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Monday, 10 October 1994
Page: 1359

Senator SHORT (6.50 p.m.) —The Taxation Laws Amendment Bill (No. 3) is another omnibus bill which proposes to make a variety of changes to Australia's taxation law. It covers measures announced in the last two budgets and in the government's employment white paper which was handed down in May of this year. My colleague Senator Watson has the main carriage of this bill for the opposition, particularly so far as the technical aspects of it are concerned, along with my other colleague Senator Patterson. I do not propose to go into much, if any, detail of the specific measures. I will leave that to Senator Watson and Senator Patterson.

  There are some things I want to say about the bill and the context in which it was introduced, both of a specific and a general nature. The bill covers a number of sales tax amendments, including measures which were first uncovered as problems during the 1992 Senate Select Committee on Sales Tax Legislation. That legislation—I note that Senator McMullan is here at the moment; I think he was one of those who were loudest in hailing that exercise as one of major simplification—turned out to raise more areas of concern and confusion with respect to wholesale sales tax than was the situation in the old law. Far from it turning out to be a simplification exercise, as the opposition told the government it would be at the time, it proved to be even more complicated than in the past and even more confusing and costly to the clients of the tax department, particularly so far as small businesses were concerned.

  Yet the government at the time, with the support of the Australian Democrats, in a desperate hurry to rush through that flawed wholesale sales tax overhaul before the 1993 election, ignored a number of very serious issues which were raised in the submissions presented to the Senate committee and in the evidence given at hearings of that committee. I recall that Senator Watson and I, who were very active in that committee, along with those people who agreed with us, knew that the government was causing more problems than it was seeking to solve. I note that, two years later, the government is proposing some amendments which should have been incorporated into the legislation before it became law, but I do not believe it has gone far enough even now.

  The bill also contains amendments to another of Labor's hotchpotch pieces of major taxation law; namely, that of foreign source income. The government's taxation treatment of what are known as FIFs has been identified as one of the most complex and onerous burdens in Australian taxation history. These further necessary amendments that the government is now proposing seek only to illustrate the flaws in the current regime.

  Other measures in this bill are the relatively limited provisions of taxation relief for regional headquarters as announced in the so-called Working Nation statement; consequential changes required to implement the home child-care allowance and partner allowance, about which Senator Patterson will go into in some detail; and foreign branch banking proposals first announced in June 1993.

  The other major item in the bill—it is a controversial one—is the reduction in the uplift factor for provisional tax from 10 per cent to only eight per cent—a relatively small reduction. That is being done at a time when inflation is being forecast by the government to be something like 2 1/4 per cent and there is an average earnings growth of about 3.5 per cent. So there is certainly a major discrepancy between the uplift factor and inflation. Even if we were to take into account the average earnings growth and add it in, we would see that there is still a very major discrepancy between inflation and earnings growth on the one hand and the uplift factor on the other.

  By reducing the uplift factor further below the limited reduction to eight per cent, the government would not lose revenue in the longer run but would delay and reduce its collection this year and therefore put more money in the hands of business and less in the hands of government. At a time when capital expenditure is important for small business, this tax slug, which takes cash out of firms' hands and puts it into the government's pocket for 12 months, will only hinder the opportunities for small businesses to expand.

  The eight per cent uplift factor is yet another government induced cost burden on small business and on retired and self-employed people—the very people over whom the government, as I said in a debate earlier today, sheds crocodile tears. But when it comes to the actual actions of government it does nothing but cause them more and more hardship. It is unfair, I believe, in the current low inflation and low earnings environment.

  This is a budget measure, and that is something that the coalition takes into account in its consideration of its attitude towards the bill. Nevertheless, it is a matter of the strongest condemnation and criticism of the government that it should be attacking small business in this way at this time against the advice of most people, including members of the opposition.

  This measure, amongst others in the bill, shows the Keating Labor government's complete lack of commitment and/or understanding to making Australian industry world competitive. That surely is what we all ought to be about. If we want to raise our living standards here in Australia, if we want to improve our quality of life, we have to make Australia increasingly an internationally competitive country. That means doing things which assist businesses, both small and large, rather than inhibit and retard them in the way this government does.

  In that context, I refer the Senate to the recent World Economic Forum's competitiveness index, which shows Australia lagging at number 15. That is despite our nation's immense natural resources, our stable political system, our high levels of education and qualifications and our geographical position on the edge of the world's fastest growing and largest regional market. Top of the list in the World Economic Forum's competitive index, the title of the most competitive nation, is the United States—a nation regularly derided by this Labor government, particularly during the years of republican administration, an administration which has returned America to a position as a world leader; a nation which, notwithstanding its own problems, has a much lower level of debt as a proportion of GDP and also a much lower level of unemployment than we have; and a nation which has arguably the world's highest living standards despite the problems that it, along with other nations, faces.

  To highlight the starkness of the contrast between the United States' position and ours, in 1992—the last year for which I have comparable figures—the United States net foreign debt ratio as a proportion of GDP was 9.3 per cent. Australia's figure was no less than 39 per cent. In other words, our foreign debt as a proportion of our total annual income was four times greater than that of the United States. That puts an enormous millstone around the neck of the Australian economy, the neck of Australian business and the neck of Australian exporters.

