team#Â·'

MINISTER FOR FINANCE

PRESS RELEASE i f

EMBARGO 1 PM, WEDNESDAY, 28 AUGUST 198.5-

ADDRESS BY THE MINISTER FOR FINANCE, SENATOR PETER WALSH,   AT A SEMINAR "FARM COSTS -  THE FACTS" PERTH, WEDNESDAY, 28 AUGUST 1985

GOVERNMENT POLICIES AND THE RURAL SECTOR

Thank you for the i n v i t a t i o n  to ad dress your s e m i n a r ,

It. i s p a r t i c u l a r l y  a p p r o p r i a t e , a week a f t e r the Bu d g e t, t h a t I

BEGIN BY OUTLINING AUSTRALIA'S GENERAL ECONOMIC S I T U A T I O N ,  AS

THIS MUST BE BASIC TO ANY CONS I.DE'V.T I PH OF THE FUTURE V I A B I L I T Y

AND SUCCESS OF THE RURAL SECTOR. -

' *

Of c o u r s e, I INTEND to m e n t i o n b r i e f l y  t ho se m ea su res the

Governmen t took i n l a s t w e e k' s Bu d g e t, w h i c h w i l l h el p i m p r o v e

THE A B I L I T Y  OF THE RURAL SECTOR TO COMPETE ON THE WORLD MARKET,

I WILL ALSO MENTION DECISIONS WHICH WE HAVE TAKEN OVER OUR PERIOD

IN OFFICE -  ESPECIALLY THE FLOATING AND SUBSEQUENT DEVALUATION OF -

THE $A -  WHICH I BELIEVE HAVE HELPED ESTABLISH AN ENVIRONMENT

CONDUCIVE TO A HEALTHY RURAL SECTOR, PARTICULARLY FOR RURAL

EXPORTERS.

I

I t  i s t he Hawke Go v e r n m e n t ' s f i r m  v i e w  t-h a t e s t a b l i s h i n g  sound

MACROECONOMIC CONDITIONS IS ESSENTIAL FOR THE DEVELOPMENT OF THE

RURAL SECTOR', AS IT  IS FOR THE PRIVATE SECTOR IN GENERAL,

Ac c o r d i n g l y , we have p l a c e d  p r i m a r y  i m p o r t a n c e  on p o l i c i e s  w h i c h

w i l l  p r o v i d e  for s u s t a i n a b l e , n o n- i n f l a t i o n a r y  e c o n o m i c  g r o w t h ,.

Our record  i n t h i s  area i s u n s u r p a s s e d , c e r t a i n l y  a t any t i m e  i n

THE LAST THREE DECADES, FOR THE THIRD SUCCESSIVE YEAR, 1 9 8 5 - 8 6

WILL SEE REAL GROWTH AT AN HISTORICALLY HIGH LEVEL, I n THE TWO

y e a r s  t h i s  Go v e r n m e n t  has bee n i n o f f i c e  to d a t e  GDP growth  has

APPROACHED 5%  PER ANNUM. W e  EXPECT THAT RATE TO BE AT LEAST

EQUALLED I N  1 9 8 5 - 8 6 .

T h i s  w i l l  m e a n  t h a t  i n  j u s t  t h r e e  y e a r s  t h e  e c o n o m y  w i l l  h a v e

GROWN BY MORE THAN I T  D I D  OVER THE E N T I R E  SEVEN YEARS AND FOUR

MONTHS OF THE P R E V I OU S  L I B E R A L  P A R T Y - N A T  I ONAL PARTY GOVERNMENT,

O ur  g r o w t h  p e r f o r m a n c e  h a s  n o t  b e e n  a l l  l u c k  or  e v e n  m a i n l y  l u c k

You CAN ONLY BREAK A DROUGHT ONCE'.

O ur  w a g e s , b u d g e t a r y  a n d  m o n e t a r y  p o l i c i e s  h a v e  c r e a t e d  t h e

P R E C O N D I T I O N S  FOR S U S T A I N E D  ECONOMI C GROWTH. THE 1 9 8 5  BUDGET I S

DE S I GN E D  TO ENSURE THAT THOSE P R E C O N D I T I O N S  C O N T I N U E ,

I SHOULD P O I N T  OUT THAT OUR I N T E R E S T  IN. ECONOMI C GROWTH

ADVANTAGES THE RURAL SECTOR NOT S I M P L Y  BY O F F E R I N G  THE P O T E N T I A L

OF HI GHER DOMEST I C DEMAND FOR SOME PRI MARY PRODUCTS,  I t  W I L L

-  2  -

'1

ALSO HELP E N S U R E ,  FOR E X A M P L E ,  T H A T  WHE RE ,  FOR ONE REASON OR

A N O T H E R ,  K I D S  FROM FARM F A M I L I E S  LOOK FOR JOBS O U T S I D E  THE FARM

S E C T O R ,  T HE Y  HAVE A MUCH B E T T E R  CHANCE'  O F  F I N D I N G  WORK THAN I F

THE N A T I O N ' S  AGGREGAT E O U T P U T  WERE GROWI NG MORE S L O WL Y .

YOU W I L L  NO DOUBT  BE WELL AWARE OF THE T R I L O G Y  C O M M I T M E N T  MADE BY

t h e  P r i m e  M i n i s t e r  d u r i n g  l a s t  y e a r ' s  e l e c t i o n  c a m p a i g n , A s

F i n a n c e  Mi n i s t e r  my p r i m a r y  r e s p o n s i b i l i t y  i s for r e s t r a i n i n g

e x p e n d i t u r e  to w i t h i n  t he t r i l o g y  l i m i t s . I n e x p e n d i t u r e , as

WITH TAXATION RECEIPTS AND WITH THE D E F I C I T ,  THE GOVERNMENT WILL

MEET THE TRILOGY COMMITMENT.

