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Australia from 1949 and into the future

By Brendan Nelson - posted Friday, 22 April 2005


Young Australians understand the central importance of progress and economic growth, but to what end? Towards what are we striving to grow?

Fiscal consolidation and sound economic management over the past nine years has allowed a generation to escape the single biggest lifelong cause of poverty - unemployment. Gun control, the emancipation of East Timor, taking up arms against terrorist fundamentalism, defining clearly which side we’re on in the war on drugs, determined efforts to practically address the existential despair that is much of Aboriginal Australia, tsunami relief - these things send powerful subliminal messages to young people about the future we want.

We should in all we do, show that we value the health and integrity of human life as much as achieving our economic objectives, strive to be an outward looking, competitive yet compassionate country reconciled with its indigenous history, imbued with the values of hard work, self sacrifice, tolerance and courage.

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The context for the future has been laid recently by the Productivity Commission. The fiscal gap (revenue minus expenditure) will grow over 40 years by 7 per cent of GDP to cover the health and welfare impact of aging. Alternatively taxation will need to increase 23 per cent. Although incomes will be 90 per cent higher, we face a 10 per cent contraction in labour market participation.

One proposal is that marginal tax rates be indexed to inflation as a means of boosting productivity. Consistent with Liberal principles, the Commission puts the case for incentives for working Australians to work harder by not penalising them with static marginal tax thresholds in an environment of real wages growth.

In 1954, an Australian had to be earning 19 times the average wage to hit the top marginal rate. That’s about $800,000. Today it is approaching 1.2 times the average wage.

The Business Council of Australia recently proposed a cut to the top marginal rate to 40 per cent by 2007-08 at its estimated cost to the budget of $5.2 billion. It further argues that it should in the longer term align with a corporate tax rate which itself should decline from 30 per cent.

The Howard government has already had a near death political experience in delivering lower marginal tax rates - $12 billion annually in personal income tax cuts, abolishing a raft of indirect taxes including wholesale sales tax and introducing a broad based consumption growth tax for the states to put a foundation under federation. A further $25 billion was returned to taxpayers over the forward estimates in the previous two budgets.

No Liberal Member of Parliament wants anything other than lower levels of taxation. Our medium to long term objective should be a lowering of the top marginal rate and closer alignment with the corporate tax rate.

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However, the Commonwealth is currently the nation’s only significant net saver. With the current account deficit running at 6.75 per cent of GDP in a climate where we have a strong rise in the terms of trade and a reasonably buoyant global economy, the imperative is to continue to run strong fiscal policy.

Reducing personal and corporate taxation rates in this climate which includes strong domestic demand could threaten what has been 14 years of economic expansion.

Compounding this is the brake on expanding resource exports from inadequate antiquated rail and port infrastructure. Our forebears living in considerably more difficult times were occupied with building bridge, rail, port, road, power and telecommunications infrastructure. Perhaps it is time for our generation to make similar sacrifices and to do so through leveraging the private sector.

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This is an edited version of the Dame Pattie Menzies oration, given by Brendan Nelson on April 18, 2005. The complete speech can be found here.



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About the Author

Hon. Dr Brendan Nelson is a former federal Minister for Education, Science and Training and is the Liberal Member for Bradfield (NSW).

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