November 23, 1999
It is clear from these details that the cost of the East Timor deployment presents a particular difficulty in the next financial year commencing on 1 July 2000. At the time of the May budget the underlying cash budget surplus for 2000-01 was projected to be $3.1 billion. That figure has been significantly reduced by a number of developments.
The major additional item was the further cost to the budget of $1.8 billion in 2000-01 for revisions to the tax package that were negotiated with the Australian Democrats to secure its passage through Parliament.
Other necessary policy decisions and adverse variations to the estimates have imposed further costs to the budget. These additional costs, combined with the delay in receipts from the sale of the second tranche of Telstra, have also led to slower debt retirement and higher interest repayments on outstanding debt, costing about $500 million in 2000-01.
In the absence of East Timor, all of these extra costs could properly have been absorbed within the projected budget surplus for 2000-01. The defence expenditure relating to East Timor of about $1.1 billion in 2000-01 falls into a different category altogether.
Such an extraordinary item of additional expenditure could not reasonably have been expected at budget time.
Therefore a special provision must be made for its impact in the year 2000-01.
The additional expenditure on the East Timor defence effort has a particularly severe impact in 2000-01. By contrast, in the current year and the year subsequent to 2000-01, even after East Timor costs have been allowed for, the budget is expected to remain in healthy surplus.
As a result of the extra costs since last May, and in particular the unexpected defence costs of around $1.1 billion in the 2000-01 financial year on East Timor, it is calculated that, without additional measures, the budget in that year will record an underlying cash deficit of approximately $500 million.
The Government is not willing for this to occur. The days of budget deficits should remain firmly behind us. The economic consequences of high deficits – particularly the pressure they place on interest rates – should be unacceptable to all honourable members.
The Government has decided, therefore, to introduce a temporary Defence – East Timor levy for 2000-01 only. This levy will be applied as an addition to the Medicare levy on the income of taxpayers earning above $50,000 per annum.
The levy will be set at 0.5 per cent for taxpayers with an income of between $50,000 and $100,000 and at 1.0 per cent for taxpayers with incomes above $100,000. There will be appropriate shade-ins to smooth the impact on taxpayers just above $50,000 and $100,000.
The levy will apply only for a 12-month period from 1 July 2000, ending on 30 June 2001. Applying the levy on incomes above $50,000 will protect low and many middle income earners. The levy will begin on the same date that tax cuts begin under the Government’s tax reform. It will reduce only slightly, and then for one year only, the tax cuts that those taxpayers will receive. For example, a single taxpayer with an income of $60,000 would receive a tax cut of nearly $62 per week and the levy would reduce that for one year only by about $6 per week. With this approach, 80 per cent of taxpayers will receive their tax cuts in full from 1 July 2000.
The levy will collect approximately $900 million in 2000-01. That sum will substantially cover the East Timor defence costs arising in 2000-01. After 2000-01, the East Timor defence costs can be absorbed by the budget whilst maintaining strong surpluses. The community, I hope, will support this measure as a fair and reasonable one to help fund the bulk of our defence costs relating to East Timor in 2000-01.
The only alternative to this special and temporary levy would be further cuts in government spending.
Given the expenditure savings of earlier years, the necessary funds of approximately $1 billion could not have been obtained without paring back in essential areas of social expenditure such as health, education and welfare for the needy. The Government does not believe it would be fair to do this. The levy I have announced is the fair and decent way to deal with this unexpected budget difficulty in the next financial year.
Thought provokin’ eh?
Let’s put the above announcement into context.
PM Gillard has brought up the idea of introducing a ‘flood levy’ to help pay for the damage wrought by this summer’s kooky storms. Sounds like a great idea to me.
However, Mr. Negabore, leader of the Opposition has typically taken a negative stance and aimed his petty arrows at the NBN and government spending again. Yawn. From ABC Radio:
The Prime Minister is clearly softening us up for another new tax . I’m opposed to unnecessary new taxes and that’s what this is.
Apparently Tony Abbott reckons the Government should execute the NBN (or delay it…yes, until his lot get in and torture it before hanging it)…sell off Medibank Private (another great idea from those who brought us the “black hole”)…and redirect stimulus moneys (hmmm…shouldn’t that be goin’ into air-conditioning for every school?).
So, it seems a levy was good enuff for the Coalition back in the days of King John…but now under the knee-jerk leadership of the Mad Monk such a thought sends them into paroxysms of tax fear and negativity. Doesn’t take much these days.
Over to you…