Senator LEES (6:15 PM) —The two bills before us, A New Tax System (Fringe Benefits Reporting) Bill 1998 and A New Tax System (Medicare Levy Surcharge—Fringe Benefits) Bill 1998 , are the first of the 17 bills in the tax package that make up the new tax system. Originally, they were to be debated with the rest of the bills, commencing on 19 April; and, indeed, that was the agreement we had with the government. The bills were part of the reference to the Senate Select Committee on a New Tax System.

This morning, the motion was moved in this place to uncouple these two bills, to take them out of the inquiry process and let them proceed early. This, the government argued, was necessary because of their start-up dates—1 July of this year, not next year with the rest of the package—and we were happy to cooperate with the government and to support the uncoupling of the bills and deal with them as soon as possible, hence here we are now. We are also happy to deal with them because they are part of the bills dealing with closing loopholes, and the sooner we can do that the better—something the Democrats have long been arguing for.

I have asked Senator Murray about the extent of evidence received on these two particular bills in the inquiry, and there were various submissions on this issue; but we have taken them into account in framing our position. The Democrats basically support these bills. They ensure that the device of fringe benefits and salary packaging is not able to be used to obtain tax and social security benefits. But I note with interest the package of amendments that landed on our desks today. These are largely technical amendments. In one case they correct an oversight relating to remote housing benefits. Some of them are simply amendments described in the explanatory memorandum as `technical corrections'. In some cases they relate to definitions.

I note with interest that the Treasurer was pushing us with great fervour last year to simply tick off the package and get it through this place with no inquiry, no second look. Indeed, the bills were dealt with in the House of Representatives with minimal debate—17 bills in some 20 hours. We now see that that was after rushed post-election drafting and a very rushed report from the Tax Consultative Committee. So it is not surprising that we have anomalies and mistakes. If we had gone along with the government's request to simply push them through this place without inquiry we would probably have been back here already making technical amendments to the bills that had been passed.

When the minister gets to look at the other 15 tax bills in detail, I believe that he will find further need for technical amendments. Indeed, looking through some of the submissions to the tax inquiry, I see that there are quite a number of what are fairly small problems but very important details that have to be corrected if we are going to get it right without needing to revisit these bills time and time again. By the time we get to the great bulk of the bills, we will probably see many more pages of government amendments—not to mention the Democrat amendments. That is again the reason that it is going to take some time to deal with the bills after 19 April. Also, it is again showing us how important the tax committee process has been in identifying many of these problems.

The committees have been extremely busy; yet, to meet the government's tight timetable of 19 April, they have not been able to receive all of the evidence that they would like to have received. Quite a number of industry groups who had been particularly keen to address the select committee are going to have to be happy with just presenting written submissions because there simply is not enough time for that committee to deal with everyone who wants to appear before it.

Certainly, with just this package of amendments which the government has moved, I think the government has defeated its own argument that the Senate has been obstructionist over the tax package. With just this batch of technical amendments alone, we see the benefit of time, of hindsight and of a closer look at the tax package. Of course the package will need to be changed in light of evidence that it is flawed. That is what the committee process is about. That we are asked today to address technical amendments shows us—particularly as I read through the explanatory memorandum—what a fresh set of eyes and a few months will do to look in detail through the bills before us.

The fringe benefits legislation is very necessary to protect the integrity of the social safety net. Fringe benefits, despite all the complaints from business, remain a growing part of the tax system. In the last three years fringe benefits tax collections have risen by 16 per cent. Interestingly, around one-quarter of that, around $781 million, is for expense payments. That is basically cash which should be picked up and should be going through the PAYE system. Indeed, in the last year of tax statistics to June 1997 this item of fringe benefits rose by 11 per cent. That is a lot more than the 7.7 per cent rise in ordinary income tax—highlighting the growing popularity of salary packaging.

Since the introduction of the superannuation surcharge in 1996 there has been a great deal of growth in salary packaging and conversion of salary to benefits to avoid the surcharge payment thresholds. This bill will put an end to those practices and, to that extent, we certainly welcome it. But, since we are dealing with part of the new tax system tax package, I should note for the record that this is simply not going far enough. This measure, worth around $270 million a year, is one of several measures in ANTS to deal with tax loopholes. In 2000-01 these measures will total around $2.6 billion, with a further $2 billion coming from the abolition of the savings rebate.

That all sounds like a wonderful attack on closing loopholes. While we welcome these measures that have been announced, they are woefully inadequate. And the tax statistics that were released last week show us why. In 1996-97, 427,431 trusts lodged returns—up just 29 per cent in three years. At least that is dealt with within the package as it stands, but it is not necessarily in law yet. After the Farmers Federation and a few small business organisations have finished with government, I wonder exactly what we are going to end up with in law. In 1996-97, 559,520 companies lodged returns—up 31 per cent in four years. Sixty per cent of private companies pay no income tax whatsoever. They earn over $150 billion in income, nearly 40 per cent of all income earned by private companies.

