Savings the key to cutting deficit

I refer to the article by Mr W.C. Wentworth (The Age, 5/1) entitled A Painless Way to Curb an Appetite for Imports.  Mr Wentworth rightly deplores the state of our external accounts, and points to the dangers for Australia through thus enhancing our vulnerability to decisions by foreign investment markets.

However, he nowhere refers to the basic cause of this phenomenon namely, the inadequacy of our national saving performance.  Nor does the full article in the current issue of Quadrant magazine, from which your edited text was drawn.

Mr Wentworth's proposed remedy is to apply a flat import surcharge on all imports without exception and he suggests that this would be regarded as a good consumption tax.

It is possible to argue although Mr Wentworth does not do so that such a tax, which would raise the price of every commodity in the land and reduce the real incomes of every Australian, could assist in cutting the Commonwealth Budget deficit, and hence raising the overall (public and private) level of national saving.

The extent to which it would do that is not clear from Mr Wentworth's article.  He refers to using the proceeds "to provide subsidies", and to the proceeds making possible "both tax reductions and a positive plan of industry assistance".

In short, Mr Wentworth's article is confused.  To the extent that this variant of a consumption tax (against which we voted so decisively in 1993) were to produce a genuine improvement in the Commonwealth's budgetary position, and to the extent that its impact would be mainly felt by lower and middle-income Australians (who would be unable to offset its effects by reducing their own saving), it would assist in reducing the current account deficit of our balance of payments.  But to the extent that its proceeds were dissipated in the ways suggested by Mr Wentworth, it would not reduce the current account deficit.

Whatever, Mr Wentworth has clearly not begun to understand that it is through raising our national saving level, not by cutting imports for protectionist purposes, that our current account deficit must be addressed.

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