comprise a living allowance of $150 per week plus other normal entitlements.
The Budget provides $5280m for defence, an increase of 10.4 per cent on 1982-83 outlays, and real growth of about 4 per cent.
During the course of the year the Government will be assessing Australia’s strategic environment as a basis for reviewing our forward plans for defence.
The Ministers for Defence and Defence Support will provide further details.
A total of $822m is provided for overseas aid expenditure, including administrative costs, an increase of about 13 per cent on 1982-83 expenditure.
Budgetary assistance to Papua New Guinea will increase by 10 per cent to $288m, reflecting recent special aid and the revision of the five-year aid agreement with that country.
We will continue to give priority to assisting countries in Australia’s own region.
CULTURE AND RECREATION
The Budget provides $599m for culture and recreation in 1983-84, an increase of 14.6 per cent on 1982-83 outlays.
Of this amount, the ABC will receive a total of $289m in 1983-84; this will enable initial planning for the proposed introduction of a second regional radio network and eventual use by the ABC of the domestic satellite system to be introduced in Australia in 1985-86.
The $37.9m provided for the Australia Council-an increase of 13 per cent over 1982-83-is the first step towards restoring arts funding to its 1975-76 real level.
The Government has agreed in principle to the establishment of the Museum of Australia in Canberra; a Director will be appointed and initial design work on the museum will be undertaken.
In line with certain changes in the basis of the present taxation arrangements to assist the film industry, which I shall announce later, an additional amount of $5m is provided in 1983-84 for direct investment by the Australian Film Commission in the production of films of high quality with potential for commercial viability.
Earlier this year we established the Ministry of Sport, Recreation and Tourism. An amount of $40m, an increase of 48 per cent, is included in the Budget for assistance to sport and recreation.
ASSISTANCE TO INDUSTRY
Total direct outlays on industry assistance are estimated to decline marginally in 1983-84 to $1104m.
This mainly reflects the breaking of the drought over much of Australia together with certain decisions already announced by the Government.
In recognition of the effects of the drought, expenditure under the general provisions of the Rural Adjustment Scheme is to be doubled to $35m in 1983-84.
A further $11m is to be provided under the scheme’s carry-on finance arrangements to assist the sugar industry in New South Wales and Queensland.
The Government will provide further assistance to the Brucellosis and Tuberculosis Eradication Campaign.
The Government’s contribution for tuberculosis infected cattle destroyed under the campaign will be increased from 50 per cent to 75 per cent, the same as for brucellosis infected cattle; an additional $4m will be made available for a range of new measures designed to accelerate the eradication campaign in central and northern Australia.
The Government has decided to provide $46m for the National Water Resources Program in 1983-84, an increase of 19 per cent on 1982-83 expenditure.
The Government attaches a high priority to the development of high technology industries with growth prospects.
As outlined in our election policy we envisage a greater role for the Australian Industry Development Corporation in fostering industrial development.
To this end, a capital instalment of $12.5m has been provided to AIDC in the Budget and the Government has decided to increase AIDC’s gearing ratio and to guarantee its borrowings.
Funds for expenditure under the Industrial Research and Development Incentives Scheme have been increased by 36 per cent to $71.6m.
An additional $4m has been provided to the CSIRO as part of the package of increased support for key technology areas.
The Ministers for Industry and Commerce and Science and Technology will announce further details.
The Government is committed to the maintenance of an efficient and viable steel industry.
Reflecting that commitment, the Minister for Industry and Commerce has recently announced details of the Steel Industry Plan.
To assist the development of Australia’s tourist industry, funding for the Australian Tourist Commission will be increased by 75 per cent to $17.5m in 1983 -84.
In addition, the Government will provide a grant of $1m in 1983-84 to the Queensland Government to subsidise the costs of diesel fuel to Barrier Reef island tourist resorts.
The Budget provides an additional $4.2m for expanded trade promotion activities, including the upgrading of trade promotion programs in Australia’s major export markets and the establishment of a Market Research Fund.
Further details will be announced by the Minister for Trade.
Petroleum Products Freight Subsidy
The Government will be amending the Petroleum Products Freight Subsidy Scheme to improve administration and reduce costs.
This will involve removing from eligibility for subsidy, power kerosene and those locations where there is no retail site; in the latter case, subsidy rates will be based on the rate at the nearest location with a retail site or, for locations at sea, at the port of loading.
These changes will save an estimated $2m in 1983-84.
