Australian Financial Review Feb 4, 1999 http://www.afr.com.au/content/990204/news/news2.html Modelling makes the job of selling a GST harder By Mark Davis and Nina Field The Federal Government's tax-reform package could destroy 100,000 jobs and would fail to generate any lasting economic benefits, a leading economic expert told a key Parliamentary committee yesterday. In a blow to the Government's chances of pushing its tax package through Parliament, Monash University's Professor Peter Dixon told the Senate committee inquiring into the GST that it carried major "downside risks" of significant job losses. Labor and Democrat senators seized on the research findings -- based on the Monash model of the Australian economy -- to argue that the Government's tax package was fatally flawed. But business advocates of tax reform yesterday urged the Senate not to "tamper" with the tax package, calling on Opposition and Democrat senators to be "very cautious" about relying on any economic models. The modelling by Professor Dixon looked at the impact of the tax-reform package on the economy under various scenarios, including the reaction of certain players such as wage bargainers and businesses. His key finding was that 100,000 jobs would be lost by 2001 if wage bargainers pursued pay rises to compensate for the GST-induced increase in inflation. "[If] people do not recognise the cut in income taxes and continue to look at wages being geared to the Consumer Price Index . . . 100,000 jobs are lost in the short-term," Professor Dixon said. Government senators argued yesterday that wage bargainers would focus on after-tax rather than before-tax wages. But powerful trade unions, including the Australian Manufacturing Workers Union and the Construction Forestry Mining and Energy Union, have said they would pursue wage rises to compensate members for the impact of a GST on inflation. Other major forecasts unveiled by Professor Dixon in the committee hearing yesterday included: A further 15,000 jobs would be lost in the short term if businesses delayed passing on reductions in existing indirect taxes to their customers for two years. In the long run, there would be no significant gains in the economic welfare of Australians from the GST under all the scenarios modelled. The tourism and education sectors would suffer declines in exports, ranging from 7.5 to 11 per cent, from the tax package. Exempting food from the GST would have positive short-term effects. Professor Dixon told the committee there was no evidence to back the Government's argument that the existing tax system needed reform to shore up the tax revenue base. The Monash model forecast that with no change to the existing tax regime, indirect tax revenues would still increase in line with growth in gross domestic product. Professor Dixon said the Government's assertions that the existing tax system was "broken" were "just some sort of lightweight rhetoric". "I listened very carefully to the Prime Minister and members of the Government and I am still waiting for them to make the substantive arguments explaining why the present system is going to fall apart," he said. But the Business Coalition for Tax Reform, which appeared before the Senate committee after Professor Dixon yesterday, dismissed all modelling of the GST's effects as inaccurate. The BCTR's researcher and Business Council of Australia assistant director, Dr Peter Burn, argued that modelling in general was flawed because it did not take account of "dynamic benefits" of reform. Dr Burn suggested that no empirical evidence could be put forward to support any claims made about the impact of the GST, because there was "no such thing as empirical evidence about the future". Despite this, the BCTR maintained there were significant but unquantifiable benefits based on international experience. Labor seized on the Dixon modelling yesterday, with the Shadow Treasurer, Mr Simon Crean, claiming it showed the Government's tax package was based on "false assumptions". With Steve Lewis c This material is subject to copyright and any unauthorised use, copying or mirroring is prohibited. ************************************************************************* This posting is provided to the individual members of this group without permission from the copyright owner for purposes of criticism, comment, scholarship and research under the "fair use" provisions of the Federal copyright laws and it may not be distributed further without permission of the copyright owner, except for "fair use."
