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Wednesday, 7 September 1983
Page: 463


Mr HOWARD(11.48) —The Opposition parties will oppose these measures at all stages in both Houses of the Parliament. This batch of legislation is further evidence of the bankruptcy of the claim made by the Australian Labor Party in opposition that the former Government had been soft in its efforts to pursue and curb the incidence of tax avoidance in our community. We have now had a period of six months in which the Labor Government, under the stewardship of two Ministers responsible for taxation matters, could have demonstrated to the community that there were left untouched large areas in which sophisticated and costly tax avoidance measures had flourished, and had been allowed to flourish, by the former Government, to the detriment of the entire community. The fact that after six months all the present Government can do is to produce a scaled down version of the Dawkins legislation that was rejected by the Parliament in May of this year is a clear and dramatic demonstration of the fact that the charges made by the Labor Party in opposition that the former Government had been soft on tax avoidance were utterly false. The Government demonstrates by its inaction how false those charges were.

If those charges had been correct why have not we in this Parliament been treated to Bill after Bill closing down all the loopholes that we left untouched ? Why has not the Treasurer (Mr Keating) come into this Parliament with anti-tax avoidance measure after anti-tax avoidance measure? Why is it that the only anti -tax avoidance legislation that the Government can produce is legislation that retrospectively imposes a penalty on people who are already liable to pay evaded company tax under the provisions of the former Government's legislation? I say to the Minister for Housing and Construction and Minister Assisting the Treasurer (Mr Hurford) that, although he was not one of those in opposition who regaled the former Government about its alleged inactivity in the area of tax avoidance, he is going to hear plenty from us in opposition about what the former Opposition said on this subject.

The fact is that the former Government covered the field. It was the former Government that launched a blitzkrieg on tax avoidance in this community and it was the former Government that effectively closed down the tax avoidance industry. The fact is that we have nothing better from the Government than this scaled down but still objectionable version of the legislation, which was not really anti-tax avoidance legislation but in many parts retrospective capital gains tax legislation and which was rejected by the Parliament in May. So not only does the Opposition state here and now that it will oppose this legislation at all stages in both Houses of the Parliament but also it states quite categorically that this is further evidence of the emptiness and bankruptcy of the claim made by the Labor Party in opposition that we have been soft on the tax avoidance industry. It is the Government which has demonstrated this by its inaction and its inability to act because there are no substantial sophisticated tax avoidance arrangements left to strike at.

If my claim is wrong I invite the Treasurer, the Minister Assisting the Treasurer or indeed anybody else on the Government side to point out during this debate the tax avoidance schemes that we have not taken action against and that this Government is taking action against. In the course of doing so I invite them to explain why, after six months of government, the Government has not taken some action against these tax avoidance arrangements. That was a hypocritical claim when it was made and it has been demonstrated to be a totally hypocritical claim by the fact that the Government has not taken any action.

The Opposition will oppose both of these measures at all stages in both Houses of the Parliament. The Taxation (Unpaid Company Tax) Assessment Amendment Bill 1983 [No. 2] is a scaled down version of the legislation that was rejected by the Senate in May of this year. Although it does not contain some of the more objectionable provisions that were contained in that legislation it is still objectionable on a number of quite significant grounds. The Bill retrospectively imposes a totally new liability for personal income tax, unlike the previous Bill which recouped a tax liability which already existed and remained unsatisfied. This legislation imputes a distribution of lawfully retained earnings, already subject to recoupment tax under the Fraser Government's legislation, in the hands of the vendor shareholders.

We put it to the House that there is a vast difference between a piece of legislation that on the one hand says 'We are going to recoup, albeit from those who gain the benefit, tax which has been illegally evaded but was always due and payable' and legislation such as this which says: 'It is not enough to have recouped what should have been paid in the first place, but for good measure we are going to make scapegoats out of the people who have been subjected to that recoupment legislation'. We are going to impose retrospectively a totally new taxation liability. We are going to impose a penalty in a backdated manner on people who have already met their lawful debts under the previous Government's recoupment legislation.