As part of a continuing commitment to the Commonwealth Banking Corporation, and in the context of a general review of its financial operations including its profitability, the Government has decided to provide a capital injection of $15m in 1983-84 to the Commonwealth Trading Bank.
This will be the first such capital subscription to the Bank since its inception.
LAW, ORDER AND PUBLIC SAFETY
Total expenditure on Legal Aid is estimated to increase by 23 per cent to $71. 4m.
Recognising the importance of adequate capability for criminal investigations, the Government is providing $4m in 1983-84 to allow for an increase in the manpower resources of the Australian Federal Police.
PAYMENTS TO THE STATES, NORTHERN TERRITORY AND LOCAL GOVERNMENT
Total net payments to the States, the Northern Territory and local government, including all specific purpose payments, are estimated to increase by 14 per cent to $18 710m in 1983-84. The major decisions affecting these payments have already been announced.
In addition to providing for a once-only special revenue assistance grant of $ 155.5m to the States in 1983-84, the Budget includes $30m for payments for Tasmania in 1983-84 under the assistance arrangements arising from termination of the Gordon-below-Franklin dam; details are being announced as agreement is reached on individual projects.
I turn now to revenue proposals.
Budget revenues show only moderate growth in 1983-84.
This reflects among other influences the 1982-83 recession, the full year effects of the previous Government’s tax cuts and a projected drop in crude oil levy receipts.
This subdued revenue outlook, together with our expenditure initiatives, necessitates some increase in taxation for 1983-84.
In deciding on the measures involved, we have been guided by the principles we adopted in our May Economic Statement-namely, that they should be equitable, make a durable contribution to the budget and improve the operation of the taxation system.
As I noted earlier, the substantially increased weight of taxation overall makes the need for efficiency in tax arrangements all the more pressing.
It also makes even more urgent the drive against tax evasion and avoidance.
Durable tax reform cannot, of course, be achieved overnight.
The measures already taken, and those I am about to announce, are a start to, rather than fulfilment of, our tax reform objectives.
The traditional excises-on beer, potable spirits, tobacco products and certain petroleum products-are set at specific rates, that is, at so many dollars or cents per unit of the exisable commodity.
In the past, discretionary increases in these specific excise rates have not been sufficiently frequent or, in aggregate, large enough to counteract the eroding effects of inflation.
Real rates of excise have consequently tended to fall.
Between 1973-74 and 1982-83, revenue from the traditional excises, measured in constant 1982-83 dollars, fell from $4.3 billion to $3.3 billion.
Over the same period, the share of traditional excise collections in total budget receipts fell from 13 per cent to a little over 7 per cent.
The Government is taking two steps towards countering this trend.
First, we are making some discretionary increases in certain nominal excise rates.
With effect from tonight, there will be a rise of 1.5 cents per litre in the excise on motor spirit and distillate.
There will be an increase of 0.5 cents per litre in the excise on aviation turbine fuel and aviation gasoline.
The rebate of excise on diesel fuel used off-road by the mining, forestry, farming and fishing industries and by households, hospitals, nursing and aged persons’ homes will not be increased.
These discretionary rate increases are expected to yield about $295m in 1983-84 .
They will assist our energy independence by maintaining the real price of petroleum products, thus continuing the incentive to consumers to restrain their reliance on these fuels.
There will also be some additions to the base of excise taxation, with effect from tonight.
The excise on grape spirit used in fortifying wine will be reintroduced at the rate of $2.50 per litre of alcohol.
In order both to increase revenue and to control possible substitution and blending of certain petroleum products, fuel oil, heating oil and power and lighting kerosenes will become subject to excise at the new rate of excise on motor spirit and diesel fuel.
However, for excise and customs purposes, heating oil will be treated on a par with diesel fuel and will therefore be subject to the 7.155 cents per litre excise rebate for eligible off-road uses such as home heating.
The net revenue gain from these extensions to the excise base is estimated at $ 122m in 1983-84.
Certain minor items will be deleted from the excise base with effect from tonight.
Fusel oil, amylic alcohol, cigarette papers and tubes, and matches will no longer be excisable.
Although this will cost some $1.5m in revenue in 1983-84, it will permit more cost-effective allocation of administrative resources in the customs and excise area.
From tonight, following recommendations of the Industries Assistance Commission , there will be a single excise rate for each of the three major tobacco groups- cigarettes, manufactured tobacco and cigars.
