Senator HARRADINE(11.43 a.m.) —Mr Acting Deputy President Ferguson, I am sure you, and every member of this chamber, are concerned about taxpayers. We are all concerned about taxpayers. However, it does not appear from the attitude that has thus far flowed from the government or the opposition that they give a damn about taxpayers. Here is a piece of legislation that is likely to affect every single taxpayer in this country, yet the government and the opposition wanted to let this bill through on the flick as a non-controversial item. What a disgrace! It is a sell-out on the taxpayers of Australia.

The moment I see a piece of taxation legislation come before this chamber and being regarded as non-controversial should be the time that I should leave this place. I have not yet, in my 21 years of `service' in this place, seen any tax legislation—let alone a piece of tax legislation that is 366 pages long—that is non-controversial.

It has been suggested that this is a rewrite of the taxation law. The problem with that, as honourable senators know, or should know, is that there is a body of judicial precedent that applies to the wording of the previous tax law that does not apply to this. I hope the Assistant Treasurer (Senator Kemp) can tell me what the word `idea' means in the beginning of this legislation. But we will get that at the committee stage.

I make it clear at the outset that I have no philosophical objections to the rewriting of tax laws. Indeed, we could do worse than go back to Sir Robert Garran's 1915 Income Tax Assessment Act, which was only some 30 pages long. I am also cognisant of the amount of money and effort that has gone into this bill, and I note the restrictions on the redrafting process in terms of `no policy changes' that have cost us dearly in terms of what might have been achieved. For example, Hong Kong has surpassed Australia's per capita income on the basis of a simple colonial Inland Revenue ordinance. A world-class tax law need not be the most elaborate—quite the reverse.

I am thus deeply concerned that the process of tax law redrafting must be made transparent to the public and not involve unnecessary loss of judicial precedent, especially where it is not intended to change the law. I therefore have profound reservations about proceeding with this bill at this time, and I am not alone on that.

I understand that there is considerable unhappiness amongst the professionals and industry, in particular the mining industry, in relation to some of the provisions of this bill. Indeed, the Taxation Institute of Australia, the Institute of Chartered Accountants and the Australian Society of Certified Practising Accountants, in their joint submission of 18 February 1997, have gone so far as to state:

There is concern among the members of the combined professional bodies, that, far from achieving the tax simplification and easier compliance goals of the Tax Law Improvement Project . . . taxpayers may be worse off if current TLIP legislation is enacted to become effective from 1 July 1997. This legislation is TLIB and the early instalment, the Income Tax Assessment Bill 1996 . . .

So you say to those people, `Go and jump in the lake.' These are the people that are dealing daily with taxation matters. They say that the taxpayers of Australia could be worse off because of this legislation, and you are prepared to go through with a flick. You should be ashamed of yourselves.

The basic problem with this rewrite of the tax law is that you cannot make a silk purse out of a sow's ear. Unless there is to be a change of policy, there is not much point in changing the words—is there? Indeed, it may be much worse than that. If you change the words, the courts presume that you intend to change the meaning. In the case of the Bank of England v. Vagliano Brothers, in construing a far more elegant codification in 1882 by Sir Mackenzie Chalmers of the law relating to bills of exchange, the House of Lords observed that you start with the words of a codifying statute uninfluenced by the previous law. So a rewrite in different words inevitably means a loss of precedent. A rewrite for the sake of rewriting may thus be worse than useless.

I know the bill tries to avoid this logical problem by declaring in proposed sections 1 to 3 that ideas are not to be taken as different just because different words are used. But you are left to the subjective judgment of the courts to decide what idea was meant and whether it was different. There are dictionaries of words the courts can look to, but there are no dictionaries of ideas, unless you can come up with some during this debate, Senator Kemp. Ideas and words cannot be so easily separated and the danger of resulting ambiguity is real.

The problem with the income tax law is not its basic concepts. Section 25, dealing with assessable income, and section 51, dealing with general deductions, have been extensively considered by the courts and there is a huge body of case law which exists to guide taxpayers. The problem with tax law is the continued excrescences being pushed onto it by successive generations of bureaucrats. For example, we just had the debt forgiveness rules pushed into the act. We are about to have rules on trust losses thrust in front of us. If there was a genuine commitment by the tax office to tax simplification, complex legislation like this would not be put in front of us at the same time as we are asked to approve a simplification of the tax law.

It was admitted on 19 February this year before the Joint Committee of Public Accounts that it may be up to 20 years before taxpayers have the benefit of the courts resolving some of the ambiguities of this bill. It was said that in some cases you could ask 10 QCs a question and get five opinions one way and five opinions the other way. I do not have time at the second reading stage to quote verbatim what was said and, significantly, who said it. Some eminent experts—notably Geoffrey Lehmann, co-author of one of the leading texts on Australian taxation law—have condemned this bill as being badly thought out and full of technical errors. Again we have the government and the opposition as one. Do you deny that this is the case; that this expert has said that? Remember the taxpayer. Do nothing that is detrimental to the taxpayer in a rewrite situation.

