Mr KELVIN THOMSON (11:48 AM) —The Taxation Laws (Technical Amendments) Bill 1997 contains numerous technical amendments to the taxation legislation. These include fixing drafting errors in legislation, clarifying existing provisions and reducing the compliance requirements associated with various existing provisions. We are approaching this legislation as non-controversial in the community as it appears that there are no significant policy issues raised by the bill and no representations have been received by us at this stage suggesting amendments to the proposals.

The bill appears to be a move towards the United States system of an annual taxation technical amendment bill. That is to say, it is attempting to group all the non-policy legislative matters together in one piece of legislation instead of including purely technical amendments in bills with significant policy matters, as has previously been the case.

The general concept of a technical amendments bill is certainly not one which is opposed by the opposition. We are not proposing that no minor policy items could be treated in such a piece of legislation in the future. It is the case that it may be appropriate for minor issues of policy detail to be addressed in the context of addressing technical problems in legislation. Indeed, it would be silly to redraft a particular provision and not deal with a minor policy issue that has arisen in the same provision.

However, that is the sort of format that could be open to abuse. It must not be abused by slipping through major policy changes under the guise of purely technical amendments. If the government were to attempt to do that, then clearly goodwill from the opposition towards this type of minor legislative reform would be dissipated.

The second reading speech and the explanatory memorandum explain the precise provisions and proposals. I think it is worth saying while we are discussing the issue of taxation laws that we have a situation at the moment where the government are saying in this country, `We want to have a tax debate. We have got tax reform on the agenda and we want to have a tax debate.' But in fact they do not want to have a tax debate. Everything they are doing is shrouded in secrecy. It is said that we have got a task force examining tax reform options. That is a process that has been couched in incredible secrecy. Officials have admitted that there are no written records being kept of the meetings of the task force. There are not even written agendas produced before the meetings. That is not the usual workings of a public service. That is political use of the Public Service by the government. While the government have been asserting that tax reform is essential, they have not engaged in any public debate about the plethora of reform options that are available. They confine themselves to statements getting stuck into the existing system—in my view, often without foundation. But they do not say anything about the reform options that are available. None of the information produced by the Treasury has been released about the options considered nor the relative merits of different approaches that could be taken to address various issues.

We have got a situation where the government simply does not want to have a debate about the merits of various proposals. It simply wants to hide its proposals until as late as it possibly can and then pretend that its preferred model is the optimum. This is a form of deceit. It is an attempt to fool the public by not allowing sufficient time for scrutiny. The government ought to release the various options that it is considering and the options that are available. It ought to release them now so that the public can properly assess the decisions that the government is proposing to take.

Mr Deputy Speaker, I want to contest the idea that there is a crisis in the tax system. Indeed, the Taxation Laws (Technical Amendments) Bill 1997 that we are debating now reflects the way in which tax works. Problems arise from time to time in any taxation system; it is the responsibility of government to address those problems as they arise, as indeed the government is doing with this piece of legislation. The Treasurer (Mr Costello) has been running around for the past six months—probably longer now—pretending that the tax system is not sustainable. The primary purpose of a tax system is to raise revenue. The taxation system, it has to be said, has to be in pretty good shape because it basically collects enough revenue to finance surpluses throughout the whole forward estimates period. Indeed, the Treasurer, in one breath, said, `The taxation system is rotten. It's had it. It's got to be thrown out.' In the next breath he went around boasting about the fiscal position. He might be prematurely boasting, but he is boasting about the fiscal position.

Mr McGauran —Hang on! Revenue we're spending.

Mr DEPUTY SPEAKER (Mr Hollis) —Order! We will have all comments made through the chair. The honourable member for Gippsland will have an opportunity to respond to any provocative statements when he has his 20 minutes.

Mr KELVIN THOMSON —I was entertained to hear the member for Gippsland (Mr McGauran) suggesting that the tax system which raises revenue bears no relationship to the government's budgetary position and prospects. It is the first time I have ever heard such a proposition advanced that there is no connection between tax and the budget.

Mr McGauran —I didn't say that.

Mr KELVIN THOMSON —Nevertheless, the member may wish to explain his position when he gets the call. The tax system is serving this country well enough to produce a situation where the books are balanced. The tax system constantly needs renovation and refurbishment. We, in government, always acted to improve the tax system and to address problems that arose. We will continue to do so. We do not accept the argument that the system is broke and therefore we have to have a GST. We have no intention of imposing a new tax on goods and services. What we have is a government which is frightened of the tax debate and, indeed, in the House yesterday, when there was a matter of importance concerning the taxation of discretionary trusts, the Treasurer (Mr Costello) was nowhere to be found. He did not participate in that debate and he has not come forward with proposals to address the problem of the abuse of family trusts for tax purposes. That is a problem that the taxation commissioner has indeed identified for quite some time now. He put a report to the previous government just prior to the change of government drawing attention to this problem and, in particular, to the way in which high-wealth individuals were evading their fair share of tax and to the fact that family trusts were playing a major role in their doing so.

We have seen precious little in the way of action from this government to address that problem and so it has got worse rather than better. We know that one of the reasons for this is that many in the government, both senators and members, have family trusts. Therefore, it appears that it is not in their own interest that the government should crack down on family trusts. Instead what they say is, `The tax system is broke and we're going to have to tax ordinary people on food and on clothing, and going to the footy, or going to the theatre, or anything they might want to do by way of entertainment; we are going to have to put those taxes on because we are not prepared to address the family trust problem.'