Additionally, the rate for cigars will rise to the rate on cigarettes; the rate on manufactured tobacco will rise immediately by $5.00 per kilo to $20.10 per kilo, with similar increases in future Budgets until such time as the rate reaches that which then applies for cigarettes and cigars.
The revenue gain is estimated at $4m in 1983-84.
As a second step towards countering the declining trend in real excise revenues , the Government is introducing from tonight a system of six-monthly indexation of traditional excise rates (that is, excluding the excises on crude oil and LPG ) and of the excise-equivalent component of customs duties on imports of comparable products.
This measure will allow for the maintenance of the real value of excise rates in a non-destabilising fashion.
Previous erratic reactions to the declining trend in collections, most notably in 1978, have destabilised the sales patterns of the industries concerned, imposed sudden and large increases on consumers, as well as providing problems for the overall economic management.
The new system will afford a greater degree of stability for consumers and industry alike.
These traditional excises will rise gradually in line with inflation and as wages and other incomes themselves increase.
The effect of the new arrangements will be simply to place excisable products on much the same basis as those products subject to sales tax.
The first six-monthly indexed increase in excise rates will take effect from tonight and will reflect the 4.3 per cent increase in the CPI during the March and June quarters of this year.
That 4.3 per cent increase will be applied to the new excise rates announced tonight in all cases except manufactured tobacco, on which the new excise rate has been set with specific industry considerations in mind.
Other traditionally excisable products, whose rates have not been subject to discretionary increases tonight, will of course also be subject to the indexation increase tonight and subsequently.
As examples of the effects of these changes (including the discretionary excise increases) on the retail prices of excisable products, the price of petrol might be expected to increase by about 2 cents per litre, of cigarettes by about 3 cents per packet and a bottle of beer by about 3 cents.
The second of the six-monthly indexation increases in nominal excise rates under the arrangements now announced will occur on 1 February 1984, based on the CPI increases for the September and December quarters of 1983.
Subsequent indexation of excises will occur on 1 August and 1 February each financial year.
The combined revenue gain from the two indexation adjustments in 1983-84 is expected to be about $236m.
For each of the excise increases announced tonight, there will be commensurate increases in the excise-equivalent components of the corresponding customs duties on imports.
These are estimated to add a further $13m to 1983-84 revenue.
Crude Oil Levy
The Government has taken action to encourage the maximum absorption by refiners of domestically produced crude oil with particular emphasis on excisable ‘old’ oil.
Legislation will be prepared to provide authority for the imposition of a duty on petroleum imports, should that prove necessary to discourage underlifting of indigenous crude oil.
Esso/BHP have been advised that the Government wishes that in 1983-84 not more than 18 million barrels of crude oil be produced for domestic consumption from the excise-free Fortescue field.
However, approval will be given for the export, for spot sale, of production from that field in 1983-84 in excess of that level.
Approval will also be forthcoming for spot sales of excisable ‘old’ oil in certain circumstances.
These measures should ensure that the maximum available level of domestic crude oil production is taken up and that a balance is maintained between the production of ‘old’ and ‘new’ oil.
It is estimated that crude oil levy receipts in 1983-84 will be $245m higher as a result of these measures.
In reviewing the sales tax law for anomalies and inconsistencies, the Government has decided to change the classification for sales tax purposes of a wide range of goods.
The changes, which do not involve any general increase in sales tax rates, are estimated to yield $29m in 1983-84 and $44m in a full year.
Details are given at Appendix III of Statement No. 4.
These changes will variously mean that, of the goods concerned that pass the taxing point after tonight, some now exempt will be subject to tax, others now taxed will become exempt, while others again will be taxed at a different rate.
Under these arrangements, certain vessels used for tourist purposes that were subjected to tax in the 1981-82 Budget will become exempt.
To assist the boat-building and tourist industries, these vessels will also retrospectively be made exempt back to the 1981-82 Budget, at an additional cost to revenue of $5m in 1983-84.
Income Tax Measures
Section 26 (a) of the Income Tax Assessment Act imposes tax on profits made on the sale of property acquired for the purpose of resale at a profit.
With effect from tomorrow, that section is to be strengthened, in three ways.
The first will address situations where tax would have applied if property had been resold by the purchaser, but it was instead transferred, say by gift, to a passive recipient.
Under present law an intention to resell at a profit could not necessarily be attributed to the donee.
The law will be amended so that the donee will be regarded as having acquired the property with the same intention as the transferor had at the time of acquisition of the property, and for the same price.