Lehmann has pointed out that in some cases the guides to the act, which are printed in the text but are not part of the act, are not clearly separated from the operative provisions of the act and are in some cases inconsistent with the act. Given such warnings from persons of the highest eminence in their field, I think it would be most imprudent for the parliament to pass this bill at this time.

If you are prepared to proceed, at a bare minimum, the commencement date in section 1.2 should be changed from 1 July 1997 to 1 July 1998. There are good reasons for doing so. First, technical problems can be identified and corrected before the act starts to operate. Second, this bill and the Tax Law Improvement Bill were meant to operate together and the latter bill will need extensive consultation—you will admit that, won't you, Senator Kemp?

Third, this bill, unless amended, will operate retrospectively in respect of early balancing companies whose fiscal year starts before 1 July this year. Retrospective legislation is repugnant at the best of times and is quite unnecessary here. It may help if I give the Senate an example of the sorts of technical problems which may emerge.

Senators will remember that last year the Senate had to amend the law in respect of section 120(1)(c) on tax deductions for repayments of loans by cooperatives because the tax office put out a nonsense ruling which the Senate had to override by amending the law so that the word `or' in the act was not ignored by the tax office. Taxpayers cannot do that and we do not have the time to correct every silly ruling put out by some tax officials. I have nothing personal against taxation officers; some tax officials are among my best friends, I might say.

Take another example. Hundreds of thousands of workers were potentially adversely affected by a Tax Pack instruction that work related expenses should only be deducted when the money was spent as opposed to the law and the High Court's view that expenses were deductible when incurred. After representations, the tax office finally put out a ruling which restored previous practice.

Take a third example. Section 960-100 in the bill declares that a partnership or trust is an entity for the purposes of the tax law. How will this affect capital gains tax on changes of partners? Is a contribution under a will from a deceased's estate to an existing trust a new trust or the same entity as the first trust? Will a variation of a trust deed create a new entity? I do not know the answers to these questions. I will be interested to see whether the minister does and on what basis. Such questions may end up affecting hundreds of thousands of small businesses, so I am inclined to great caution.

The sorry saga of amendment after amendment to capital gains tax being backdated to 20 September 1985 should make us extremely cautious about how broad, simple concepts in apparently simple words can end up as legislative and compliance nightmares. It took years for Hepples's case on restrictive covenants to get to the High Court. When it did, the judges could not agree on what the capital gains tax provisions meant.

Hence, if this bill proceeds, it is essential that it be amended so that there are safety ropes for taxpayers. There should be a general provision stating that, if a taxpayer would not be liable for tax or pay less tax under the pre-existing law, then he or she should have no further liability under this bill. That is fair, is it not? After all, this bill is supposed to be a rewrite of the existing law, not a tax increase bill. The government is committed to a policy of no new taxes, so I am sure the government will accept an amendment to this effect.

As a further precaution, after section 950-150 on the interpretation of the act, a new section should be added to declare the normal rule for construing legislation potentially adverse to the subject—namely, in the case of ambiguity, the act should be construed in favour of the subject and not derogate from common law rights.

Just as the courts construe tricky fine print in insurance contracts against the insurance companies which put them forward into the hands of consumers, the same principle should operate here. It is a basic consumer protection principle that ambiguous legislation should be construed against those who draft it. No parliament should hand over the liberties of the subject through obscure or ambiguous legislation into the hands of non-elected bureaucrats.

Given the controversy which has accompanied this process of tax law redrafting—and I am not sure it can be always called an improvement—the parliament has to insist on fail-safe mechanisms and basic protections for the taxpayer. To do less than that is for us to fail as legislators. I am vitally concerned that taxpayers not be jeopardised in any way by unintended consequences. Unless this bill has such safety mechanisms built into it, I would find myself unable to support it.

At the moment this bill is only controversial in areas of the tax consulting professions and some industry associations. But I can guarantee the parliament that, if we let it go without safeguards, taxpayers will be affected by so-called unintended consequences—and that is admitted. If there are no safeguards for such cases, the resulting controversy among the public at large will make the furores over fringe benefits tax and substantiation rules look mild indeed.

In conclusion, this is the Senate. This measure was rubber-stamped through the House of Representatives. There was no debate, virtually. There has been no offer of debate here. I challenge the Senate to consider the matters that I have raised in the light of the Senate's functions as a house of review. Much has been said about this of recent times. But we are a house of review, and here is a most important piece of legislation that is likely to affect every single taxpayer in this country.

Does this legislation not deserve more than the cursory treatment it has been given by the government and, to this stage, the opposition? Is it not legislation in relation to which we, not only as legislators but specifically as senators, have the job of protecting the rights of individual citizens? That is one of our jobs. If we do not do that on this occasion and specifically give some guarantees and safeguards to those persons whose rights may well be affected as a result of this legislation, then we are failing in our duty as senators.