P.M. gives tax reply

Press, 3 June 1981, Page 1

P.M. gives tax reply

The Prime Minister (Mr Muldoon) has released last Friday's exchange of letters between the Government and the Federation of Labour. The F.O.L. put specific questions to the Government which were answered by Mr Muldoon. The questions and Mr Muldoon’s answers are: • Is any off-set to occur at the lower quartile, mean or upper quartile level? The most obvious point at which to calculate the off-set is the median or middle income, that percentage offset being applied across the board. Most of the discussion has been focused on the median income level. With a flat dollar tax cut, the gross wage equivalent of the cut expressed as a percentage varies across income ranges, being largest at the lower income levels. • Is the off-set to occur at the level calculated before the round or at one of the consequent award movement calculations'? There are two alternatives. Until now it has been assumed that the off-set would be calculated in relation to the expected size of the round. However, in view of the disagreement at present over the size of the round, a feasible alternative is to calculate the off-set at income levels after the 5 per cent general wage increase, but before the round. This alternative gives rise to a slightly smaller off-set. • Will the tax cut take effect from the budget date or October, 1981? It is not possible for a tax cut to operate from the Budget date. The normal date would be October 1, 1981. • If October is the operative date, what is the position regarding awards negotiated between now and October? All awards or agreements negotiated in the wage round

would be covered by the offset. Very few awards take effect significantly earlier than October 1, and, of course, many take effect much later. Those subject to these awards would, of course, get the tax benefit from October 1, some time in advance of the new agreement. < What mechanism is envisaged to ensure that any reduction in gross wages will be reflected in lower prices? The success of the exercise depends inevitably on lower prices resulting. No specific mechanism has yet been discussed. A possible approach is that central organisations such as the Chambers of Commerce, the Manufacturers’ Federation, the Employers’ Federation, and the Retailers’ • Federation be asked to give a public commitment that any wage offset would be reflected in prices. The form of such a commitment is an open question but could involve accep-

tance of a corollary to the over-all agreement which reflects this public commitment. • Is it envisaged that a tax offset should occur in the growth of incomes other than salaries and wages and how is this to take place? It is impossible to institute a formal mechanism that would produce such an offset, It would, however, again be possible for organisations of the various self-employed and professional groups to make a public commitment to such an offset. • Is a wage path implicit in the proposal? The need for a reference point from which to calculate wage off-set is central to the concept of a trade-off. Such a reference point could be variously described as a wage path, a bench mark, or a base. I repeat the views that were expressed in the letter of May 7, 1981, to the Federation of Labour: “Discussion on the

mechanism through which any off-set would be effected is central to the forthcoming meeting. One option which would achieve the desired result would be to reach consensus among the parties on a bench mark from which an off-set dr trade-off could be made. You may have other alternatives to suggest.” To date no alternatives have been forthcoming. Commenting in his letter to the Prime Minister, the F.O.L.’s secretary, Mr K. G. Douglas, said the need for a specific proposal had been spelled out by the F.O.L. “We do not consider the proposition to be as simple as it appears at first glance; indeed, the work done by the working party clearly shows that the issue is more complex than you seem to believe.” Mr Douglas said.