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Wednesday, 18 February 1987
Page: 224


Mr CARLTON(10.54) —We are discussing the Taxation Laws Amendment Bill (No. 5) 1986 and, cognately, the Income Tax Amendment Bill, which will merely put into effect taxation measures in the first Bill. The Taxation Laws Amendment Bill (No. 5) deals with three major matters. First, for the 1987-88 and subsequent years of income, provisional tax is to be payable by quarterly instalments, rather than in one lump sum, where the provisional tax liability exceeds $2,000. This measure was announced by the Treasurer (Mr Keating) in the September 1985 taxation statement in this House.

The second proposal within the Bill is to treat as assessable income realised exchange gains, or as an allowable deduction, exchange losses, to the extent that the gains or losses are related to the production of assessable income or to the carrying out of a business for that purpose. That measure was announced on 18 February 1986. The third proposal in the Bill is to treat dividends paid on short term-that is, two years or less-redeemable preference shares as ineligible for the intercorporate dividend rebate and to allow a tax deduction to the payer of that dividend; that is, effectively, to treat such distributions as interest rather than a dividend. That measure was announced by the Treasurer on 7 April 1986.

The Opposition has no objection to the second two of these measures. We believe the change in the treatment of exchange gains and losses to be a sensible measure, particularly given the new developments that have occurred since the floating of the Australian dollar. We also support the deregulation of financial markets, and certainly the wider range of external transactions which Australian corporations have been dealing with, together with the measure to treat redeemable preference shares under certain circumstances much in the same way as interest payments. That closes off a loophole in the taxation system and follows more or less along the lines of the kind of loophole closing initiated by the current Leader of the Opposition (Mr Howard) when he was Treasurer. So we raise no objection to those two measures.

However, we have considerable concern about the provisional tax measure. We also have considerable concern about the very long delay between the announcement of this measure and the other measures and their introduction in the House. We have a very grave concern about the cumulative impact of these measures on business. The provisional tax measure alone advances income tax payments by provisional taxpayers by $90m in one year which, in itself, is not an enormous amount in relation to total company and personal tax but, if added to the other burdens which have already been placed on taxpayers by this Government over the last couple of years, could well be the straw that breaks the camel's back. On behalf of the Opposition I will move an amendment at the Committee stage relating to the provisional tax, which I shall explain shortly. In the second reading stage I move on behalf of the Opposition:

That all words after `That' be omitted with a view to substituting the following words:

`whilst not declining to give the Bill a second reading, the House-

(1) expresses its concern over the excessive delay in the introduction of the legislation, relating as it does to measures announced as long ago as 19 September 1985;

(2) deplores the creation of uncertainty and confusion among taxpayers and in the business community due to the failure of the Government to present these and other measures to the Parliament within a reasonable time after their announcement, and

(3) condemns the Government for imposing an excessive tax burden on business, thus inhibiting new investment in productive enterprises'.

This amendment will be seconded by the honourable member for Curtin (Mr Rocher). Let me deal first with the issue of the provisional tax. The measure that has been put forward changes the system of payment of provisional tax for anybody liable to more than $2,000 provisional tax in a year. It means that, instead of having one single payment for provisional tax, the payment will be made in quarterly instalments. So from 1 July 1987 those with a liability over $2,000 will receive quarterly instalment notices from the Australian Taxation Office. The due dates of notices are to be no earlier than 1 September, 1 December, 1 March and 1 June. For this year only, the September instalment will be combined with the instalment for December, payable no earlier than 1 December 1987. Variation provisions will still apply. But if the taxpayer receives more than three-quarters of his or her gross income after 1 December in any tax year he or she will be able to apply to the Tax Office to pay by two instalments due no earlier than 1 February and 1 June respectively.

Some people might welcome the opportunity to pay their provisional tax in four instalments rather than in one, but there are very considerable concerns about the additional administrative burden to businesses and their tax agents with this measure and, of course, very considerable concern about an extra $90m in tax being drawn forward by the Government over the course of this year which will lead to very severe cash flow problems for businesses already suffering from extraordinarily--