The second will remove doubts about the effectiveness of section 26 (a) in situations such as that where it was arranged for a company to purchase property , and when it appreciated in value the shares in the company were sold.
It will also be made clear that other situations where there is not a strict identity between the property acquired with a profit-making purpose and the property subsequently disposed of are not beyond the reach of the section.
Thirdly, profits on the sale of bonus shares or rights derived as a consequence of ownership of other shares will be made taxable if profits on disposal of the original shares would attract tax.
At present the bonus shares and rights are treated as separate from the original shares, and the purpose in acquiring the latter is not attributed to the bonus shares or rights.
‘Bottom of the Harbour’ Legislation
The Government has given careful consideration to the views expressed by honourable members and senators on the Bill which was considered by Parliament earlier this year.
In the light of those views, it has decided to resubmit to the Parliament a modified Bill which excludes two elements of the earlier Bill to which objections were raised-levying of personal tax on capital profits and on other accumulated profits from past years when there was no pre-company tax stripping.
Removal of those elements leaves two principal areas of the earlier Bill.
The first is recovery of escaped personal tax relating to those years where there was pre-tax profit stripping.
The second is some strengthening of the recoupment tax law as it applies to company tax, and in certain other respects.
The modified Bill will permit the personal tax recouped to be paid over a period of 12 months, free of interest.
This measure is estimated to yield $60m in 1983-84 and a total of $270m ultimately.
Tax expenditures impact on the budget just as do direct outlays but from a base that is less readily controlled and accountable to the Parliament.
After a review of tax expenditures, the Government has decided to make the following changes.
Expenditure on Land Clearing and Swamp Drainage, etc.
The write-off in equal instalments over 10 years of capital expenditure deductible under section 75A of the Income Tax Assessment Act (such as expenditure on land clearing and swamp drainage) is to be abolished in respect of expenditure incurred (other than under an existing contract) after tonight.
The estimated saving to revenue is $3m in a full year.
This measure will meet the concerns of those who believe that the earlier tax treatment encouraged these activities to an environmentally unsound and economically unnecessary degree.
Expenditure on Home Insulation
The deduction of certain expenditure on the thermal insulation of a first home will be abolished in respect of expenditure incurred after tonight (other than under a contract entered into by today).
The concession was unnecessary, discriminatory and inequitable.
The first revenue savings, estimated at $6m, will come in 1984-85.
Part-time Members of the Reserve Defence Forces
The present exemption from income tax of the pay and allowances of part-time members of the Reserve Defence Forces is to be phased out. Concurrently, there will be a review of those emoluments.
Payments on or after 1 December 1983 and before 1 December 1984 will be exempt only as to 50 per cent while those in respect of service on or after the latter date will be fully assessable.
There will be estimated savings to revenue of $5m in 1983-84 and $20m in a full year.
Incentives to Invest in Australian Films
The extraordinarily generous taxation incentives for investment in Australian films have proved a boon for accountants, lawyers and their well-heeled clients.
In the process, control of Australian film making has moved out of the hands of the film makers and Film Commissions to the detriment of the industry as a whole.
Accordingly, assistance to the film industry is to be restructured.
In relation to investment expenditure incurred under a contract entered into after tonight, the tax deduction now available at 150 per cent of the investment will be reduced to 133 per cent.
Similarly, the amount of net revenue from a film that is exempt from income tax will be reduced from 50 per cent to 33 per cent of the investment in the film.
The resultant saving to revenue in 1983-84 is estimated at $1m, and $4m in a full year.
As an offset to that and indeed as a generous expansion of assistance, as I noted earlier, additional funds amounting to $5m are to be made available this year to the Australian film industry through the Australian Film Commission.
Total Budget outlays in 1983-84 are estimated to increase by 15.8 per cent to $ 56 703m.
Total Budget receipts are estimated to increase by 8.6 per cent in 1983-84 to $ 48 342m.
The Budget deficit is therefore estimated at $8 361m, an increase of $3 888m on the outcome for 1982-83.
Abstracting from the overseas component, the domestic Budget deficit is estimated to be $5 744m, an increase of $3 262m over last year.
We have therefore kept our commitment, developed in extensive consultants, to keep the Budget deficit to no more than $8.5 billion.
The Government believes that this outcome represents the right balance between the immediate need for a fiscal stimulus and the on-going requirement for fiscal responsibility.
There can be no doubt that this Budget, with a deficit increasing to an estimated 4.7 per cent of GDP from 2.8 per cent last year, will prove to be highly expansionary.