YOU WILL PROBABLY RECALL THAT THERE WAS SOME SC EPTIC ISM , INDEED

SOME CYNICISM, ABOUT OUR A B IL IT Y  TO ADHERE TO THAT COMMITMENT.

Ho w e v e r , t h e r e  s h o u l d  be no d i m i n i s h i n g  of both t h e im p o r t a n c e  of

OUR MEETING THAT PROMISE NOR OF THE SIGNIFIC ANCE OF DOING SO.

To PUT DOLLAR AMOUNTS ON THE EXTENT OF OUR SUCCESS, OUTLAYS IN

1 9 8 5 - 8 6  WILL BE $ 2 . 3  BILLIO N  lower  t h a n  t h e c e i l i n g  i m p o s e d  by

THE TRILOGY. THIS YEAR'S D E F I C I T  PROJECTION OF $ 4 . 9  B IL L IO N  IS

WELL BELOW THE $6 B IL L IO N  L I M I T  THE GOVERNMENT HAD FORESHADOWED

SOME MONTHS AGO, REFLECTING A SPECTACULAR ACHIEVEMENT IN

EXPENDITURE RESTRAINT.

W e  have a c h i e v e d  a m a s s i v e  34% r e d u c t i o n  i n t h e r e a l  v a l u e  of t h e

D E F I C I T .  I MENTION IN PASSING THAT MEETING THESE TRILOGY L I M I T S

IS SOMETHING WHICH WAS NOT DONE AT ANY TIME IN THE SEVEN YEARS

- 3  -

BEFORE THE HAWKE GOVERNMENT CAME INTO O F F I C E , It IS THE

STRONGEST D I S C I P L I N E  WHICH ANY AUSTRALIAN GOVERNMENT HAS IMPOSED

ON I T S E L F .  .

OF SPECIAL IMPORTANCE TO THE RURAL SECTOR WHICH MUST SELL ON

INTERNATIONAL MARKETS IS THE HALVING IN THE LAST TWO YEARS OF

Au s t r a l i a ' s i n f l a t i o n  r a t e.

The Go v e r n m e n t ' s a c h i e v e m e n t  i n m a i n t a i n i n g  growth i n o u t p u t ,

GROWTH IN EMPLOYMENT AND A FALL IN UNEMPLOYMENT, AT THE SAME TIME

AS REDUCING I N F L A T I O N ,  IS ONE WHICH MANY PEOPLE HAD BELIEVED

IMP OSSIBLE, I t WAS A P O S S I B I L I T Y  THAT WAS E X P L I C I T L Y  REJECTED

DURING THE PERIOD.OF OFFICE OF OUR PREDECESSORS.

I MENTIONED EARLIER THE GOVERNMENT'S D E CI SI ON  TO DEREGULATE THE

EXCHANGE RATE, AND TO THE RECENT MARKET-DETERMINED DEVALUATION OF

t h e Au s t r a l i a n  d o l l a r . To d a t e, f a r m e r' s a t t e n t i o n  ha s b e e n

CONCENTRATED ON WHAT THEY REGARD AS THE NEGATIVE ASPECTS OF THAT

DEVALUATION -  THAT IS HIGHER IMPORT PARITY RELATED FUEL P R IC E S .

Ho w e v e r, t h e d e v a l u a t i o n  of t h e d o l l a r has g i v e n  Au s t r a l i a n

AGRICULTURAL EXPORTERS, AND IN SOME CASES DOMESTIC S U P P L IE R S , A

PRICE PREMIUM OF UP TO 15% SINCE THE BEGINNING OF 1 9 8 5 ,  AMD ABOVE

20% IF  MEASURED AGAINST THE EXCHANGE RATE PRIOR TO FLOATING THE -

DOLLAR IN DECEMBER 1 9 8 3 .  BECAUSE OF CURRENCY HEDGING AND BECAUSE

CONTRACTS HAVE BEEN WRITTEN IN AUSTRALIAN DOLLARS, MUCH OF THAT

BENEFIT HAS NOT YET BEEN REALISED,

-  4  -

The Go v e r n m e n t ' s r e s p o n s e i n l a s t w e e k' s Bu d g e t to t h e c o s t- p r i c e

SQUEEZE BEING FACED BY FARMERS INVOLVED I N I T I A T I V E S  ON BOTH COSTS

AND P R I C E S ,

Sound e c o n o m i c  m a n a g e m e n t  w i l l c o n t r i b u t e  s i g n i f i c a n t l y  i n i t s e l f

TO LOWERING FARMERS' COSTS , - **

Mo r e o v e r , t h e Go v e r n m e n t  r e c o g n i s e d  a n e e d for f u r t h e r m e a s u r e s

AIMED AT REDUCING FARM COSTS,

I n KEEPING WITH THE PRIME M I N I S T E R ' S  COMMITMENT LAST MONTH, THE

Bu d g e t i n c l u d e d  a n u m b e r of s p e c i f i c  m e a s u r e s to a s s i s t  p r i m a r y

p r o d u c e r s , Th e s e i n c l u d e :

. A FULL REBATE OF THE EXCISE FOR OFF ROAD D IES EL FUEL -

REVERSING THE PREVIOUS GOVERNMENT'S D E CI SI ON  NOT TO REBATE THE

Bi c e n t e n n i a l  Road De v e l o p m e n t  p ro gr am c o m p o n e n t  of t h e e x c i s e ,

I n a f u l l y e a r f a r m f u e l c o s t s w i l l be r e d u c e d by a b o u t

$ 3 5  M IL L IO N  .