An incident having occurred in the gallery-


Mr CARLTON —There has been an interjection from the gallery to say that workers are the ones who are paying. Indeed, it is the workers who do pay. The Labor Government tries to suggest all the time that somehow taxes imposed on the business community are not paid by the workers. Every tax in this community, whether it is levied on a business or on individuals, eventually becomes a tax on the worker. That is becoming clearer and clearer to workers in Australia. This is a high taxing Government, both on workers and on businesses. If business taxes go up, then the charges and prices of business get passed on to the worker. That is a fundamental truth which is increasingly being understood by all sections of the community. I make it clear that the Opposition is not arguing any special case for business as such. It is merely arguing a sensible economic case which indicates the very bad effects of the overall tax measures of this Government. The concerns of the business community about this measure are expressed quite well in a letter from the National Farmers Federation to the Treasurer (Mr Keating) of 10 February 1987. I will quote from the letter because it puts the argument very well. It states:

The proposed arrangements will result in many primary producers being required to make provisional tax instalments in advance of the accumulation of the taxable income to which the tax applies. This is contrary to the fundamentals of income tax and would be an unjustified imposition on the taxpayer.

The provisions applying to primary producers in the proposed arrangements also make no allowance for the unpredictability of primary production income. Seasonal conditions affect both receipts and expenditure to the extent that taxable income cannot be estimated with any reasonable accuracy until the year is well advanced. For example summer storms or fires in a mature crop may totally alter income expectations from one day to the next. Similarly the temperature and rainfall patterns in late summer and autumn can substantially alter expenditure on stockfeed and cultivation for crops.

NFF considers that it is impractical to require primary producers to estimate taxable income any earlier than is currently required. Earlier estimation will necessarily result in substantial errors and over or under payment of tax instalments.

The Government has recognised through income averaging that separate arrangements are necessary to maintain equity for those taxpayers who have variable incomes. A large majority of those taxpayers using income averaging would also face problems under the proposed provisional tax requirement because of unevenness of income and unpredictability of income.

Those remarks apply not just to the farming community, as is described by the National Farmers Federation, but to the tourism industry, where there are variations because of climatic changes and so on.

The Tax Office's own book on provisional tax when talking about penalties for incorrect requests for variation of provisional tax gives the example of a person with a rental property at a resort who lodges a request for variation on provisional tax because the weather has been bad and the property has been vacant for much of the season, but after the variation request is lodged the weather improves and the property is fully rented for the rest of the season. In that case had the owner of the rental property applied for a variation of his provisional tax he would have been in a lot of trouble because if there is an underestimate by more than 10 per cent in the amount of taxable income other than salary or wage income on such an application there is a penalty of 20 per cent of the underestimated provisional tax.

In other words, the Government might say that there is always an opportunity for taxpayers to put in what it calls a PTV-a provisional tax variation request. But if taxpayers get that wrong-and it is a very severe worry for them that they will get it wrong-they cop a 20 per cent taxation penalty. So not many people put in for such variations. What happens, therefore, is that the Taxation Office assumes that there will be an 11 per cent increase on the previous year in the income that is subject to provisional tax, and the taxpayer basically has to accept that. Under this new arrangement, the taxpayer has to accept it over quarterly instalments when income may be highly variable over the course of the year. What the Opposition will do on this measure in a practical sense is move an amendment in Committee which will enable people currently subject to averaging provisions under the Income Tax Assessment Act to stick to the old system if they wish.

I go to the broader considerations here. I first refer to the question of delays. Over the last couple of years the Treasurer has introduced an enormous number of new tax measures. In fact, in the new consolidated Act that was published just recently, making allowances for Acts that were introduced between the September statement of 1985 and the publication date of the consolidation, before 19 September 1985 the Income Tax Act, according to our new sums, had 1,230 pages. So we are talking about an Income Tax Act of 1,230 pages before the Treasurer's statement of 19 September 1985 rather ludicrously entitled `Reform of the Australian Taxation System' or otherwise RATS.


Mr Braithwaite —It is a total nightmare.


Mr CARLTON —Before RATS, which is a total nightmare, as my friend the honourable member for Dawson says, we had 1,230 pages in the tax Act. At the last count and before the Bill today an additional 708 pages were introduced by the Government on top of the 1,230, and with an additional 28 pages for the Taxation Laws Amendment Bill (No. 5) today, we have 736 pages of new tax legislation or an increase of over 60 per cent in taxation legislation since the Treasurer's so-called reform statement. That is quite extraordinary. One can imagine the very great difficulty for anybody having to cope with this-individual taxpayers, anybody with slightly more complicated affairs and certainly farmers and businessmen. These people will have enormous trouble in coping with all these changes. The sheer volume of the changes has caused severe constipation and, of course, that is going through the accounting and legal communities which are struggling to keep up in understanding and applying all these measures.