  On this competitiveness index, second, third and fourth are three of our Asian neighbours—Singapore, Japan and Hong Kong, respectively. Setting aside Japan, which is a fully-fledged developed country, the other two have always been regarded by Australia as developing countries and not in the same league as we are. How things change! After 11 years of Labor government in this country, those two nations—Singapore and Hong Kong—have now surpassed Australian living standards and look set to continue to leave Australia further behind as they continue their high growth rate.

  It is also interesting to note that those two nations have taken distinctly different paths to prosperity: Singapore has taken a far more authoritarian approach to government policy than Hong Kong, or even Australia in some respects; Hong Kong has flourished as the closest thing to a laissez faire system that the world presently has. If we are not just going to keep up but to surpass other countries in competitive growth we have to find our own way of doing it and not just ape other countries.

  Earlier today, as a matter of urgency, on behalf of the coalition I initiated a debate on the failure of the government to follow its policy and take the sort of action that will result in sustained employment and economic growth. It is incredible that this government and, in particular, the Prime Minister, Mr Keating, have been so arrogantly complacent about the problems facing our nation, saying that there is not much more that this government needs to do to put in place the reforms that are necessary if we are to get sustainable long term growth. As a nation, we cannot afford to sit idly by while the rest of the world streaks on past us.

  Some of our key economic statistics point to the fact that we are dropping back in the competitiveness race. Our basic economic statistics show that we have continuing mass unemployment—still almost 10 per cent as compared with 3 per cent for Hong Kong and Singapore, 6 per cent for the United States and 8 per cent or so for New Zealand. There are many other countries which are also much lower.

  We have the largest, most rapidly growing current account deficit of any country in the western world. It is already over 4 per cent of our annual national income. That is certain to be significantly exceeded in the course of this year judging by the figures we saw last month of a $2.1 billion current account deficit—the third largest in our history despite the fact that we are still in the relatively early stages of economic recovery.

  As a result of government policy the cost of capital is enormously high. If we look at the 10-year bond rate, we see that real interest rates are now more than 10 per cent while in Japan they are 4 per cent, in New Zealand they are 6 per cent, in the United States they are 4 1/2 per cent and in the United Kingdom they are 6 to 6 1/2 per cent. In other words, we are putting an added burden on our industry and individual borrowers by these relatively high real interest rates—certainly high by comparison with other countries and even by comparison with our historical standards. Indeed, in the western world, only Sweden and Canada—for both of which there are some exceptional explanatory circumstances—have higher real interest rates than Australia.

  We also have the continuing problem of low investment. Private fixed capital expenditure in Australia is still at a near low record level. Even if the government attains the growth in capital expenditure of 14 1/2 per cent that it forecast for this year, that still will not bring us up to the average level of the past. If we do not have a high level of investment we will not get the job creation and economic growth that is absolutely essential.

  Linked inexorably to that is the level of national savings. We still have near record low levels of national savings. As the ANZ research department recently said, it is only in the last two quarters that as a nation we have had any positive savings at all. We had a run of eight quarters or more where we lost savings each quarter rather than gained them.

  All those matters should be of very considerable concern. They point out very starkly that if we continue the way we are going there is no way in the world that the present level of acknowledged economic growth—we do not deny today's report that we are near a five-year high in economic growth—can be sustained if we do not put in place the necessary, underpinning changes and reforms. If we were not seeing the sort of economic growth we are having at the moment we should be very worried because we are in the process of coming out of one of the most protracted recessions on record.

Senator Patterson —And going into the next one.

Senator SHORT —Of course our economic growth would be healthy looking; the critical thing is whether it can continue. As Senator Patterson says, we will head for another boom-bust if we do not make the necessary changes to enable us to become internationally competitive on an ongoing basis.

  There are many things that can and should be done. This is not a situation outside our control. The coalition has regularly pointed out such things. We detailed them in a broad, directional sense in the statement titled The Things That Matter. That document goes into some detail on the range of initiatives and goals that can be achieved.

  We can boost business investment in Australia by reducing the complexity and burden of things like the capital gains tax, the fringe benefits tax and other business oncosts by reducing government regulation and red tape. We can improve productivity by empowering employees and employers to negotiate employment agreements directly, by encouraging employees to have a stake in their work force, and by achieving higher real wages through linking them with higher productivity. We can give flexibility to award and enterprise agreements.

  We can increase national savings by giving incentives to save and by running a responsible fiscal policy rather than the reckless, huge deficit policy that this government has pursued for many years now. We can increase national savings by reducing public debt, by privatising many government corporations, and by increasing the flexibility of superannuation operations and options. We can create jobs by ensuring that we have a vibrant and competitive small business sector and by revitalising the processes of economic reform which create secure, long-term employment in internationally competitive firms.

  There are many things we can do and our tax system is an important part of that. It is quite clear from this taxation amendment bill, which is indicative and symptomatic of all its other policies, that this government does not have a clue about what is necessary to get the economy going on a sustained and sustainable basis. That is the great tragedy that we face as a nation. That is why we continue to express our concerns about the direction of the government's economic policy. (Time expired)