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Tuesday, 4 October 1983
Page: 1309


Mr DRUMMOND(10.40) —I want once more to alert the House to the financial and bureaucratic nightmare that this Government has created with its prescribed payments system. A research paper prepared in the Parliamentary Library has suggested that 900 new positions will be required in the Taxation Office for people to work as field staff and simply to do the paper work. It is well-understood by small businessmen in the south-west of Western Australia that this withholding tax will disrupt cash flows. Even where there was an excess of deductions over tax liability, that cash would not have been available for use in the business.

We understand also the attitude of the Government as expressed by the Minister for Resources and Energy (Senator Walsh), who dismissed the effects of the tax by saying: 'Builders are always going to the wall; nothing is new about that'. Let me emphasise, however, that it is not just the reduction in cash flow that affects so many businessmen but the new burden of paper work. It has been reliably estimated that a builder contracts with about 25 sub-contractors on each house that he builds. On average, about 50 separate payments will be made among those 25. If 100,000 homes are built in a financial year, five million deduction forms will have circulated between the building industry and the Taxation Office-never mind the transport and cleaning industries.

Just because a business may have been lucky enough to secure an exemption or have a lesser sum deducted from its payments, it does not mean that the paper work reduces. All payments must be reported, and payer and payee each complete a detailed form. Honest taxpayers will suffer this burden as much as anyone. The system will impose costs on time and require extra staff that a small enterprise cannot afford. This nightmare of paperwork will extend to the officers of the accountants who must prepare the claims for reductions or exemptions from the prescribed payments. One accountancy firm in my electorate found that 90 per cent of its contractor clients supplied materials and paid wages, requiring a deduction of 10 per cent. Preparing estimates of cash flow for some 300 clients and typing and forwarding them to the Taxation Office would exceed some 500 hours. A further 50 hours would be needed if 10 minutes per client were to be spent in arranging interviews and explaining the legislation-a conservative estimate. So with the three principals of the firm working a 50-hour week it took four weeks constant work to complete the necessary information after 8 August, when mail could be first sent out. Inevitably, some of this administrative cost will have to be passed back to small business.

We must bear in mind also that the prescribed payments deductions of up to 25 per cent will not replace the existing tax obligations of small businesses, particularly quarterly tax instalments based on the previous year's profits. In simple terms, people will pay more tax and a refund at the end of the year will not compensate for the fact that money had to be borrowed to meet the extra costs, both the direct loss of cash and the increased cost of administration.

Unlike the provisional tax, which small business understands, this new tax will be levied on gross assessable income rather than net taxable income. It is a significant departure from what was previously considered fair. Any concerned Australian without vested interests in this matter would doubt the ultimate social benefit of eliminating the evasion in the cash economy at the cost of crippling so many legitimate small businesses. The value of the exercise diminishes further when we realise that a loophole has been allowed, exempting building work valued at less than $10,000 from being reported. Contractors who specialise in minor home repairs and improvements enjoy a privileged status. We all know that this is the classic area for cash payments by householders, and no further questions asked.

The operation of the prescribed payments system, as developed by the Hawke Government, makes as much sense as the manufacture of buckets with holes bored in the bottom. As an attack on the cash economy it will obviously be ineffective . In its wider context it makes no sense for a government to try to stimulate the housing industry while hamstringing Australia's builders with a drastic reduction in cash flow and a massive administrative burden.