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Wednesday, 20 March 1985
Page: 502


Senator MAGUIRE(4.15) —I vigorously oppose this motion concerning taxation which has been moved by Senator Peter Rae today. One of the reasons I oppose the motion is that the terms of the motion are internally contradictory. For example, Senator Rae refers under paragraph (d) to the introduction of income splitting for tax purposes. I cannot see how that can be reconciled with the call in paragraph (f) of his motion for the introduction of equitable taxes in Australia. To me the introduction of income splitting for the purposes of income tax cannot be regarded as an equitable tax reform.

We in the Australian Labor Party believe that the taxation system is in need of fundamental reform. Unlike members of the Liberal Party of Australia, we believe in fundamental and genuine reform and not in artificial measures. It is easy to see from the motion before us today that the Liberals hardly believe in reform at all. I suppose that that is to be expected, based on their track record. In all of the seven or eight years of the Fraser Government there were hardly any genuine reforms of the Australian taxation system. I was fortunate enough to be able to read a report which ran to 20 pages prepared by the Parliamentary Library some year ago on the performance of the Fraser Government in terms of equity and redistribution. On only one of those pages could a measure be found that could be classed as a redistributive measure and that was the departure tax introduced by the Fraser Government. Members of that Government are in this chamber today posturing about tax reform; yet they presided over the largest rise in indirect taxes in Australian history. In just two Budgets, the Budgets of 1981 and 1982, the then Treasurer and now the Deputy Leader of the Liberal Party, Mr Howard, presided over a huge rise in the wholesale sales tax in Australia. In two Budgets revenue from that tax has increased by 66 per cent.

I just cannot see how that sort of measure, introduced by Mr Howard and supported by Senator Peter Rae, can be reconciled at all with the terms of this motion. Nobody could suggest to me today that the Australian wholesale sales tax could be seen as a neutral or an efficient tax. It is a highly selective tax. Despite the fact that very rapid increases were made to that tax in 1981 and 1982 under the Liberals, today the wholesale sales tax remains a highly selective tax. I believe that it happens to hit my State of South Australia particularly hard. South Australia is a manufacturing State. It relies very heavily on the products of secondary industry and that tax focuses on the products of that industry. So it is a highly selective tax and one which cannot be described as being neutral or efficient at present.

As I have mentioned, Senator Rae today called for the introduction of income splitting. I am rather surprised that members of the Liberal Party are persisting with this policy. They seem to have changed their policy since the election when I recall that this income splitting proposal was tied in not only with certain tax rebates but also with the introduction of a broad based indirect tax. That does not seem to appear in the motion before us today. I wonder whether Senator Rae, under paragraph (f), is calling for the introduction of a broad based indirect tax. I am rather curious about that but I certainly cannot see any reference in the motion to one of the key elements of the package that the Leader of the Opposition (Mr Peacock) put to the electorate last November.

What really surprised me is that Senator Rae has not taken any heed of a report entitled 'Taxation Statistics 1981-82', which is a supplement to the sixty-first report of the Commissioner of Taxation. For the first time I believe that he has tried to match up the two incomes of working couples. He has actually tried to see what sort of correlation there is between the incomes of working spouses. I have read this report with great interest. It shows that income splitting has absolutely no advantage for the great bulk of two-income households in Australia and working couples in this country. The great majority of Australian working couples have incomes in the same tax bracket. They pay the same marginal tax rates. How on earth can income splitting benefit the great majority of Australian families? A table in this report shows the differences in marginal tax rates in the situation where there is one income earner with an extremely high income and his or her spouse has a relatively low income. Those are the sorts of people who would benefit from the introduction of income splitting as proposed by the Liberals and by Senator Rae today. I am rather surprised, in the light of that official evidence now available to us, that this policy is being persisted with by members of the Opposition. I can only assume that, through this policy, they really intend to provide the biggest benefits to those on the highest incomes. That seems to be a fairly logical conclusion to be drawn from the statistics provided to the Parliament by the Taxation Commissioner.

Our tax reform will be genuine. We have convened the first national taxation summit conference, which will be held in July. The Government is in the process of preparing a White Paper, which I believe will be published in June. I hope that that White Paper will be along the lines of some of the documentation for the National Economic Summit Conference in 1983, when a range of options was put forward to the Australian people. That seems to be one logical way to go. For the first time in the history of this country, to my knowledge, the Australian community is being directly involved in devising a new and appropriate taxation system. It is absolute nonsense for members of the Opposition this afternoon to make the suggestion that the tax summit is somehow a non-event, a phoney event. It is the first time in the history of this country that the people will have a direct say in the formulation of a new taxation system.