That is not good enough for this Government. It has not been able to find any genuine examples of tax avoidance that have been left untouched by the Fraser Government. Honourable members opposite want to demonstrate how tough they are and how good they are, so they can go before their branches and say: 'We are doing something about tax avoidance. We are going to make scapegoats out of the people who were made subject to the recoupment legislation'. If that is not an empty, barren exercise in this whole area I cannot think of one that is. It is a phoney, cynical, hypocritical exercise on the part of the Government to parade this legislation as genuine anti-tax avoidance legislation. No doubt honourable members opposite will say to the community: 'Those terrible people in the Opposition parties, they are stopping us from implementing our mandate; they are stopping us from implementing our program'.


Mr Hurford —Hear, hear!


Mr HOWARD —'Hear, hear' says the Minister. I will say something about the Labor Party's mandate on tax avoidance in a moment. Labor Party members will say to the community: 'These terrible Liberals and these terrible people in the National Party are frustrating the mandate of the lawfully elected Labor Government. If they did not interfere with this legislation we would be able to do all of these other you beaut things'. The fact is that that is a McCarthyist tactic. It is based on the well-known McCarthyist principle that first of all one finds a scapegoat, then one makes the most extravagant claims under the sun about that scapegoat and then one repeats the lie upon lie, upon lie. It is an exercise in McCarthyism to brand those who oppose this legislation as being friends of the tax avoidance industry. It is a total exercise in McCarthyism for that sort of attitude to be taken.

Let me remind the House that the Attorney-General (Senator Gareth Evans), when he was Opposition spokesman on legal matters, before calmer forums and when questioned about the attitude of the Labor Party in government towards retrospective legislation in the taxation area, stated on 1 November:

Our legislation would not be penal in character but simply seek to recover-like the Government's bottom of the harbour legislation-the tax which was avoided.

They were the words of Senator Evans who is now the first law officer of this Government. I am going to test this legislation against that promise made by Senator Evans when the Labor Party was in opposition and demonstrate how much the Labor Party has departed from that commitment and to what extent this legislation totally corrupts the principle that was laid down by Senator Evans when the Labor Party was in Opposition.

This legislation is penal in character. How else does one explain the fact that under this legislation only a very small number of companies are treated in a penal manner? How else can one explain the fact that under this legislation only a fraction of private companies which have retained earnings lawfully gained, on which company tax has been paid, are singled out for this discriminatory treatment? As I said a few moments ago, it has not been enough for this Government to say to vendor shareholders: 'You should never have engaged in these schemes in the first place. We supported the former Government's efforts to recover the illegally evaded company tax. That is in the process of being paid, but as far as we are concerned that is not enough. We have to go further. We have to make a punitive, discriminatory scapegoat example out of you and we have to slap this penal tax on you'. By doing that, the Government is going totally against the undertaking that was given by Senator Evans on 1 November. This legislation is not only penal but also highly discriminatory. It effectively imposes a penalty under the false and misleading description and guise of being recoupment of illegally evaded and unpaid tax.

This legislation is not directed at tax which is still outstanding. This legislation is directed at retrospectively and artificially imputing a distribution of retained earnings to certain vendor- shareholders in private companies and putting a personal tax on it. By no stretch of the imagination or no twist of the English language can that be other than a penal tax upon the activities of this group of vendor-shareholders.

The Government has, in effect, said that because people have been involved in these schemes it will not only recover the tax illegally evaded, which was achieved by the Fraser Government's legislation, but also, for good measure, punish those people with an additional penalty and a discriminatory tax. The Government might earn a few more marks if it came into this Parliament and said: 'Well, that is really what we are doing. We are singling these people out. We are putting them up against a wall and saying: ''You paid your debts to society by meeting your obligations under the recoupment legislation, but that is not good enough because we need some scapegoats on this issue. We said we would do a lot about tax avoidance and we cannot find any areas that the former Government has left uncovered so we are going to have to single you out and impose a penal tax on you''.' That is the substance of what the Government is doing in this area. It is one thing to recover unpaid tax through retrospectively shifting the liability to those who have gained the benefit of the non-payment, which was the effect of the Fraser Government legislation. It is entirely another thing to impose retrospectively a totally new taxation liability.

