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Thursday, 19 February 1987
Page: 321

Mr HURFORD (Minister for Community Services and Minister Assisting the Treasurer)(10.43) —In closing the debate I thank members from both sides for their contributions. I was here for part of the debate yesterday and for part of the debate today. I am sorry that I was not able to be here all the time during what has been a fairly wide-ranging debate, in spite of some of the rulings from various people in the chair. These Bills, the Taxation Laws Amendment Bill (No. 5) 1986 and the Income Tax Amendment Bill 1986, mainly introduce an instalment system for the payment of provisional tax.

I must say I am pleased that the honourable member for Bradfield (Mr Connolly) is here, because his was one of the contributions I heard, and I thought it showed an appalling ignorance as to what provisional tax is all about. He gave the impression that those who pay provisional tax are worse off than those wage and salary earners who pay as they earn; but that is not so. Pay as you earn taxpayers have their tax taken from the source of their income. They do not even see the tax at any time, whereas provisional taxpayers pay nine months in arrears. They have received nine months grace and they are paying their provisional tax in the year the income is earned. At the moment they pay it on 31 March or some time thereafter. They have had nine months use of their money and have paid three months in advance. That has been the position to this point of time.

Yet the honourable member claimed that provisional taxpayers would be worse off under the instalment system in that the provisional taxpayer would have to pay his or her tax earlier than does the PAYE taxpayer. That is just not correct. The PAYE taxpayer pays tax week by week as the income is earned. I repeat that, under the proposed instalment payment system, provisional taxpayers who earn their income evenly over the year-there are special provisions to cater for people who do not earn their income evenly over the year-will pay each instalment of tax two-thirds of the way through the quarter in which they earn the income. The effect is to bring provisional taxpayers much more closely into line with salary and wage earners, but, generally speaking, not to make one group worse off than the other.

I do not want to suggest that what we say here is as acceptable as the opinion of people in an independent position. I draw attention to the business pages of the Sydney Morning Herald either yesterday or the day before-I forgot to note the date when I tore an article out of my copy of the Sydney Morning Herald. It is an article in the `In Your Interest' column by Peter Freeman headed `Provisional tax: new rules to ease pain'. I will just read some of the paragraphs from it so that objective listeners to this debate and readers of this debate will know how a respected financial journalist sees what is being done by this Government. The article states:

Due on March 31, provisional tax is a constant source of complaint for those people who have to pay it, with part of the problem being the fact that tax has long been levied as an annual payment.

For people whose provisional tax bill exceeds $2,000, the burden will be eased from the 1987-88 tax year with a new system of quarterly payments.

Later in the article it states:

Essentially, the provisional tax system hits hardest in the first year. Then, with the introduction of the quarterly payment system, it should not cause taxpayers too many financial problems.

For those paying the tax for the first time, the bill will be unpleasantly high since, in effect, you will be paying tax on your earnings for 1985-86 and estimated provisional earnings in 1986-87.

That is the view of an objective observer, instead of listening to the appalling rhetoric from members on the other side who are misleading people on this reform that is going through.

With this sensible set of taxation reform measures that we have before the House today, Opposition members even go so far as to move a second reading amendment. I will address that amendment. Paragraphs (1) and (2) refer to excessive delay, the creation of uncertainty and so on. The delay between the time of announcement of the measures covered by the Bill and the introduction of the legislation into the House is due entirely to the enormous amount of tax reform legislation required to correct years of neglect of the taxation system under the government of the people who are now in opposition, and who will stay in opposition because of those neglectful years. It was just not possible for our Government, given limited drafting resources-I pay tribute to draftsmen and draftswomen; they really are a very special group of people; their talents are very special; it is not easy to come by those talents; those people are enormously overworked-to have the legislation prepared sooner. Of course, we would have loved to have had it prepared sooner. We could have sat longer and enjoyed each other's company more. How could I want to be away from this House when I have such people as the honourable member for Mackellar (Mr Carlton) and the honourable member for North Sydney (Mr Spender) here to be with and with whom to exchange pleasantries from time to time. Of course, we would love to get this legislation through.

Mr Spender —I miss you on a daily basis when I am not here.

Mr HURFORD —I wish I could believe the honourable member. Of course, the introduction of legislation some time after announcement is not new. It is a necessary part of government. I give my pledge that we will do our best to bring in legislation as soon as we possibly can after the announcement is made. But some things are just impossible to do, given limited resources. Of course, the previous Government found that.

The provisional tax instalment provisions in the Bill do not have their first application until the 1987-88 income year. In that income year the first instalment is not payable until 1 December 1987. In other words, the legislation has been introduced more than 12 months before the first instalment falls due. It is difficult to understand why the Opposition should see this as creating, to use the words of its amendment to the second reading-which must be rejected by the Government-`uncertainty and confusion'.

I have already addressed the contribution by the honourable member for Bradfield. The honourable member for Dawson (Mr Braithwaite) was concerned about whether the Australian Taxation Office might put pressure on taxpayers to lodge their previous year's tax returns early to facilitate the calculation of the first instalment of provisional tax-due on 1 September at the earliest once the system is in full operation. The Bill clearly states that the first instalment in any year will always be based on the previous year's provisional tax. I draw the attention of honourable members to sections 221YA, 221YCA and 221YDAA. The taxpayer's ultimate provisional tax for the current year-calculated on the basis of the tax return for the previous year-is, therefore, irrelevant to the first instalment calculation. Even the second and third instalment calculations are based only on the current year's provisional tax if that amount is less than the previous year's provisional tax. In other words, the instalment system does not provide any incentive to the Commissioner of Taxation to seek tax returns earlier than at present. The Bill specifically avoids that result.

Lastly, I address the contribution by the honourable member for Denison (Mr Hodgman), who suggested that a taxpayer is required to object against a determination of provisional tax to have it changed. That is not correct. Any practitioner in this field knows that that is not correct. Most experienced business people who pay provisional tax know that that is not correct. It is quite appalling that the honourable member puts forward that suggestion in this House. The ascertainment of provisional tax is not an assessment. A taxpayer who believes that the Commissioner's provisional tax calculation is too high is entitled to make an estimate of his taxable income for that current year and to pay provisional tax on the basis of his own estimate. The estimate is not an objection; and no fee is payable-contrary to what the honourable member suggested. There are some penalties if one's estimate of one's current income is, I think, more than 20 per cent out. From memory of my tax practice years, some time ago, I draw to the attention of people that they should not put less than a great deal of care into their application to change the basis on which their provisional tax is payable when they make an estimate of their income in the current year, because penalties will apply if they are too far out in their calculations. However, in no way is this an objection and in no way is there a fee when the application comes in. With those words, I reject the second reading amendment of the honourable member for Mackellar and I commend the Bill to the House.

Question put:

That the words proposed to be omitted (Mr Carlton's amendment) stand part of the question.