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Thursday, 31 May 1979


Senator WALSH (Western Australia) -I wish to raise two matters in this first reading debate. I am raising them somewhat later than I had expected. The first matter is the inability or refusal of Senator Webster as the Minister representing Mr Sinclair in this place to comment on a study of the ultimate taxation consequences of income equalisation deposits. The second matter is a promise, which the Prime Minister (Mr Malcolm Fraser) gave in India earlier this year, to export 20 merino ewes. On Wednesday of last week I asked Senator Webster, as the Minister representing Mr Sinclair a question. ( Quorum formed).

On Wednesday last week, I asked Senator Webster, as the Minister representing Mr Sinclair, whether Mr Sinclair was aware of a study by Queensland Department of Primary Industries economists which showed that the use of income equalisation deposits by farmers could increase the total tax liability over a period. Not surprisingly, Senator Webster was not able to say whether Mr Sinclair was aware of the study. He expressed surprise and doubts about its accuracy, but asked to be supplied with the articles in question. On Friday of last week, Sentator Webster's office was supplied with the references to the articles in question, which are available from the Parliamentary Library.

Yesterday I asked again whether Senator Webster knew whether Mr Sinclair was aware of the study and, if so, why Mr Sinclair continued to exhort farmers to deposit money in income equalisation deposits. Senator Webster yesterday dodged the issue by saying that he did not know what Mr Sinclair knows, which may well be true, but after seven days- and it was a full week since the matter was first raised- he should have made it his business to find out whether Mr Sinclair was aware of this study and to tell me and the Senate what Mr Sinclair's views on it were and whether he concurred with its findings. So at best both Senator Webster and Mr Sinclair are negligent. I think that it is more likely that they are afraid to let the cat out of the bag. It is a fact that income equalisation deposits for the first four months of this year are significantly lower than they were for the same four months of the previous year and that there is no sign of the balance in the trust account increasing over that period in spite of the very high farm incomes.


Senator Thomas - You would accept that tax averaging is another issue that would reduce the amount of income that farmers would put into IEDs.


Senator WALSH - There is a very close link between the two and I will incorporate the study afterwards, subject to agreement. The reason for this anomaly is linked very closely to the changes to tax averaging which were made hastily in a panic move by the Government in 1 977. There is also a link between income equalisation deposits and the Primary Industry Bank of Australia because $30m has been provided already by the IED trust account at an interest rate of 5 per cent to the PBA. The PBA is broke. It went broke a month ago. I suggest that the Government has ambitions of bailing the PBA out of bankruptcy by transferring to it more money at this 5 percent interest rate from the income equalisation deposits. But it cannot do that unless the amount deposited in the IEDs increases. The study to which I refer and which was conducted by the Queensland DPI shows that a medium-income farmer who makes a deposit in a high income year and withdraws in a low income year, which is the normal way in which IEDs would be used, actually pays more tax. At this stage I seek to incorporate in Hansard one of the examples which was shown in that study which demonstrates the point that I have made. It is the analysis by Moorehouse and Thompson of the Economic Services Branch of the Queensland Department of Primary Industry in March 1979. It was supplied to the Government about half an hour ago.

Leave granted.

The document read as follows

Tax saving in year of deposit.

Example la.

A primary producer has a taxable income of $20,000, less than $5,000 of which comes from non-primary production sources. His average income is $15,000. How much tax will he save by depositing $4,000 in IED 's?

Tax payable on $20,000 at average rate for $15,000 = $4,961 (See 'farm note' The Averaging System ( 1 ) for calculating tax payable ).

Taxable income after deposit is $20,000-$4,000 = $ 1 6,000.

 

Tax payable on $16,000 at average rate for $14,200 = $3,89 1.

Thus the investment of $4,000 inIED's would bring a saving in tax of $4,96 1 -$3,89 1 = $ 1 , 070.

Extra tax in year of withdrawal.

The taxpayer will withdraw theIED's in a subsequent year. What happens to the tax payable? Two situations are illustrated one when there is a low taxable income and the other when a loss has been made.

Example1 b ( Low income ).

Assume that in the year of withdrawal taxable income is $11,000 of which less than $5,000 is non-farm income, and average income is $ 1 6,000.

As taxable income is less than average, tax is calculated at normal rates.