And what measures do we have in our package of bills, our new tax system, to deal with the huge blow-out in incorporation—a device obviously being used by professional service providers and by tradespeople to reduce their tax by exiting the PAYE system? What measures do we have to combat what is clearly a huge leakage in our tax system? There is absolutely nothing. Income of $150 billion is allowed to be washed right through the tax system without any of it sticking anywhere. In other words, the government is happy to sit back and watch a huge amount of money not in any way touched to get the taxes we need for essential services. It is not lifting a finger to do anything about it.

A little further into the tax statistics we find the figures on rental deductions: $2.6 billion of rental losses driven by negative gearing. That amounts to a tax cost of around $700 million a year. And it is a growth occupation, with negatively geared losses rising by 48 per cent in three years—and that is despite a fall in interest rates.

Then there are the dividend imputation tax benefits, worth $3.2 billion—double what it was five years ago—with 70 per cent of that benefit accruing to the top one-eighth of taxpayers. There are FBT tax concessions on company cars. This tax break was worth $740 million in 1996-97, an increase of 85 per cent in just three years.

The tax break on employer superannuation contributions has risen from $2.3 billion to $3.9 billion between 1992 and 1996, a rise of 69 per cent. Then there is company tax, and the growing number of leaks from the Australian Tax Office from frustrated officials showing that corporate Australia is winning the tax battle against the tax man, with major companies like Newscorp paying barely nominal rates of tax.

If Australia were to look to the United States and adopt the 20 per cent unavoidable alternative minimum company tax used in the United States, we could collect an additional $500 million approximately from companies which are currently telling the tax man and their shareholders two very different stories about their profitability. In fact, the Australian Council of Social Service—ACOSS—has produced a list of tax loopholes totalling over $8 billion a year that could be collected. And all the government has produced so far in the tax package is $2.6 billion of income tax base broadening. So they are certainly a very long way away from where they should be—very well short of the mark.

So while we welcome this bill as a start on closing the loopholes in the income tax system, it is only a start. Reform of the income tax system is a fundamentally important part of tax reform. Indeed, I would say that the Democrats rank it well ahead of indirect tax reform and the GST. Australia needs and deserves a fair and effective income tax system that collects from all, based on real capacity to pay—one that is able to collect the tax and is not giving so many high income earners the opportunity to avoid paying anything at all out of what they are earning. Indeed, if we do not take a more serious look at what many people are managing to do, we simply will not have the level of revenue to pay for the community services that all Australians expect.

We want to see a tax system that is more progressive, not less progressive. We want to see action to close more loopholes than this government is prepared to close at this stage. And we want to see the tax system rearranged to provide a greater benefit to low income earners and lesser benefits to high income earners. To that end, I will be moving two amendments to the bill in the committee stage.

The first will require employer superannuation contributions also to be included on group certificates. This would have two advantages. The first would be that it would allow the high income earners surcharge to be collected from individuals rather than the super funds, and that would save over $100 million a year in compliance costs. But it would also ensure that salary packaging using superannuation is simply not put in to replace what we are doing with respect to fringe benefits tax. In other words, it would ensure that another mechanism would not be put in place as a means of getting around social security and tax means tests. That would ensure that the top end of taxpayers at least, who tend to have the larger superannuation packages, are picked up properly by these measures.

At the same time, we would want to move to ensure that the lower end of the taxpaying scale are not caught up inadvertently by this legislation. At the lowest threshold at which this new rule on fringe benefits in assessable income cuts in is the HECS repayments. That is $20,700, which is an appallingly low threshold at which to move low income earners into a higher tax bracket by virtue of this graduate tax. It was one of the more unfair imposts on low income earners that has come so far from this government.

We propose two amendments to the HECS repayment threshold to exclude low income earners. First, we propose that all taxpayers who are eligible for the low income earners tax rebate should be excluded from the graduate tax system. That covers around nine per cent of taxpayers. Second, we propose exempting low income graduates with families, that is, those in receipt of additional family assistance. If a graduate is regarded by the tax system as a low income earner, then that treatment should be consistent right across the board. To now include more people in the graduate tax system by adding in fringe benefits is to add to the unfairness of the low repayment thresholds.

In conclusion, the Democrats want an income tax system that provides tax relief, not more taxes for low income earners, and one that ensures that higher income earners pay their fair share. We welcome this bill as a small step towards that but propose amendments to widen the net at the top end and reduce it at the bottom. This reflects the view we will take into the consideration of the rest of the new tax system package—that the result must be a broader direct and indirect tax base, a fairer and more progressive tax scale and a more robust revenue stream.