. WE WILL REMOVE REMAINING DUTIES ON IMPORTED GRAIN HARVESTERS

AND PROVIDE LOCAL PRODUCERS WITH AN EQUIVALENT LEVEL OF

ASSISTANCE BY WAY OF BOUNTY

-  THE PRESENT TARI FF OF 15% ADDS S I G N I F I C A N T L Y  TO THE COST OF

ALL BUT THE VERY LARGE IMPORTED MACHINES FOR WHICH

CONCESSIONAL ENTRY IS ALLOWED.

-  5  -

Th i s p a c k a g e b u i l d s  on r e c e n t d e c i s i o n s  w h i c h b e n e f i t  t h e r u r a l

SECTOR. I n PARTICULAR: "

. THE PROVISION OF $9 M IL L IO N  OVER THREE YEARS TO REDUCE EFFORT

AND IMPROVE COMPETITIVENESS IN THE F I S H I N G  INDUSTRY;

. A RANGE OF NEW P O L I C I E S  FALLING WIT HI N THE PRIMARY INDUSTRY

PORTFOLIO ANNOUNCED ON BUDGET N I G H T ,  INCLUDING THE PROVISION

OF $1 M IL L IO N  FOR THE F I R S T  STAGE OF A MEAT AND LIVESTOCK

I n d u s t r y Ma r k e t i n g  I n n o v a t i o n  As s i s t a n c e  Pa c k a g e; an d

. THE INCLUSION OF A SPOT PRICE COMPONENT IN THE FORMULA FOR

CALCULATING THE IMPORT PARITY PRICE OF O I L ,  WHICH HAS LED.TO A

REDUCTION IN THE PRICE OF FUEL,

I BELIEVE THAT FARMERS HAVE FOCUSSED TOO MUCH ATTENTION ON THE

NEGATIVE ASPECT OF DEVALUATION, I , E , INCREASED FUEL P R I C E S , FUEL

COSTS ARE LESS THAN 10% OF ALL FARM COSTS (THOUGH UP TO 40% OF

F I S H I N G  INDUSTRY COSTS) AND OF COURSE A MUCH LOWER PERCENTAGE OF

THE VALUE OF FARM OUTPUT, ONE CANNOT BE P R E C IS E , BUT THE

DEVALUATION INDUCED INCREASE IN FARM INCOME SHOULD BE ABOUT TEN

TIMES THE ADDITIONAL FUEL COST,

IN GRANTING A FULL REBATE ON D I S T I L L A T E  EXCISE THE GOVERNMENT HAS

ABOLISHED WHAT WAS A TAX ON A FARM INPUT. BUT PRESENT DEMANDS

FOR FARM FUEL S U BS ID IE S ARE NOT RATIONAL, WOULD NOT BE IN

AGRICULTURE'S LONG TERft INTERESTS AND SHOULD NOT BE SUPPORTED,

-  6  -

Any m e a s u r e w h i c h i n s u l a t e d  Au s t r a l i a n  f a r m e r s f r o m t h e l o n g t e r m

REALITY OF R I S I N G  FUEL PRICES WOULD ST UL TI FY  THE DEVELOPMENT OF

FUEL E F F I C I E N T  AGRICULTURAL TECHNOLOGY, ( I  PUT THAT SAME VIEW

MANY TIMES AS SHADOW MIN ISTER FOR AGRICULTURE. SEE, INTER A L I A ,

L . G . P . A .  a d d r e s s , Co b a r, 1-979.)

For many y e a r s f a r m e r s h a v e f e l t t h a t p r o t e c t i o n  ha s h a r m e d t h e m .

I n  r e c e n t  t i m e s  t h e Na t i o n a l  Farmers  Fe d e r a t i o n  has g i v e n  t h i s

ISSUE A LOT OF ATTENTION. THE ARGUMENTS ARE OFTEN

O VER SIMPLIFIED. FOR INSTANCE:

. WE HAVE TO ACKNOWLEDGE THAT SOME FARM INDUSTRIES ARE VERY

HEAVILY PROTECTED;

. ON RESOURCE ALLOCATION OR ECONOMIC EFFIC IENC Y GROUNDS THE LOW

MARGINAL PRICES OF MOST AGRICULTURAL PRODUCTS SERIOUSLY WEAKEN

THE CASE FOR ADDITIONAL INVESTMENT;

. ON THE EQUITY, AS D IS T IN C T FROM E F F IC IE N C Y , QUESTION, IT  COULD

BE ARGUED THAT THE COSTS OF PROTECTION WERE NEGATIVELY

CAPITALISED INTO LAND PRICES LONG AGO.

Ne v e r t h e l e s s , t h e f a r m e r s  do have a c ase -  a l t h o u g h  not as s tr o n g

AS BEFORE THE WHITLAM LABOR GOVERNMENT'S 25% TARIFF CUT. -

-  7  -

I DO NOT NEED TO REMIND THIS GROUP OF HOW AUSTRALIA ACQUIRED ITS

HIGHLY PROTECTED INDUSTR IES. ÃÂªÃÂÃÂ PERIOD IN WHICH MOST GREW UP

WAS IN THE 1 9 6 0 s ,  UNDER THE GUIDANCE OF COUNTRY PARTY M I N I S T E R S ,

The e f f e c t i v e  l e v e l s  of p r o t e c t i o n  a t a n y t i m e d e p e n d on t h e

PREMIUM BIDS FOR QUOTAS, OVER AND ABOVE THE TA RI FF  L E V E L S , SlNCE

THE 1 9 7 0 S ,  THE AUTOMOBILE AND T E X T I L E S ,  CLOTHING AND FOOTWEAR

INDUSTRIES HAVE BEEN PROTECTED BY BOTH TA RI FFS AND IMPORT QUOTAS.