Tax on $ 1 1, 000 = $2,38 1.

Taxable income after the IED is withdrawn is $11, 000 + $4,000 = $15,000.

 

Note. This calculation applies provided the deposit and withdrawal are more than live years apart. If the withdrawal is made within five years the withdrawal and deposit balance each other and there is no change in the average income. In the example taxable income is less than average income in both cases so there is no effect on tax payable. However it does highlight the need for careful analysis.

Again taxable income is less than average and tax is calculated without reference averaging.

Taxon$l5.000=$3,721.

Thus the withdrawal of the $4,000 deposit would increase tax by $3.72 1 -$2.38 1 = $ 1,340.

In this situation the extra tax of $1,340 exceeds the initial saving in tax of $ 1 , 070 by $270. That is, the use ofIED's has resulted in $270 more tax being paid.

 


Senator WALSH - Not all the ramifications are considered in the analysis which I have just incorporated, but it demonstrates the inherent contradiction between the income equalisation deposit principle and the primary producers' averaging system after the Government's illconsidered adjustments to that averaging system in 1977. It demonstrates that the IEDs, which Mr Sinclair has been trying to flog all around Australia for months with all the zeal of an encyclopedia salesman, have no tax advantages for the great majority of farmers and a distinct possibility of tax penalties for some. An encyclopedia salesman who was attempting to sell merchandise whilst withholding such important information as the Government not only withholds but also refuses to acknowledge would soon be in trouble with the Trade Practices Commission. It is time that these matters were brought out in a more public way. It is time that the responsible Minister of this Government were flushed out and forced to come clean on their attitude to the study and whether they concur with its findings.

The second matter concerns a promise given by the Prime Minister in India last January during his mid-summer tourist jaunt. When in India he received a request, both in writing and orally, from Raymond Woollen Mills Ltd of Bombay to guarantee the delivery of 20 merino ewes- not rams. This was subsequently reported in some of the agricultural weeklies- and I have spoken directly to some of the journalists who were present- that that was stated quite clearly. The Prime Minister's response to that written and oral request was to guarantee that the sheep sought- 20 merino ewes- would be delivered, saying as he did so that no unions would be allowed to interfere with exports as the Government would not tolerate it. Be that as it may, the export of ewes is forbidden by the Government's own policy. So compelling apparently was Mr Fraser's penchant for grandstanding when abroad that either he contradicted his own Government's policy or he did not know what the Government's policy was and is.

On 27 February, I asked Senator Carrick, without notice, whether Government policy had been changed or whether Mr Fraser had contradicted it. Senator Carrick told me that he would refer the query to the Prime Minister for an answer. On Tuesday I received that answer and it is in Tuesday's Hansard on page 2299. The answer repeats the Government's policy and gives the background to the Government's adopting it. The section in that policy which is relevant in this instance is:

The prohibition to be continued on the export of merino ewes ova and semen-

Mr Fraser,speaking through Senator Carrick, went on to say:

My remarks at Raymond Woollen Mills Ltd. India referred specifically to impediments to the export of breeding sheep attributable to trade union policy which may deter purchases by export customers. They were not intended to define the type of merino breeding sheep permitted for export by the Government:

It was not necessary for the Prime Minister to define that because the sex of the sheep for which a guarantee of availability was sought was specified quite clearly in the request that the

Prime Minister received. The request to the Prime Minister was for a guarantee that 20 merino ewes would be made available to this firm. The Prime Minister guaranteed that they would be available. It was not necessary for him to specify the age, sex, colour or breed of the sheep, because the sex of the sheep was specified in the request which the Prime Minister not only acceded to but also guaranteed. In saying that those remarks were not intended to define the type of merinos, he is trying to dodge the issue. His answer did not explicitly specify the sex, but the question did and he answered yes to the question. The request was for ewes and the Prime Minister guaranteed delivery. I repeat: Either his penchant for grandstanding when abroad is so great that he does not care what he says, or he did not know what Government policy was and is, and he is trying to evade the issue now. Or perhaps one could say that his promises in India have the same value as his promises in Australia. In that regard he appears to be incorrigible, but before he again makes a fool of himself grandstanding abroad, I suggest that he ought to find out what the policy of his own Government is.







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