Our reforms will be genuine for the key reason that, unlike those in the Liberal Party, we in the Labor Party believe in the principle of basing taxation on the ability to pay. I certainly do not see those points made in paragraphs (a) to (f) of Senator Peter Rae's motion. We believe in a progressive income tax rate so that those on higher incomes pay a higher proportion of their incomes in taxation. That certainly is not mentioned in the motion.

We take a broader view of the capacity to pay than does the Opposition. We do not take an artificial view, as the Opposition does in wanting to confine taxation changes to a very narrow view. The speeches by members of the Liberal Party today indicate that they do not see capital gains as part of the ability to pay. I simply refer to a recent report by the Organisation for Economic Co-operation and Development, published in Paris, which shows that the Netherlands and Australia are the only developed countries in the world that do not tax capital gains. I throw that in as an observation. It shows how different is our tax system from those of other countries.

If there is to be genuine taxation reform in Australia, there must be a real crackdown on tax avoidance and evasion. I see no reference to that in Senator Rae's motion today. The ordinary working people, the wage and salary earners in the pay as you earn taxation system, are being hit by the activities of the tax cheats. An increased share of the taxation burden is being borne by PAYE wage and salary earners. Let us look at the record of the Liberal Opposition on cracking down on tax cheats and making them pay their share of taxation. Since 1983 there has been repeated blocking in this chamber of legislation drafted by the Labor Government to try to crack down on the activities of tax cheats. The original legislation, which was defeated, provided for the recoupment of some $570m from tax cheats. That legislation, along with succeeding Bills, was defeated in this place. It is vital that the wealthy, the tax cheats, pay their share.

One of the points made by Senator Rae in his motion relates to incentive. I am not quite sure what the Liberals mean when they talk about incentives. I know that economists have a number of incentives in mind when they use that term. What is Senator Rae referring to? Is he referring to the incentive to work, the incentive to have leisure time, the incentive to save, the incentive to consume? I hope he will explain. This is very vague, and on all occasions the Liberals do not seem to know what they mean by incentive. Possibly Senator Rae means the incentive to work. As other Liberals have done on previous occasions, he may be linking the term 'incentive' with marginal tax rates, particularly those at the top of the scale; the ones down below do not seem to get much of a mention. If he is talking about marginal tax rates, I point out that since the days of Sir Robert Menzies marginal tax rates in Australia have been reduced from 75 per cent in the 1950s to 60 per cent now. So they are certainly a long way below what they were.

The rates have been reduced greatly, and I refer Senator Peter Rae to some of the recent American evidence which suggests that there is absolutely nothing in this argument about direct taxation levels affecting work incentives. I refer him to reports and papers written through the Massachusetts Institute of Technology by Professor Lester Thurow, who pointed out that to get a significant lift in weekly working hours in the United States, based on the United States direct income tax system, one virtually needs to abolish income tax. It is not a matter of making marginal changes to rates or adjusting the rate structure. One virtually has to wipe out the income tax system to get any significant change in weekly working hours. I hope members of the Opposition will take note of that point. There is very little documented evidence around the world about direct links between income tax rates and incentive to work, if the Opposition is talking about incentive to work.

I also point out that the United Kingdom Royal Commission on Distribution of Income and Wealth, chaired by Lord Diamond, found that much of the economic welfare of the very wealthy people in the community came from large scale inheritances. That does not seem a terribly strong argument for incentive to work. I would like some response from honourable senators opposite to that point. Certainly, I think that at the bottom of the income scale the argument about incentive to work has some validity, and I refer to those Australians dependent on social welfare payments. Our social welfare payments in most cases are assessable for income tax. Many Australians at the bottom end of the income scale face very high effective marginal tax rates-not the 60 per cent tax rate that the Liberals opposite talk about in respect of ordinary taxpayers. Many people in receipt of social welfare benefits in this country pay effective marginal tax rates in excess of 100 per cent because of the joint operation of the income tests for various social welfare benefits and the fact that those benefits are in turn taxable. I instance the case of people on unemployment benefit who lose one dollar of benefit for every one dollar of income earned within a certain income range. They lose on a one for one basis. So there is a very high marginal tax rate when one considers the tax on top of that. I hope that the Liberals will look at these points and clear up some of the internal contradictions in their motion.

There certainly was no taxation reform of worth in this country under the Liberals during their last seven or eight years in office. If they are now proposing income splitting as a policy-they seem to have dropped the indirect tax element-most of the benefits will go to wealthy families, so that cannot be an equitable measure.

On the other hand, the summit process which has been initiated by the Hawke Government, and the White Paper being prepared in anticipation of that summit, will enable genuine tax reform to occur in this country. Of course, then the really important phase will begin because the debate on taxation will shift to this chamber. Will we then find members of the Opposition supporting genuine reform? Anything coming out of the summit must go through as a package, as a whole, and not be picked over for partisan advantage.