There have also been unconscionable delays in the introduction of legislation. The prize for this really goes to the resource rent tax. The resource rent tax was announced on 18 April 1984 to begin from 1 July 1984. That measure was introduced nearly three years ago, to commence two and a half years ago. The legislation was first sighted on 28 November 1986 and I think it is to be debated in the House next week. So nearly three years after the announcement of a resources rent tax we finally get to debate that legislation in the House. Oil exploration in Australia is at an extraordinarily low ebb, the Bass Strait reserves have been depleted and there is an urgent necessity, particularly because of our balance of payments problem, to promote oil exploration in Australia. Yet the presentation in legislative form of a tax which vitally affects the oil exploration industry and which, in fact, will inhibit oil exploration has been delayed by nearly three years.


Mr Hawker —This is disgraceful.


Mr CARLTON —What sort of priorities do we have? It is a total disgrace, as the honourable member for Wannon says. In Australia's critical balance of payments crisis, to have that sort of nonsense going on is absolutely outrageous. This applies to the other measures we have had. Imputation was announced on 19 September 1985, to commence from 1 July this year. It was changed completely in its nature in a Press statement by the Treasurer on 10 December 1986, but no legislation has yet appeared. Imputation has profound implications for business planning and business investment in Australia. The fringe benefits tax was announced on 19 September 1985. We did not see it here until 2 May 1986. The capital gains tax, announced on 19 September 1985, was not seen here until 22 May 1986, which caused enormous uncertainty and confusion. We find that the provisional tax proposal, announced on 19 September 1985, is being debated today, an enormous 17 months later, when people are obviously concerned about the precise nature of that legislation.

We have delay creating uncertainty, an enormous volume of legislation creating uncertainty, a backlog in people's understanding of this complicated legislation and, finally, there is the financial impact on the business community of all this legislation. Let us look at that. There are 139 pages of complicated legislation in the fringe benefits tax and the full year revenue, estimated initially at $575m, is going up. Everybody says that the fringe benefits tax is bringing in a lot more money than was estimated. It is having a far more deleterious effect on business than even the Government thought it would have. The motor car industry, which has been the industry most harmed by that tax, has had a decline in its total registrations in 1986 of about 24 per cent over 1985. The December 1986 registrations have declined by 21.9 per cent over the previous December; the lowest monthly December figure since 1967, heaven forbid. The motor industry has been totally destroyed by this Government and the fringe benefits tax is the thing that has pushed it over the edge. Revenue from the fringe benefits tax is $600m to $700m.

The capital gains tax-for which there are 130 pages of legislation-was said to cost $25m to business and individuals but is likely to be very much more. The non-deductibility of entertainment expenses, which was linked with substantiation, has 55 pages of complicated legislation. It is an estimated additional burden of $330m to the business community and substantiation imposes an additional $105m, rising to $200m over four years. Negative gearing proposals for rental properties, for which there are 47 pages of legislation, raise an additional $100m, wipe out the private rental market and double the queues for Housing Commission homes. This is the compassionate Government we have, and that is what negative gearing has done. The burden is $100m, rising to an additional burden of $195m in 1990-91. The increase in company tax from 46 per cent to 49 per cent, expected to raise annually an additional $475m, provides some offsets to individual taxpayers but the burden is on business originally-$475m additional tax-when company tax rates in competitive countries around the world are going down to below 40 per cent. That is why a lot of our money is going off-shore.

Under the quarterly arrangement for the payment of provisional tax, an extra $90m is brought forward. Adding these up, we get an annual increase in the burden on business of somewhere between $1,600m and $1,800m. Is it surprising that private fixed investment is flat, that businesses are not investing in Australia and that money is being sent off-shore at an increasing rate? Together with the other inhibiting factors for investment, is it any wonder that Australia is in the extraordinarily difficult balance of payments position that it is in?

The basic stark economic facts of life for Australia at the moment, which the Business Council of Australia highlighted yesterday and which even the trade union leaders understand-although it is not reflected in their submissions to the Australian Conciliation and Arbitration Commission-are that Australia is broke internationally, owing $100 billion overseas, and is required to spend 40c of every dollar of its export income in servicing its overseas debt. Australia is on the rocks, and to get it off the rocks we have to encourage private fixed investment in productive enterprises. Why are we not getting that investment? It is not only because of tax. If we have 10 per cent inflation and it is 2 per cent everywhere else, 20 per cent interest rates and they are less than 10 per cent everywhere else, an impossible industrial relations system-I will come back to that in a moment-and on top of that a tax system which has added $1,600m to $1,800m burden on to the business community in the course of only 12 months, heavens above, how are we going to attract investment in Australian industry from Australians and from people overseas?