From t h e b e g i n n i n g  t h e Hawke Go v e r n m e n t  has b e e n c o m m i t t e d  t o.

STRUCTURAL ADJUSTMENTS TO PRODUCE A MORE E F F I C I E N T  MANUFACTURING

SECTOR. It HAS DEVELOPED RATIONAL AND CONSIDERED P O L I C I E S  FOR

ACHIEVING THAT OBJECTIVE ~ SOMETHING NO OTHER GOVERNMENT HAS EVER

d o n e. In our f i r s t  y e a r or so i n Go v e r n m e n t  l o n g t e r m p l a n s for

RESTRUCTURING AND PHASING DOWN PROTECTION WERE ENACTED. OUR

P O L I C I E S  PROVIDE FOR THE SALE OF AN INCREASING PROPORTION OF

QUOTA, THE ULTIMATE REMOVAL OF. QUOTAS AND PROGRESSIVE TA RIFF

REDUCTIONS. I SHOULD ADD THAT I T  IS POSSIBLE TO UNDERTAKE

RE-STRUCTURING OF INDUSTRY ONLY IN A CLIMATE OF ECONOMIC GROWTH.

Ve r y r e c e n t l y  we h a v e had some e x t r e m e l y  e n c o u r a g i n g  news on t h i s

FRONT, ALTHOUGH I T  SEEMS TO HAVE GONE VIRT UALLY UNNOTICED IN THE

MEDIA, . Ã¢ÂÂ

W e h a v e r e d u c e d t h e l e v e l of p r o t e c t i o n  of t h e s t e e l INDUSTRY AND

IN SO DOING, WE PROVIDED ASSISTANCE IN THE MORE E F F I C I E N T  FORM OF

DIRECT S U B S ID IE S -  SOMETHING THE FARMING COMMUNITY HAD WANTED TO

-  8  -

be  d o n e . F rom  t h e  b e g i n n i n g  of  1 9 8 4  we  a b o l i s h e d  i m p o r t  q u o t a s

ON ALL FLAT STEEL PRODUCTS (THE ONLY STEEL QUOTAS REMAI NI NG IN

PLACE AT THAT T I M E ) .

D a t a  r e l e a s e d  b y  BMP l a s t  m o n t h  shows  t h a t  t h e  A u s t r a l i a n  s t e e l

INDUSTRY I S NOW I NTERNATI ONALLY C O M P E T I T I V E  -  A REMARKABLE

TURNAROUND FROM I T S  FEEBLE PERFORMANCE OF JUST THREE YEARS AGO.

M o to r  v e h i c l e  q u o t a s  f or  w h i c h  t e n d e r s  w e re  r e c e i v e d  l a s t  m o n t h

HAVE A PREMIUM OF ONLY 11%,  COMPARED TO 9 4 , 5 %  LAST YEAR.

M o r e o v e r , t h o s e  t e n d e r s  were  f or  a  p e r i o d  of  f o u r  y e a r s , d u r i n g

WHICH THE T A R I F F  WILL BE REDUCED BY MORE THAN 15%.

F or  t e x t i l e s  f o o t w e a r  a n d  c l o t h i n g  -  t h e  o t h e r  i n d u s t r y  g r o u p

WHI CH,  BECAUSE OF I T S  S I Z E  AND H I S T O R I C  LEVELS OF PROT ECT I ON,

CAUSES THE GREATEST D I ST OR T I ONS -  THERE HAS ALSO BEEN ENCOURAGING

n e w s . T h e r e  h a s  b e e n  a  s u b s t a n t i a l  r e d u c t i o n  i n  t e n d e r  p r e m i u m

RATES FOR 1 9 8 6 .  I n  a number  of c a t e g o r i e s  no p r e m i u m s  were b i d

AND THE EFFECTIVE LEVELS OF PROTECTION IN MANY PARTS OF THESE

INDUSTRIES HAVE FALLEN TO THE ACTUAL TARIFF LEVELS.

Gi v e n  t h e i m p o r t a n c e  f ar m e rs  g i v e  t h e p r o t e c t i o n  q u e s t i o n  and t h e

SUCCESS OF THIS" GOVERNMENT IN DEALING WITH I T ,  THE GOVERNMENT IS

LONG OVERDUE FOR A B IT  OF A PAT ON THE BACK FROM THE FARM SECTOR-.

LOW TAXES, SMALL GOVERNMENT AND ' P R I V A T I S A T IO N ' ARE POPULAR

POLITICAL CATCH CRYS.

