By Pip Hinman
The Democrats' budget proposals, launched on March 21, are aimed at encouraging business to invest and employ. According to Democrat leader Senator Cheryl Kernot, the package pushes for a transfer of taxes from business inputs to profits.
Following the long budget deliberations last year, the Democrats and the Greens (WA), who together with independent Brian Harradine hold the balance of power in the Senate, agreed to participate with the government in a "new consultative process" before this year's budget on May 10.
In their submissions, both the Greens and the Democrats agreed to the government's aim of limiting the 1993-94 deficit to 3% of GDP, or approximately $13 billion. The Business Council of Australia wants an $8 billion deficit target for the coming financial year.
The Democrats' "fully costed" and "revenue neutral" proposals incorporate some modest tax reforms and allowance increases for the less well off. Together their proposals add $4.92 billion, which they say is fully covered by their proposed additional revenue measures.
A significant component of their "business incentive package" is the gradual phase-out of payroll tax, which they argue will encourage employers to hire additional employees. It would "directly encourage a change of behaviour from employers to maximise employment growth, rather than profit taking ..."
The Democrats propose a "minimum corporate tax rate" of 20%, to be levied on 75% of the difference between stated taxable income and publicly declared profits. This, they say, would raise $1 billion. They also propose a gradual increase of 3% to the corporate tax rate (currently 33%) by 1996-97.
The Financial Review described the Democrats' budget suggestions favourably. According to the FR's Stephen Ellis and Tim Dodd, "the Democrats' budget proposal this year is the most detailed ever produced by the party and is, in the absence of any policies from the Opposition to replace Fightback, the main policy alternative to that put forward by the government."
The reports suggest the corporate sector was not overly concerned at the Democrats' proposed new taxes. "Business would benefit from some of the measures", wrote Ellis and Dodd.
"Against these increases the corporate sector would benefit from a rebate on wholesale tax on exports (costing $971 million), from expanded research and development deductions and lower provisional tax for small businesses, and from a 140% one-year deduction for employees taken on by small firms", Ellis explained.
The Democrats argue for a new 51% top marginal rate for those earning over $70,000 and a stepped increase in the Medicare levy from 1.4% to a new top rate of 2% for those on incomes over $50,000. They have not ruled out a jobs levy on those earning over $30,000, but suggest that the new top bracket should remove the need. They advocate that the Jobs Compact proposed in the government's recent green paper apply to those who have been unemployed for 12 months rather than 18.
Their proposals for job creation include $1.2 billion to be spent on infrastructure projects, including health and public transport, and $1.5 billion on labour market programs for the long-term unemployed. The Democrats say their proposals would increase employment by at least an extra 1% per year, or an additional 250,000 jobs by 1997.
Shareholders would have to pay more tax under the Democrats' reduction of dividend imputation, and they would reduce negative gearing, one of the many tax loopholes for property owners. They propose concessions for long-term savers.
Their "families package" includes the doubling of both the $30 per week Home Child Care Allowance and the $150 per year low income earner's tax rebate, as well as increased income support for the unemployed. On the environment, the Democrats propose a carbon emissions tax and a 15% levy on the logging of native forests.
While the Democrats include some modest social reforms, in the absence of an effort to mobilise people to fight for them, they appear as ambit claims which do not, on their own, put much pressure on the government.
The main thrust of the proposals on unemployment is incentives to business. Sceptics will point out that a decade of incentives to business by the Labor government has not solved the unemployment problem. Private and public sector investment in plant and equipment (as a proportion of GDP) is now at its lowest level since 1965. The Democrats do not explain why the "trickle-down effect" should suddenly start to work.
Nor is the idea of a minimum corporate tax particularly radical. Even the conservative Reagan administration in the US introduced a minimum tax rate because of the scale of tax avoidance.
The Democrats appear to have some support on this minimum tax from the ALP left, perhaps because it was Labor that reduced the top corporate rate from 49% in 1983 to its present 33%.