Christmas in the Treasury

Press, 28 November 1979, Page 20

Christmas in the Treasury

When the Prime Minister and Minister of Finance presented his last Budget he introduced the idea that governments should be given the power to lower taxation when Parliament was not sitting. He, or his Treasury advisers, had in mind the possibility that the summer, when the House is normally out of session, might be a time when the economy is in need of the kind of boost that reduced taxation can give it. The idea was roundly criticised and Mr Muldoon put it aside. He has not necessarily put aside the notion that this summer may be the right time to prune income taxes a little. The fact that Parliament will be sitting rather later into the summer than would have been predicted at the time of the Budget’s preparation lends weight to the speculation that Mr Muldoon may seek a reduction in income tax rates. The question is not just a matter of convenience: it is whether the economic circumstances justify a tax adjustment. The 1978 Budget began, and the 1979 Budget reinforced, a change in the economy to put emphasis on export industries and to restrain domestic spending on consumer goods, especially on those with an import content. The latest statistics on retail trade show

that, after allowing for price and population changes, retail trade was boosted a little in the first half of this year and has declined a little in the third quarter of the year. Although the trend is in line with the Government’s general policy, Mr Muldoon may well feel that the 1979 Budget must not have too deflationary an effect. Unemployment levels, which remain high, and the need to encourage investment—especially investment that makes a base for exports—may induce Mr Muldoon to offer some minor tax concessions. They would almost certainly be directed at the lower end of the tax scale, where they would do most good to relieve the intensity of wage demands; they would almost certainly be accompanied by a continued resolve by the Government to restrict Government spending to the absolute minimum. The flexible overseas exchange rate does something to protect the imports bill from getting out of hand, but domestic price increases would do more. If Mr Muldoon is persuaded that the time may soon be ripe for a tax cut, there is little reason to expect that it will be more than a very modest adjustment. However, given the added threat of a recession in the world economy, some hope remains for a Christmas gesture on the tax front.