-  9  -

The c a l l for lower t a x e s seems i n f a c t to be a c a l l for lower

INCOME TA XES. GlVEN THAT BAE FIGURES SUGGEST THE 'AVERAGE'

f a r m e r' s in c o m e i s l i t t l e  h i g h e r than the t a x- f r e e t h r e s h o l d  i t

IS D I F F I C U L T ,  TO SAY THE LEAST, TO SEE WHY THE 'AVERAGE' FARMER

SHOULD SEE THE LOWERING OF INCOME TAXES AS PARTICULARLY WORTHY OF

SUPPORT -  ESPECIALLY IF THEY ARE FARMERS FROM THE DEPRESSED

AGRICULTURAL SECTORS LOOKING FOR PRICE SUPPORT AND STRUCTURAL

ADJUSTMENT ASSISTANCE WHICH, IF THEY ARE TO BE PROVIDED, MUST BE

FUNDED FROM TAXATION,

I AM CERTAINLY NO ADVOCATE OF PROFLIGATE GOVERNMENT SPENDING OR

THE UNNECESSARILY HIGH TAXES REQUIRED TO SUPPORT I T ,  BUT T H IS

DEBATE MUST BE KEPT IN PE RS PE CTI VE , SOME FUNDAMENTAL FACTS

SHOULD BE KNOWN. ÃÂªÃÂÃÂÃÂ¥  INCLUDE: '

, B y  the s t andards  of most OECD c o u n t r ie s  n e i t h e r  t a x e s  nor

Government  e x p e n d i t u r e  i n Au s t r a l i a  are h i g h , Au s t r a l i a  ranks

ABOUT SIXTH LOWEST OF THE 23 OECD COUNTRIES IN TAXES AND

Government  e x p e n d i t u r e  as a p r o p o r t io n  of GDP,

. The e f f e c t  on Commonwealth  Budget  outcomes  -  through  paym ent

OF UNEMPLOYMENT BENEFITS AND INCOME AND OTHER TAXES FOREGONE -

OF TODAY'S UNEMPLOYMENT LEVEL COMPARED TO THE UNEMPLOYMENT

LEVEL OF THE 1960s, IS AROUND $ 5 b . ÃÂªÃÂÃÂ EXTRA INTEREST _

PAYMENTS REQUIRED TO SERVICE THE CUMULATIVE D E F IC IT S  CAUSED BY

UNEMPLOYMENT OVER THE LAST 10 YEARS IS ANOTHER $ 2 ~ 3 b , ÃÂªÃÂÃÂ .

10  -

BEST WAY OF DEALING WITH THAT PROBLEM IS TO MOVE BACK TO FULL

EMPLOYMENT, T H IS  GOVERNMENT HAS MADE SUSTAINED PROGRESS IN

THAT D I R E C T I O N ,

Gl i b  c a l l s s u c h as t h o s e e m b o d i e d  i n a L i b e r a l Pa r t y Co u n c i l

MOTION SUPPORTED BY MESSRS, PEACOCK AND HOWARD TO CUT SPENDING

BY 4% OF GDP WOULD REQUIRE $ 9 , 3b OFF T H IS  YEAR'S BUDGET, T H IS

COULD BE DONE BY: . .

-  CUTTING BY .$20 A WEEK ALL AGE, WAR SERVICE D I S A B I L I T Y ,

I N V A L I D  AND WIDOW'S PENSIONS, SUPPORTING PARENT'S BE NE FIT

AND UNEMPLOYMENT B E NE FIT S;

-  TERMINATING FAMILY ALLOWANCES;

-  CANCELLING ALL PAYMENTS TO INDUSTRY, THE ARTS AND FOREIGN

A I D ;

-  ABOLISHING THE DEPARTMENT OF PRIMARY INDUSTRY AND ALL

PAYMENTS MADE THROUGH I T ;  AND

-  CLOSING DOWN THE ABC, CSIRO AND THE ATOMIC ENERGY

Co m m i s s i o n .

Ev e n t h e n a n o t h e r $ 8 0 0m worth of c u t s w ou l d h a v e to be m a d e.

-  1 1  -

More than t h r e e weeks ago I i n v i t e d  Me s s r s, Howard and Peacock to

NOMINATE SP EC IF ICA LLY THE AREAS THEY PROPOSE TO CUT TO REDUCE

SPENDING BY 4% OF GDP PLUS THE EXTRA $ 1 b ODD THEY WOULD NEED TO

ACCOMMODATE THE EXTRA SPENDING PROMISES THEY MADE BEFORE THE LAST

E L E C T IO N , I HAVE NOT HAD A REPLY FROM E I T H E R ,

There are a number of a s p e c t s of ' p r i v a t i s a t i o n ' w h i c h have

PARTICULAR RELEVANCE TO FARMERS,

There i s p r o b a b l y no gre at er t h r e a t to the q u a l i t y  of c o u n t r y

L I F E  FOR FARMERS AND COUNTRY TOWN DWELLERS ALIKE THAN FROM THE

MINDLESS CALLS FOR ' P R I V A T I S A T I O N '  OF COMMONWEALTH PUBLIC

AUTHORITIES L I K E  TELECOM AND AUSTRALIA POST.

I t. IS INCONTESTABLE THAT TELEPHONE AND POSTAL SERVICES TO COUNTRY

AREAS ARE INNATELY UNPROFITABLE, BUT I T  WOULD NOT BE POSSIBLE TO

ELIMINATE LOSSES BY IMPOSING HIGHER CHARGES FOR COUNTRY SERV ICES,

To FULLY RECOVER TELEPHONE COSTS FOR REMOTE AREAS OF WESTERN

Au s t r a l i a , a c o n n e c t i o n  f e e of $ 2 0 , 0 0 0  would ha ve to be ch a r g e d -

MORE THAN 15 T I M E S . T H E  AVERAGE COST OF TELEPHONE CONNECTIONS FOR

Au s t r a l i a  as a w h o l e. And the co st of a s t a n d a r d d o m e s t i c  l e t t e r