This Bill has three glaring anomalies. Firstly, the new tax liability applies only to a small fraction of companies and is, therefore, highly discriminatory, and that discrimination cannot be justified on any ground other than the determination of the Government to treat the people who were involved in these schemes in some kind of penal manner. As I said, the Government would earn some marks if it were honest enough with this Parliament and the Australian community to concede that that is precisely what is happening in this particular situation .

Secondly, if the companies concerned had been sold to any other purchaser under exactly the same conditions, the liability under this legislation would not have arisen. Once again that demonstrates not only a glaring anomaly, but also a clearly discriminatory approach by the Government. It is an approach that cannot be justified other than on the basis of the scapegoat principle. The Government has to find somebody to shoot, so this group of people might as well do. Nobody likes them because they have been involved in bottom of the harbour schemes. The fact that they have already paid up under the former Government's legislation the tax that was illegally evaded is not really to the point. Let us not worry about the mere technicality that they may have met their liabilities under that legislation. Let us not worry about the fact that we are retrospectively imposing a penalty. That is a minor detail in the eyes of the Government determined to get a few token runs on the board in the tax avoidance debate.

Thirdly, of course, if any of these companies had continued in business-as is known by the Minister Assisting the Treasurer, Mr Hurford, who is at the table, and the honourable member for Hunter (Mr Robert Brown) and others who follow these matters very carefully and occasionally bring some objectivity to these debates-these taxation liabilities would not have arisen.

I turn now to the second reading speech of the Minister Assisting the Treasurer . He quite wrongly described the after-tax profit as taxable dividends if the companies had continued to operate as going concerns. That is quite wrong. What guarantee had the Minister that if the companies had continued to operate as going concerns there would have been a distribution of dividends? That is just an assertion on his part. It demonstrates the total artificiality of what he is doing by this legislation, and it exposes the wrong thinking behind this legislation. If these companies had continued to operate, it would not necessarily have followed that there would have been a distribution of dividends . That may not have, in fact, happened. The fact that the Minister made that statement demonstrates how artificial this legislation is. He makes a totally wrong assumption in describing the after-tax profits as taxable dividends. They become taxable dividends only if, in fact, there is a distribution-and if the company had continued in business there would not have been a distribution. But the Minister makes the totally false imputation that all the companies, in fact, made a distribution. This indicates just how false and artificial is the basis upon which this legislation has been erected.

The tax proposed to be recovered by this legislation cannot be regarded as tax lost to the revenue by virtue of the sale of vendor shares, nor can it be regarded as escaped personal tax. Any tax on retention allowances that is lost to the revenue is due entirely to the activities of promoters. I find it very strange indeed that a party which, during the last election campaign, made as part of its small business policy a commitment-the Minister would be very well aware of this-that it would totally get rid of what was left of what is colloquially called Division 7 tax. In other words, as a gesture towards the small companies in Australia, the Government was going totally to get rid of what remained of Division 7 tax. It has not done it yet, but I know it was a commitment for the lifetime of the Parliament. I make no criticism, at this stage, of the fact that that particular commitment has not been met. That, of course, was a commitment that recognised the importance to private companies in Australia of retained earnings. That measure was designed to help companies have greater use of their retained earnings. This legislation goes right against that . This legislation imposes an additional penal tax on retained earnings. It is based on a totally incorrect assumption that all retained earnings are automatically distributed. That illustrates the phoney basis upon which this legislation has been erected.

In some cases more than 100 per cent of the original profits earned will become payable as taxation under this legislation. The Minister looks at me rather quizzically. He wonders how I worked that out. I seek leave to have incorporated in Hansard a short and simple table which illustrates the truth of the proposition that I make.


Mr DEPUTY SPEAKER (Mr Mildren) —Is leave granted?


Mr Hurford —I raise a point of order. The usual courtesies are to allow the Minister at the table the opportunity to have a look at the document before it is incorporated.


Mr HOWARD —I am very happy to extend these usual courtesies.


Mr Hurford —A source is usually given on such a table. I recommend to the shadow Treasurer that, in future, he observe both those procedures-give the source and have the courtesy to let the Minister at the table know in advance.


Mr DEPUTY SPEAKER —Is leave granted?

Leave granted.

The table read as follows-