Senator CONROY (12:31 PM) —I rise today to speak to the new business tax system legislation, the first tranche of legislation for the government's business tax proposals.

Labor has supported the concept of business tax reform since the debate commenced. We have also sought a bipartisan outcome. We said we would have a review process before the election if we won. In that spirit, we supported the Ralph process that the government set in motion. The final report was issued at the end of July, and then the government took over the process.

We did not get a full response. We got a stage one announcement on 21 September. This left a $3.8 billion funding hole. Then, on 11 November, we got the stage two announcements which could only be regarded as in-principle announcements at that stage.

Now, Labor has forced the government to commit to fully implementing these proposals. There can be no backsliding, no welching, no giving in to the vested interests. The anti-avoidance measures have to be implemented, lock, stock and barrel. In addition, an important new anti-avoidance measure is being brought forward by the government. That is one dealing with income conversion schemes. I will return to this at a later part of the debate.

Labor supports the small business measures in the package before us today. These will ensure that small business is not adversely impacted on by the capital allowance changes. In effect, small business is insulated from many of the measures that ensure that the package will be revenue neutral. Of course, they will not be exempt from the integrity measures in this legislation. These are necessary to secure the future revenue base and rightly apply to all taxpayers, whether large or small.

Labor supports a lower company rate as long as it is fully funded. We especially support CGT reform in the area of venture capital. We welcome the government coming on board in this area. Labor went to the last election with a similar initiative to attract venture capital into Australia. The government rubbished it, but now they have picked it up. All parties to the debate agree that the package has to be revenue neutral. Revenue neutrality means that the package has to pay for itself. It means that any dollars forgone through a lower company rate have to be made up through increases in collections from other areas—by increasing the base, for example, through clamping down on tax avoidance and through removing other legitimate concessions such as capital allowances.

The reason that the package has to pay for itself is simple—the GST. Labor said that if the GST did not pass, business did not have to meet the revenue neutrality test. Since the GST is now a reality, this package has to meet that test. This is something that all parties have signed up to. Labor will not be compromising on this issue, nor can the government.

The Timor commitment further reinforces the necessity for the package to pay for itself. Labor has secured this commitment from the Treasurer. We had much evidence before the Senate committee from Treasury and from John Ralph saying that the figures used in the Ralph committee report and the government's official announcements were conservative—that is, they believed that the package would actually generate net revenue when implemented. Nobody can be precise about such things, but there is much opinion by practitioners and others that the savings generated by some of the anti-avoidance measures will dramatically understate the actual receipts.

I would now like to contrast this approach with that of the Democrats and the GST. The reason the GST has become such a dog's breakfast for Australian business is the way the government went about it: a dirty deal with the Democrats built on the foundations of overblown rhetoric.

Senator Sherry —One thousand amendments.

Senator CONROY —That is right, Senator Sherry, 1,000 amendments. That dud deal has now come home to roost with the budget forecast to slip into deficit, built on the back of a $20 billion cost to the budget bottom line over three to four years. That is right: the GST will cost this country $20 billion in forgone revenue. This compares with the business tax package which will be, on balance, over time, revenue neutral. Unlike the Democrats, the Labor Party was not willing to support tax reform at any cost—$20 billion cost versus revenue neutrality. That is the great difference between our support for business tax reform and the Democrats' support for the GST.

Former senator Peter Walsh described the Democrats as the fairies at the bottom of the garden, and we know that they proved themselves to be that in their negotiations with the government over the GST. Despite holding in effect four aces to the government's pair, the Democrats folded and settled for the tea party and a tax package that did not pay for itself. I still remember Senator Lees's famous words: `We got more from this government in 13 hours of negotiations than we got from Labor in 13 years.' What exactly did Senator Lees and the Democrats get? She has got over 1,000 amendments to a package that has not even started yet. She has got a predicted inflation rate of 5.25 per cent when the government told her it would be 1.9 per cent. And she has quite happily allowed the million dollar tax rate for casino high rollers to be passed by doing the chicken run out the Senate doors. What about the GST-free books? She lost that. What about assistance for charities? She lost that as well. What about a tough GST anti-avoidance regime? She gave in to the government on that as well.

We are also now starting to see the real impact of the GST. Insurance premiums are going up by more than the government told us they would, but what is Senator Lees doing about it? Nothing of course. The airlines have told us that prices are going up by 7.5 per cent when the government told us they should rise by no more than 0.8 per cent. And what was the government's response? Mr Fahey, the Acting Treasurer at the time, stated that at least they were not going up by the full 10 per cent. That is okay then. And what have Senator Lees and the Democrats done about that? Nothing of course, because as long as those casino high rollers get their tax breaks, that is where the Democrats' priorities now lie.