TO OR FROM REMOTE AREAS IS NEARLY $ 2 .  INCREASING POSTAL CHARGES

FOR THESE AREAS FROM 33 CENTS TO $2 WOULD CHOKE OFF MOST OF T H E -

DEMAND, BUT I T  WOULD NOT REDUCE OVERALL COSTS GREATLY. ÃÂªÃÂÃÂ

REASON IS THAT TRANSPORT COSTS ARE THE SAME REGARDLESS OF WHETHER

ONE OR A HUNDRED LETTERS ARE CARRIED, ‘ *

-  1 2  -

At t e m p t i n g  to r e c o v e r costs i n co un tr y a r e a s for t e l e p h o n e  and

POSTAL SERVICES IS LIKE CHASING THE MIRAGE ON THE HORIZON,

The new Pr e s i d e n t  of the Li b e r a l Pa r t y, M r . Va l d e r , i s on record

AS SAYING THAT THERE WOULD BE NO POINT TRYING TO SELL OFF

A C T IV IT IE S  WHICH DO NOT MAKE A PROFIT.

I f  p r o f i t  s e e k i n g  p r i v a t e  f i r m s  were to take over Au s t r a l i a  Post

and Telecom  i t i s probable  t hat adequate  and p o s s i b l y  cheaper

s e r v i c e s  would be p r o v i d e d  w i t h i n  and between  c a p i t a l  c i t i e s , I n

THE REST OF AUSTRALIA THERE WOULD PROBABLY BE NO SERVICES OTHER

THAN THOSE MAINTAINED BY A HANDFUL OF MINING COMPANIES FOR

COMPANY AND EMPLOYEE USE ,

Po l i t i c i a n s  who c l a i m to r e p r e s e n t non- m e t r o p o l i t a n  a r e a s and

ENDORSE BY SILENCE THE 'P R IV A T IS A T I O N ' CALL HAVE BY DESIGN OR'

DEFAULT SOLD OUT THEIR ELECTORS, WHEN WILL THE NATIONAL PARTY

WHICH CLAIMS TO REPRESENT RURAL AREAS REPUDIATE THE POLICY CALLS

OF ITS COALITION OPPOSITION PARTY?

I n  We s t e r n  Au s t r a l i a  the same ca ll s  are made to ' p r i v a t i s e ' the

SEC. The e f f e c t  on country  r e s i d e n t s  would be the same in k i n d ,

though  l e s s e r  in d e g r e e .

Some Go vernment  d e c i s i o n s  on t a x a t i o n  reform  w i l l  be announced

NEXT MONTH, I t WOULD BE QUITE WRONG OF ME TO SPECULATE'NOW ABOUT

THE COMPONENTS OF THAT REFORM, BUT I WOULD LIKE TO DISCUSS TWO

-  1 3  -

MATTERS RAISED IN THE DRAFT WHITE PAPER/ RELEVANT TO AGRICULTURE,

WHICH WERE WIDELY MISUNDERSTOOD OR, LESS CHARITABLY,

MISREPRESENTED.'-

Fi r s t l y the w r i t e- off of farm ' l o s s e s' a g a i n s t  in c o m e from any

SOURCE. ' .

A RANDOM CHECK OF 1 1 6 , 0 0 0  1 9 8 2 - 8 3  TAX RETURNS REVEALED THAT 47

TAXPAYERS HAD REDUCED THEIR TAX ASSESSMENTS BY MORE THAN $ 1 1 7 , 0 0 0

BY CLAIMING FARM 'LOSSES' .AGAINST OTHER INCOME. (DRAFT WHITE

Pa p e r, p , 2 6 0 . )  "

The r e v e n u e  l o s t was $ 5 . 5m from o n l y a m i n i s c u l e  p r o p o r t i o n  of

t a x p a y e r s . Be c a u s e of t h e s e c r e c y  p r o v i s i o n s  of t h e I ncome Tax

Ac t , we w i l l n e v e r know t h e i d e n t i t y  of t h o s e 47 t a x p a y e r s . Bu t

I WOULD BE SURPRISED IF THE OVERWHELMING MAJORITY WERE NOT

St . Georges Te r r a c e, Pi t t or Co l l i n s  St r e e t f a r m e r s, The d e n i a l

OF THAT SHELTER TO THOSE URBAN TAXPAYERS IS NOT"AN INCREASED TAX I  ‘ '

ON F A R M E R S . ’

A t  l a s t  m o n t h ' s  t a x  s u m m i t  t h e  N F F  P r e s i d e n t  s t a t e d  t h a t  t h e

P R E S E N C E  OF A C A P I T A L  G A I N S  T A X  WOULD MAKE I T  E X T R E M E L Y  D I F F I C U L T

TO A T T R A C T  NEW C A P I T A L  I N T O  A L ONG T E RM LOW Y I E L D  I N V E S T M E N T  L I K E

A G R I C U L T U R E . T H I S  BEGS T HE  MORE I M P O R T A N T  Q U E S T I O N  OF WHY A NY  _

R A T I O N A L  AND R E S P O N S I B L E  GO V E R N ME N T  WOULD WANT TO A T T R A C T  NEW

C A P I T A L  I N T O  LOW Y I E L D  I N V E S T M E N T .