About two or three weeks ago I visited Tokyo to discuss these matters with senior Japanese Government people, economists, business people and financiers. I had the opportunity to have a meeting with Mr Amaya, a senior adviser to the Japanese Government and the leader of the Japanese investment group which has recently visited Australia. Mr Amaya has just returned to Tokyo after leading a group of about 100 Japanese businessmen and investors to examine Australia as a place in which to invest.


Mr Cunningham —I hope you encouraged them to invest and have not been doing what some of your mates have been doing.


Mr CARLTON —In response to the honourable member for McMillan, I will tell him what I did. During the discussions with Mr Amaya, which were quite lengthy-over a meal, in fact-with the Australian Ambassador in Tokyo, the Australian Government Treasury representative in Tokyo and others, we discussed the attractiveness of Australia as a venue for investment. We went through all the good points about Australia. I advise the honourable member for McMillan that when I am abroad, dealing with people who could have a substantial influence on Australia's well-being and investment in Australia, I am a loyal and patriotic Australian. I put Australia's case as best I possibly could. Of course, Mr Amaya is somebody who knows the Australian scene very well. He was the Ministry of International Trade and Industry representative in Sydney many years ago and since then has been a very senior man in the Japanese Government.

In the course of this discussion Mr Amaya said that he had a very high regard for Australia and Australians and he recognised all the positive elements of Australia as a venue for investment, but he raised the problem of industrial relations in Australia as one of the factors that were not conducive to people risking their investments here. I will not go into what I said about that, but I repeated, in effect, the case that is currently being put by the Prime Minister on this matter, which was put in Davos and other places. I believe that those who were present would believe that I did not sell Australia short. Consider my extraordinary embarrassment when I got back to Australia, when Mr Amaya's delegation was just about to arrive in Australia and the coal unions brought out the coal miners in a national strike. So, on the day that 100 Japanese investors and businessmen were arriving in Australia to look at Australia as a place in which to place investments which would be to the benefit of all Australians, the coal unions brought out the miners on a national strike. That is quite extraordinary, because in that industry, a couple of years before, a deal had been done for benefits which were to be offset by a no-strike provision. That was a clear deal, such as in the steel industry deal, which honourable members know about, and the same thing happened there.

The report of the Steel Industry Authority, which was put down in this House just before we rose last year, made it clear that the unions which had solemnly signed that agreement, which provided for taxpayers' support for that industry and a guaranteed domestic market for steel, had, by industrial disruption in Wollongong, ruined the productivity objectives of the whole Steel Industry Authority and of the whole agreement. Those are two cases of the way in which the present industrial relations system works to the disadvantage of Australia as a venue for investment. Certainly, when the Japanese group came here, we were humiliated by having all our mines closed down in an area where Japan is our biggest customer and where the miners knew throughout that that was a critical factor in the Japanese making their investment decisions.

I really find this an utterly impossible situ- ation. This is a Government whose economic policies have failed to the point where we have 10 per cent inflation versus 2 per cent everywhere else, 20 per cent interest rates compared with 10 per cent or less everywhere else, and an impossible industrial relations system in which even its mates cannot be relied upon to do the right thing. Even when the biennial conference of the Australian Labor Party was held in Hobart last year, its mates in the Federated Storemen and Packers Union closed down petrol supplies in Sydney and Melbourne. At the very time when Crean and Kelty were making big fellows of themselves as economic managers in Hobart, the refineries in Melbourne and Sydney were closed down with an outrageous dispute.

Australia has to wake up to itself. What I am saying in this debate is that the taxation component of this legislation, heaped on all those other disabilities, is crippling private investment. There is no hope of Australia getting out of its balance of payments problem-of trading its way out or investing its way out-when people who want to invest have loaded upon them an extra $1,600m to $1,800m in taxes in one year, when the personal income tax rates are too high and when the whole system is crippling any incentive. Who will be motivated or have the incentive to invest in Australia until this Labor regime is out of office? Nobody, in my view; the sooner it is out of office the better.


Madam DEPUTY SPEAKER (Mrs Darling) — Order! Is the amendment seconded?


Mr Rocher —I second the amendment and reserve my right to speak.