The Prime Minister announced last week a new tax to partially fill the hole that has been created through this GST deal with the Democrats. After not coming clean in the parliament last week, the Prime Minister admitted on the 7.30 Report that the GST caused the budget black hole and hence forced the imposition of the new tax. The dirty deal with the Democrats has led to this situation—nothing else. Not only is the GST unfair but Labor's criticism that the package was highly fiscally irresponsible has also been borne out. Australian businesses now will not face the same problems with the business tax reform as long as the government keeps its side of the bargain. Labor has repeatedly, for many months, called for bipartisanship on business tax reform. The government has finally conceded the importance of such an approach. Business needs the certainty in its tax arrangements that goes beyond one electoral cycle—and that can only be achieved through support by the only two parties that can form a government.

I will now turn to some of the myths about the capital gains tax arguments. The effective rate of capital gains tax has not, as has been claimed, been halved by this package. It has been altered but it certainly has not been halved. As the Ralph report and the government have said, there will be some circumstances where the rate of tax on gains made in the future will actually increase, not decrease. There will be circumstances where the rate of tax decreases. The reason for this is that we are moving to a nominal system of assessing capital gains. Previously it was possible to make a capital gain but to pay no tax on it. This arose because of the indexation provisions, which kept that amount relating to inflation out of the capital gains tax base, or because of the design of the averaging provisions.

As the interim Ralph report, called A platform for consultation, noted at page 308, there has been significant abuse of the averaging provisions. This occurred through taxpayers effectively obtaining multiple tax-free thresholds by ensuring that they only earned capital gains. This meant that wealthy taxpayers could earn more than $25,000 per family member and pay no tax—a very unfair situation compared with a family earning the same amount of income through the PAYE system. That huge anomaly is being addressed. These taxpayers, these avoiders, will now face significantly higher taxation on these capital gains.

There are also a variety of important integrity measures concerning capital gains tax in these bills. The provisions concerning value shifting and multiple loss creation are also important initiatives which improve the integrity of the capital gains tax base. They attack avoidance and abuse and will contribute to a stronger, surer revenue base into the future.

The other area of capital gains tax avoidance which needs comment is the incentive for schemes to convert income into capital. There was excitement in the tax planning industry when the government made its initial announcements. There were lots of people going public about the schemes they were already starting to devise to avoid the new tax. This was a genuine threat to the revenue neutrality of the package. If this behaviour was allowed to flourish there was a genuine threat to the revenue base into the future. What we would have seen would have been a return to the pre-1985 system where, if you were wealthy and smart, you were able to design your tax structures so that you paid almost no income tax so, as usual, the better off would have had an opportunity to benefit at the expense of the hard working battlers who pay their tax and contribute to our society.

That is why Labor fought for, and won, the strong new general anti-avoidance provisions which will be inserted into the legislation during the committee stage of this debate. This new measure will ensure that the Australian Commissioner of Taxation has the undoubted power to attack schemes which seek to convert income to capital gains—no return to the pre-1985 system, no return to taxation being optional for the rich. This is an important victory in Labor's war against tax avoidance. This is a necessary tool in the armoury of the tax commissioner to fight all those smarties and spivs out there who always seek to abuse our tax laws.

People should remember that if it is argued that the new structure will lead to planning opportunities, that is exactly what Senators Murray and Lees were planning to support. They were engaged in negotiations with the Treasurer to support the measures before us today with some slight variations. We expect now to hear them say that they do not support the arrangements, but people should remember that they accepted the principle of moving to a nominal capital gains tax system. They were reported as arguing for a 45 per cent cut in the nominal rate as opposed to a 50 per cent cut. What a great deal! Then they could argue that the principle is now wrong, but if the cut was 90 per cent of what is in this bill, the Democrats would be supporting it. We can see this hypocrisy for what it is.

Let us be clear about the revenue neutrality of this package. It has to be revenue neutral, not only in the medium term but in the long term. We have ensured that appropriate anti-avoidance measures will be enacted to stamp out the conversion schemes. This will stymie the new schemes but, of course, we need eternal vigilance in this area. We know from history that all it takes is one adverse court judgment and a hole may emerge. That is why the government have to ensure ongoing revenue neutrality. If they do not, Labor will be up the government like a rat up a drainpipe.

This task will be never ending. The Treasurer has to live up to his responsibility and to his word on these issues. This government has given a commitment that it will empower the tax commissioner to give no quarter to the spivs in this country who design tax avoidance schemes to get around these laws. That is the challenge for this government. That is what we have signed up to with this government. This government has promised us that it will not stand back and allow the tax base to be eroded by the spivs, the smart-money accountants and the wealthies. Hopefully, through the amendments we are moving, we will find a way to shut down this area but, as has happened in the past, when a government moves to block one hole the spivs and the smarties find a way to unblock another.

This government has given us a commitment that it will block every hole at every turn. What we want is a fair share paid by everybody. It should not matter how much you earn or whether or not you can afford a smart accountant—people should pay their fair share. That is what we have negotiated in this package. I look forward to the contributions from other senators. I hope we can ensure that this legislation goes through, as the Democrats promised, by Christmas.