That deficit, however, is well below that which we inherited after our predecessors’ period of pork-barrelling.
The Government recognises that recovery in the private sector is fundamental to the restoration of Australia’s economic health.
We intend to assist that recuperation.
Unless the structural deficit were to be reduced, strong recovery in the private sector would ultimately bring on a clash for funds between the two sectors, and thus put at risk the durability of recovery.
Our revenue measures, including those announced in the May Statement, have therefore been designed with an eye to the contribution they will make to financing future budgets when the private sector is enjoying more vitality than at present.
The performance of the economy over 1983-84 and beyond will be heavily influenced by our economic policy approach.
The essential elements of that approach are by now well known: an expansionary fiscal policy, with the Prices and Incomes Accord as a major anti-inflation instrument, supported by non-inflationary monetary policy.
The task of financing the 1983-84 Budget deficit responsibly will be considerable, coming as it does on top of a monetary situation which our predecessors had for some years allowed to drift.
The Fraser Government overshot its monetary projections for each of the five years since 1978-79-contrary to their rhetoric, there was no effective monetary restraint.
While in 1982-83 the overrun was small, monetary growth accelerated as the year progressed and as liquidity was boosted by the burgeoning budget deficit.
In the twelve months to June 1983, M3 increased by 12.5 per cent; preliminary estimates suggest that in the twelve months to July that figure has increased further, to around 13 per cent.
It is central to the success of our overall policy approach that monetary conditions during 1983-84 be such as to promote an environment of sustainably lower inflation while allowing the expected pick-up in real activity to proceed.
Given that expected pick-up, there will be a sharp increase in nominal output through the course of 1983-84-probably of the order of 14 per cent or so.
Setting a monetary projection consistent with that growth requires allowance to be made for the expected change in the velocity of circulation of money-that is, the relationship between monetary growth and nominal GDP growth.
During the recent recession, as in past economic downturns, velocity fell sharply.
This meant, in effect, that the banks were accounting for a greater share of financing, at the expense of non-banks.
As the economy picks up, this development can be expected to be reversed, at least in part, and velocity can be expected to rebound.
It is therefore appropriate to set the M3 projection below the expected growth in nominal GDP.
Accordingly, the Government will contain the growth in financial aggregates to a degree consistent with M3 growth in the rate of 9 to 11 per cent over the twelve months to the June quarter 1984.
The June-quarter basis of measurement is an attempt to avoid, on the one hand, the excessive amount of irrelevant history contained in year-average measures such as were employed by the previous Government in 1982-83 and, on the other hand, the possibility of undue influence from random events involved in measurement to the single month of June.
The monetary projection will continue to be presented in terms of M3, the aggregate which focuses on transactions of the banking system.
For the reasons I have mentioned, however, policy cannot focus solely on M3 and in the year ahead we shall be monitoring the progress of a range of financial aggregates with coverage both narrower and broader than M3.
The projection is a conditional one.
There will be a review of the projection during the year in the light of trends in activity and other relevant developments.
Policy will aim at gradually moving the excessive present growth in M3 to within the recommended range.
In line with the monetary policy just proposed, and on the timetable previously foreshadowed, the Treasury is announcing this evening details of the next bond tender, for an amount of $1500m.
THE ECONOMIC OUTLOOK
I turn now to the economic outlook for 1983-84.
In doing so, I stress the very great uncertainties involved.
The fact is that, in several major respects, the Australian economy is today operating outside the domain of our post-war experience.
That said, there will clearly be very strong growth in total public spending during 1983-84, probably of the order of 4 1/2 per cent in real terms.
Private consumption expenditure should grow by around 1 1/2 per cent, a litle faster than in 1982-83.
Until the upturn in the economy is more firmly established, however, there, will be little prospect of an improvement in business fixed investment; in 1983- 84, there may be a decline similar to that recorded in 1982-83.
Reflecting measures already announced, the outlook for private dwelling investment is much brighter; with a very sharp rebound of the order of 20 per cent through the course of the year, real growth of around 3 per cent is projected for 1983-84 as a whole.
The sharp decumulation of non-farm stocks which occurred in 1982-83 is expected to slow in 1983-84, making a positive contribution to output growth; and farm stocks should rise with the projected strong increase in farm product.
Exports should show some improvement in 1983-84, as a result of improving world demand and increased productive capacity in some parts of the resource sector; as the year progresses, recovery in the rural sector should also make its contribution.