It is worth noting that, in the trust loss legislation that did pass the Senate in the past week, we saw an exemption which dramatically diluted the effect of the crackdown on trafficking in family trust losses set in train by the former Treasurer, the honourable member for Gellibrand (Mr Willis), back in 1995. What we need to get from this government is evidence that it is fair dinkum about cracking down on tax avoidance through the use of trusts. That is the sort of thing that the community needs to make the tax system work better and work as well as it can, rather than say that this system is broke and, therefore, we have to throw it out and replace it with a system which is fundamentally unfair.

Those who have had the opportunity to have a look at how a GST would work would understand that it is inherently regressive and that there is no way of addressing those problems with a compensation package. Lower income people have a higher proportion of their income go in paying the costs of a GST than do higher income people. It is inherently unfair and there is no way of fixing it up.

You could have problems both with a high level of GST and with a flat rate GST. One of the problems is that the government is simply unwilling to come up with its GST model. It is scared by its previous experiences when it produced quite a detailed model that was rejected by the Australian electorate which had the opportunity to have a good look at it. It has decided, `Oh well, we're going to change; we're going to do it differently this time; we're going to hide that model; we are going to unveil it at the last possible moment'—if indeed we do see it prior to an election being called.

We also have problems with what is referred to as the `compensation now' problem—that is, no-one can be guaranteed that he or she will not be worse off at the outset. This idea that you can design an effective compensation scheme to ensure that no low or middle income people are made worse off through the introduction of a GST simply cannot be done. Indeed, even if you can seek to design such a system, you have what is referred to as the compensation in the future problem. No-one can be guaranteed that they will not be worse off further down the track.

One of the interesting things about a GST, and the experience in other nations of a GST, is that the rate of GST can and does tend to be increased, whereas the compensation package tends to be decreased. That is the sort of thing that has happened in New Zealand. The international experience of a GST is that, despite assurances to the contrary, the initial rate at which it is introduced is inevitably increased over time. Of the 27 OECD countries which have a GST, 21 of these have already increased the standard rate of tax from its initial level. In the United Kingdom the VAT was initially 10 per cent and now it is 17½ per cent. In New Zealand the GST was initially 10 per cent and now it is 12½ per cent. In addition, over time governments tend to eliminate or reduce the concessions on certain goods and services which are initially introduced. History shows that, once this form of taxation is introduced, it never gets repealed.

The other sorts of problems that it throws up that simply are insurmountable are the problems for small business. The first problem for a small business is that of becoming an unpaid tax collector. The wholesale sales tax is a relatively easy system to administer and comply with. There are presently around 75,000 registered tax collection points. Most small businesses are not registered. They are not wholesalers. They do not need to get involved with this. But a GST would require around one million additional taxpayers to register and remit GST on a regular basis. Small businesses are not going to get paid for that tax collecting role.

The second problem is that they will have high compliance costs. They will have the initial transitional compliance costs and they will have ongoing compliance costs. The initial costs will include self-education, new equipment, new business systems and related professional advice. Those things will vary considerably between businesses but you will see new hardware such as cash registers with a GST tax capacity, computer software, accounting software, new sales dockets and forms to include provision for GST, and that is on top of the time that small businesses will need to spend learning how a GST works and registering with the Australian Taxation Office. The ongoing compliance costs will include the time taken for GST paperwork, professional advice, record keeping for possible GST audits, the cost of being audited and so on. We will see very significant problems for small businesses.

I also want to refer to the black economy problem. A lot of people say that one of the problems with our existing tax system is the problem of straight evasion. There is no question that that is a problem but a GST will not fix it. Indeed, it increases the incentive not to report transactions because by doing that you not only avoid the income tax that may be payable on those transactions but also you avoid the GST.

I have spoken to people in Canada about this matter. I said to them, `How is it that the progressive conservative party managed to be reduced from a parliamentary majority to two seats in a single election?'—that is a pretty crushing election defeat; it makes some of the election defeats we have seen in Australia seem pretty mickey mouse—and they said, `GST.' When I asked them why the GST was such a debacle, one of the things that they mentioned was the avoidance. No-one wanted to pay it so they were not reporting transactions. So far from dealing with the black economy it provides incentives for the black economy to increase in size.

In addition to those things, it is clear that GST is no solution to unemployment. Internationally, there is no relationship between consumption taxes and unemployment rates. The United States, for example, does not have a GST and it has one of the lowest levels of unemployment among advanced economies. We have the inflation problem. There is no doubt that a GST would generate a price surge, an inflationary surge. For example, a 15 per cent GST would generate a surge of around five per cent. There is no guarantee that inflation would fall quickly to its pre-GST level.

We have a whole series of problems with GST. The government has failed to put forward a model so that we can have some discussion about how that will impact on ordinary Australian people. I call on the government to release this model, not to keep us in the dark. It is time that we had a decent tax debate in this country, not a phoney one. The obligation is on the government, which is arguing the case for change, to put forward its model and not hide its light behind a bushel with secret meetings that are not even being put down on paper. It is high time that that was done. Having said that, as I indicated at the outset, the opposition does not propose to oppose this legislation.