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Wednesday, 13 May 1987
Page: 3084

Dr WATSON —My question is directed to the Treasurer. Is it a fact that when he introduced the capital gains tax he informed us that this tax would yield virtually no revenue in 1986-87, $5m in 1987-88, and only $25m annual revenue by 1991? Is it now a fact that in the forthcoming financial year the capital gains tax will yield the Hawke Government between $125m and $160m? Given this enormous discrepancy, how does the Treasurer justify the current rates of his capital gains tax? Finally, in view of the magnitude of this error in forecasting, how is it possible to accept Treasury forecasts in other areas of far greater difficulty, for example in relation to the ID card?

Mr KEATING —I must say that why someone who boasts some economic understanding would ask me why I support the current rates because the projected collection of the tax in question is up, really leaves me behind.

Mr Porter —Because it is a farce.

Mr KEATING —I will tell the honourable member. We have introduced a capital gains tax with full marginal rates of tax, but on the real gain. In other words, we are not out there taxing great slabs of inflation as were being taxed under the former Government's capital gains tax provision-the Russian roulette of section 26a. The reason why the collection is up is that many assets have been transferred, particularly in the frenetic activity on the stock exchanges, since September 1985. When the Government introduced the capital gains tax it did so fairly, grandfathering all assets in before September 1985. A lot of property and assets have been transferred since then to the extent that they are, to use an expression, ungrandfathered and taxed. Therefore, being taxed, those who have taken the benefits of that take the benefits as income, as other persons take the benefit as income in their weekly wage. Therefore, these people are paying the appropriate rate of tax. That is the answer to the central point of the question raised by the honourable member-they pay the appropriate rate of tax. If they hold the property, asset or shares over a period of time, the inflation adjustment takes from the calculation that inflationary component, and the real gain only is taxed. Then there is an averaging provision in case all that income happens to come in one particular year so as again to make the application fair. This is probably the fairest capital gains tax in the world, but it is reasonable one. The Americans are now moving to a capital gains tax at full marginal rates of tax on the nominal gain, not the real gain. There is no inflation washout. This notion that we should give people on wages and salaries taxes on their full income at marginal rates but let off with no tax those who take it through the stock market is about looking after people in a way that only the Opposition parties could disgracefully defend, as they did over the years. We are not about letting people slither through the tax system any longer, and that is why the capital gains tax is catching some of this income. That is why it has made the tax system patently fairer. Instead of sitting there protecting those with assets and trying to make them larger as they have become naturally over the years, particularly in the 1970s with inflation, members opposite should be barracking for a bit of tax justice and equity, a bit of common sense and tax decency. But all those principles were left well behind by the Opposition when it had to be dragged screaming in the 1970s into even cleaning up the tax evasion schemes. That is why the capital gains tax is collecting more money, that is why it should collect more money and that is why the rates are structured properly-to make the tax system decent and fair.