With improved competitiveness as a result of the depreciation of the Australian dollar over the course of 1982-83, and private business investment continuing to fall, imports seem set for another decline.
As a result of those trade movements, the deficit on the current account of the balance of payments should narrow further this year.
In aggregate, real non-farm product could increase by 2 per cent or so for 1983 -84 as a whole, with significantly faster growth-of the order of 5 per cent-over the course of the year.
With real farm product recovering by around 20 per cent, total gross domestic product could grow by 3 per cent or so in 1983-84.
No one can be certain how much of this projected pick-up in activity will be reflected in the labour market in the year ahead.
The slump in employment in this recession has been unprecedented for the post- war period.
Employers may require firm evidence that improved profitability and demand are likely to be sustained before reversing the labour shedding that took place in 1982-83.
Meanwhile, increased output may come mainly from unwinding shorter working week arrangements and increasing overtime working.
That notwithstanding, and partly reflecting the Government’s specific employment-generating intiatives, employment should grow by around 1 1/2 per cent over the course of 1983-84.
However, employment is currently below its average level in 1982-83 and the average level of employment this year may therefore not be very different from last.
With growth in the working age population continuing, it will take time for the upward trend in unemployment to be reversed.
On the basis of a centralised wage system applying half-yearly indexation, an assumption of strictly limited sectional claims and a significant increase in hours worked, average weekly earnings could increase by 7 per cent in 1983-84.
The Consumer Price Index could rise by about 7 1/2 per cent in year-on-year terms, and rather less over the course of 1983-84.
Both estimates take account of the direct price effects of the introduction of Medicare, increases in State taxes and charges and the revenue measures announced tonight.
Those Budget measures effective immediately are estimated to contribute directly about 0.4 per cent to the CPI, with a smaller impact from the February 1984 adjustments.
Over the course of 1983-84 average weekly earnings should increase markedly in real terms, primarily reflecting the usual pattern under indexation in times of declining inflation, and the expected growth in hours worked.
THE WAY AHEAD
Employment has now grown by more than 47 000 from its trough early in April.
On the basis of the economic forecasts outlined earlier, the employment gain should exceed 130 000 by the end of this current financial year, with the rate of growth of jobs accelerating further ahead.
This is a heartening start to the task set during the election campaign of creating 500 000 jobs over our first three years.
But the employment growth is even more welcome because it is expected to occur in a context of a clear decline in the inflation rate.
Moreover, provided that the Prices and Income Accord is adhered to, the resulting subdued growth in money incomes during calendar 1984 holds prospects that a declining inflation trend can be sustained.
Continued declines in inflation would transform Australia’s economic outlook.
Lower inflation would mean lower interest rates, which in turn would help to create jobs in credit-sensitive areas like housing and business investment.
Lower inflation would assist the maintenance of our international competitiveness, thus preserving Australian jobs against the inroads of foreign competition and allowing new jobs to be created as domestic firms are enabled to exploit their opportunities to the full.
Continued lower inflation would lessen fears of a renewed outbreak of economic conflict that would represent a major obstacle to the successful implementation of our expansionary fiscal policies.
Throughout my speech tonight I have indicated in tangible ways the Government’s concern for the plight of the disadvantaged, whether they be people in poor health, victims of the recession, or those who are finding it difficult to purchase a home.
Assistance in all of these areas is expensive.
Some of the necessary finance has come from the improved growth prospects that our economic policies of consensus with controlled expansion have fostered.
But costs still have to be met.
The increased taxes I have announced tonight are in a direct sense the means we have adopted to finance the improved treatment of many disadvantaged Australians .
We have sought to share the burden of extra taxation fairly through the community so that nobody, other than blatant tax avoiders, is expected to make major sacrifices.
For the most part the imposts amount to a few cents on beer, cigarettes, petrol and the like and a levy on income tax to replace private costs of providing medical care.
I believe that Australians generally will regard this as a small price to pay for helping the very many in our midst who have been badly disadvantaged by the events of recent years.
In this Budget we have provided a substantial macroeconomic stimulus within an acceptable balance of risks.
We have embarked on major direct employment-creating programs.
We have begun to improve the lot of those most in need.
We have kept tax increases to a minimum and attempted to spread rather than heighten the burden that taxation imposes.
In extraordinarily difficult cirumstances, the Government has tonight pursued its major commitments within the mandate given to us last March.
I commend this Budget to the House.
Debate (on motion by Mr Peacock) adjourned.