`Clever' Australian economic package promises sweeping reform

Last week, to a chorus of ``Here! Here!'' in Parliament, Australia's treasurer Paul Keating unveiled the most sweeping structural economic reforms in this country's history. The package includes:

A sharp 10 percent cut in corporate tax rates.

A promise of individual tax cuts next year.

Broad but modest tariff reductions.

Government spending cuts that would lead to a $3 billion (Australian; US $2.53 billion) budget surplus next year.

Modest restructuring of goverment-run industries.

A new 15 percent tax on retirement-fund savings.

It's not as radical as the reforms underway in New Zealand. But friend and foe are describing Mr. Keating's package as exceptionally ``clever,'' both economically and politically.

The package continues Keating's dogged efforts to force Australian manufacturers to be more competitive, boost exports, and keep a tight reign on government spending. But it also introduces tax cuts - a carrot for business and individuals which the ruling Labor Party can trot out at the next federal election.

Business is generally pleased with the lowering of the corporate tax from 49 to 39 percent. It's the biggest cut ever and brings rates into closer alignment with overseas trading partners. There's some grumbling that the rate didn't drop closer to the 34 percent rate in United States and Britain. But it's a step in the right direction, business leaders say.

Business and union chiefs are less enamored with the tariff cuts, saying less protection will cost jobs. With a few major exceptions, all protective tariffs above 15 percent will fall to 15 percent within four years. Tariffs between 10 and 15 percent will slide to 10 percent.

But consumers should be pleased. The lower tariffs could mean about a 20 percent drop in prices for appliances, electronics, and home tools.

Keating was unable to bring industries with the highest protective tariffs into this package. A plan to drop auto tariffs from 45 to 35 percent over four years was firmly established earlier this year. The textile, clothing, and shoe industries successfully fought off attempts to hasten their seven-year tariff-reduction plans.

By balancing the manufacturing tariff cuts with comparable reductions in agricultural tariffs, including butter, sugar, and tobacco, Keating may have neutralized arguments that one sector is getting more favorable treatment than the other.

Perhaps the most savvy move, say economists, is Keating's plan to link the size of next year's personal income tax cut to wage rises. If the trade unions push for a big national wage hike, the tax cut will be smaller. ``The government is prepared to provide substantial tax cuts [if] there is an acceptable wages outcome in 1988-89 and an acceptable wages-tax trade-off in 1989-90,'' Keating said.

The timing of the personal tax cut, put off until just a year before the next elections, is also considered politically astute. Opposition leader John Howard derides the delay as a thinly disguised campaign ploy. (Keating is considered Prime Minister Bob Hawke's heir apparent.) But Keating argues a tax cut now would produce a consumer spending boom that would ``blow the current account deficit out of the water'' with a flood of imports.

The reform package comes at a time when the Australian dollar is soaring to three-year highs against foreign currencies. But interest rates are also much higher than those of Western economies. So, while progress is being made, the target of the Keating economic reforms continues to be the country's $110 billion (Australian, US $92 billion) foreign debt.