Wh i l e the q u e s t i o n  of c a p i t a l  g a i n s ta x i s a m a t t e r for

Go v e r n m e n t c o n s i d e r a t i o n , I sho uld co r r ec t some m i s c o n c e p t i o n s

ABOUT THE PROPOSAL ON THIS QUESTION WHICH WAS INCLUDED IN THE TAX

Dr a f t Wh i t e Pa p e r, Even i f we p r o c e e d e d w i t h the Dr a f t Wh i t e

Paper p r o p o s a l i t would be e a s i e r for a g r i c u l t u r e  than many

c r i t i c s  have s u g g e s t e d ,

The Dr a f t Wh i t e Pap er pr opo se d a t a x at t he inc o m e t a x r a te on

ANY REALISED REAL CAPITAL GAIN. I f AN ASSET WERE TRANSFERRED AT

DEATH, THE REAL GAIN, IF ANY, WOULD BE 'DEEMED' TO HAVE BEEN

REALISED, (WITHOUT THAT PROVISION CAPITAL WOULD TEND TO BE

LOCKED IN UNTIL DEATH.) *

The d e e m i n g p r o v i s i o n  has be en m i s r e p r e s e n t e d  as d e a t h d u t y or

PROBATE. A DEATH DUTY WOULD BE LEVIED WHETHER THERE WAS A REAL

GAIN OR NOT, THE DRAFT WHITE PAPER PROPOSAL WOULD APPLY NO TAX

UNLESS THERE WAS A REAL G A IN . FARMER ORGANISATIONS WHICH IN S IS T

ON WILFULLY MISREPRESENTING THE FACTS BY IGNORING THAT IMPORTANT

AND UNAMBIGUOUS DISTINCTION  SERIOUSLY UNDERMINE THEIR

C R E D IB IL IT Y ,

I T  HAS BEEN ARGUED THAT IT  IS UNFAIR TO TAX -  AS THE DRAFT WHITE

Pap er p r o p o s e d -  a r e a l i s e d  r ea l g a i n a t the in c o m e t a x r a te

BECAUSE THE MARGINAL RATE IS LIKELY TO BE ABOVE NORMAL, A n  -

ALTERNATIVE WOULD BE TO ALLOCATE A NOTIONAL GAIN FOR EACH YEAR

THE ASSET WAS HELD, AND TO COMPOUND INTEREST ON THE ACCRUING TAX

L I A B I L I T Y . IF AN ASSET WAS HELD FOR 20 YEARS, THEN AT PRESENT

-  1 5  -

INTEREST RATES THE AMOUNT OF TAX PAYABLE AT THE END WOULD BE

NEARLY EIGHT TIMES THE ANNUALLY ACCRUED AMOUNT, UNDER THOSE

CIRCUMSTANCES THE DRAFT WHITE PAPER PROPOSAL IS A MAJOR

CONCESSION. ' ' ,

The p r o p o s a l i n t h e -Dr a f t Wh i t e Papers t a x e d c a p i t a l  a t t he inc o m e

t a x r a t e, An y t h i n g  l e s s would r e t a i n o p p o r t u n i t i e s  for a v o i d a n c e

THROUGH THE CONVERSION OF INCOME TO CAPITAL, _

I t  has been o bserve d  t h a t c a p i t a l  g a i n s  t a x e s  i n other, c o u n t r i e s

ARE USUALLY LEVIED AT A CONCESSIONAL RATE, BUT THEY APPLY TO

NOMINAL, NOT REAL, GAINS, THE DRAFT WHITE PAPER PROPOSAL IS MUCH

MORE LENIENT THAN THE CAPITAL GAINS TAXES IN THE US AND CANADA,

The c r i t i c a l  c o n s i d e r a t i o n  for a g r i c u l t u r e  i s the e x e m p t i o n  from

TAX OF ANYTHING BUT REAL GAINS. AGRICULTURAL LAND PRICES MAY

FLUCTUATE BUT OVER THE LONG TERM DO NOT APPEAR TO INCREASE IN

REAL TERMS, FARMERS SHOULD PONDER THAT FACT BEFORE ANSWERING

CALLS TO DEMONSTRATE AGAINST A CAPITAL GAINS TAX, THEY SHOULD

ASK THEMSELVES WHETHER ARE REALLY ACTING IN THE INTERESTS OF

AGRICULTURE OR WHETHER THEY ARE BEING USED BY OTHERS WHO AVOID

INCOME TAX BY CONVERTING INCOME TO CAPITAL.

Hard long term data on real l and p r i c e s  i s not easy to o b t a i n , _

But can I suggest  t h a t you look at land p r i c e s  i n your own

DISTRICT IN ( s a y ) 1 9 5 5  AND 1 9 6 5  AND 1 9 7 5 ,  MULTIPLY THE PRICE BY

5 . 8 ,  4 , 6  AND 2 . 5  RESPECTIVELY, AND COMPARE IT  TO TODAY'S PRICE,

-  1 6  -

That w i l l show you what has h a p p e n e d i n c o n s t a n t d o l l a r t e r m s.

I n  the d i s t r i c t  in which  I grew up land was sold for above  Â£6 an

-ACRE IN 1930, I t has probably  never  s i n c e  rea ched  t h a t  real

PRICE . ^

Just r e c e n t ly  an Esperance  c o n s t i t u e n t  sent me an e s t a t e  a g e n t ' s

RECORD OF LAND PRICE CHANGES IN THAT AREA BETWEEN 1979 AND 1984,

(I UNDERSTAND THE SAME MATERIAL WAS ALSO SENT TO THE PIA, )

Change in Land Values for Sandplain Dis t r ic t of Esperance

1 9 7 8 - 7 9 7 9 - 8 0 8 0 - 8 1 8 1 - 8 2 8 2 - 8 3 8 3 - 8 4

Hi g h e r Land Va l u a t i o n   ($  PER a c r e) 495 615 840 640 480 495

-  NOMINAL GAIN/LOSS (%) 2 4 . 2 3 6 , 5- 2 3 . 8 - 2 5 . 0 3 . 1

-  REAL GAIN/LOSS (%) 1 4 , 1 2 7 . 1- 3 4 . 2 - 3 6 . 5 - - 3 . 8

Lower Land Va l u a t i o n

Ã¢ÂÂ¢

( $  PER a c r e ) 3 7 0 4 9 5 6 2 0 5 9 5 3 6 0 3 3 5

-  N O M I N A L  G A I N / L O S S  ( % ) 3 3 . 8 2 5 . 2 -  4 , 0 - 3 9 . 5 -  6 . 9

-  R E AL  G A I N / L O S S  ( % ) 2 3 , 7 1 5 . 8 - 1 4 . 4 - 5 1 . 0 - 1 3 . 8

O v e r  t h e  p e r i o d  t h e r e  w a s  a  r e a l  r e d u c t i o n  o f  5 8 , 5 %  o n  t h e  h i g h e r

V A L U A T I O N  AND 6 8 . 0 %  ON T H E  LOWER V A L U A T I O N .

-  1 7  -

The c o n s t i t u e n t  who p r o v i d e d  t h i s d a ta was w o r r i e d ab ou t the

EFFECT OF THE DRAFT WHITE PAPER'S PROPOSED CAPITAL GAINS TAX ON A

FARMER WHO BOUGHT IN THE AREA IN 1 9 7 8 .  THE FARMER IS SAID TO

HAVE SOLD IT  IN 1 9 8 1 ,  .AND TO HAVE -BOUGHT A PASTORAL LEASE THE

SAME YEAR, WHICH HE SOLD IN 1 9 8 2 ,  THE CONSTITUENT -  QUITE

RIGHTLY -  DESCRIBES THIS AS A "RATHER EXTREME CASE". WHAT HE DID

NOT MENTION IS THAT THE FARMER WOULD HAVE REALISED AN AFTER-TAX

CAPITAL GAIN OF OVER $ 4 7 5 , 0 0 0  ( IN 1 9 8 1  PRICES, OR $ 6 5 0 , 0 0 0  IN

t o d a y' s p r i c e s ) on the sa le of h i s farm i n 1981,Â· The farmer us e d

THIS MASSIVE c a p i t a l  g a i n to buy a p a s t o r a l l e a s e i n a year of

EXTREMELY HIGH LAND PRICES, TO SELL IT  IN THE FOLLOWING YEAR WHEN

LAND PRICES HAD SLUMPED -  HARDLY AN EXAMPLE OF ASTUTE FINANCIAL

MANAGEMENT,

Another case d e s c r i b e d  by t h i s same c o n s t i t u e n t . co nc e r n e d a

FARMER WHO BOUGHT LAND IN 1 9 8 0  AND DIED IN 1 9 8 1  AND WHOSE FAMILY

WOULD HAVE BEEN FORCED TO SELL THE PROPERTY, BECAUSE OF A

'DEEMED' REALISATION. ÃÂªÃÂÃÂ AFTER-TAX CAPITAL GAIN ON A 1 5 0 0

HECTARE PROPERTY WOULD HAVE BEEN MORE THAN $ 1 2 5 , 0 0 0  ( IN 1 9 8 1

PRICES, OR $ 1 7 0 , 0 0 0 ,  i n t o d a y' s p r i c e s ) .  I f  the land had been

SOLD IN 1 9 8 1 ,  THE FAMILY COULD HAVE USED THE AFTER-TAX PROCEEDS

OF MORE THAN $ 1 , 1  MILLION TO BUY THE SAME-SIZED FARM IN 1 9 8 4  AT A

PRICE OF UNDER $ 7 5 0 , 0 0 0  AND HAD A SURPLUS OF $ 3 5 0 , 0 0 0 .  THUS, I ÃÂ' “

THIS HYPOTHETICAL SITUATION, THE INHERITORS OF THE ESTATE WOULD.

HAVE SECURED A LARGE WINDFALL GAIN BECAUSE OF THE DEEMING

PROVISION. '

-  1 8  -

There i s e v i d e n c e  of a s i g n i f i c a n t  real a p p r e c i a t i o n  of la n d

PRICES IN SOME AREAS IN THE LATE 1970s AND EARLY 1980s -

ESPECIALLY QUEENSLAND CANE LAND. THERE IS ALSO EVIDENCE THAT THE

PRESENT I L L I Q U I D I T Y  OF MANY FARMERS IS DIRECTLY ATTRIBUTABLE TO

THE HIGH PRICES PAID FOR LAND AT THAT TIME. T'O THE EXTENT THAT

THE EXPECTATION OF UNTAXED CAPITAL GAINS CONTRIBUTED TO THAT

SHORT TERM APPRECIATION OF LAND PRICES, THE ABSENCE OF A TAX ON

REAL CAPITAL GAINS WAS A CAUSE OF THEIR PROBLEM.

Hig h la n d p r i c e s , though good for s e l l e r s , are bad for l a n d

b u y e r s. Th i s i n c l u d e s  t ho se who want to r e m a i n or become

FARMERS.

I SINCERELY HOPE THAT THIS DISCUSSION HAS DEMONSTRATED TO YOU

THAT FARMERS HAVE NOTHING TO FEAR FROM ANY ASPECT OF THE

Go v e r n m e n t ' s t a x r e f o r m s.

I BELIEVE THAT WE HAVE SHOWN OUR GOOD FAITH WITH THE FARMING

SECTOR IN LAST WEEK'S BUDGET.

Thank y o u. Â·

-  1 9  -

