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Monday, 7 December 1998
Page: 1529


Mr BARTLETT (9:17 PM) —I am amazed at the hypocritical nonsense coming from the other side in this debate on the goods and services tax bills. I am absolutely appalled at their head in the sand approach which denies the real need for tax reform in this country. They somehow try to fool themselves into thinking that the current tax system is sustainable or workable.

This tax reform proposal is long overdue. It contains fundamental and widespread reforms that this country needs—reforms that will sweep away the inequities, complexities, contradictions and inefficiences in the current tax system. These reforms are necessary to create a fair system, one that provides incentives to work and to save, one that helps small business, one that helps exporters and one that is sustainable and will take this country into the next century. Yet Labor wants to pretend that the current system is fine. Labor wants to try and defend the indefensible. Labor is opposed to fairness, efficiency and incentive. Labor would rather support a system that is full of inadequacies, inefficiencies, complexities and inequities. Labor would rather tinker at the edges and apply more bandaids than do anything fundamental to improve the tax system in this country.

Anyone who looks at the current system in any amount of detail knows that it is fraught with problems. The direct income tax system and the indirect system are both fundamentally flawed. Compared to other OECD countries, our direct income tax system means we have far too much reliance on income taxes. Tax rates in this country are too high. Not only are they high but they are also constantly rising through the process of bracket creep or fiscal drag.

In 1954 someone on average weekly earnings had a marginal income tax rate of only 17.5 per cent. By next year someone on average weekly earnings will have a marginal income tax rate of 43 per cent and by the year 2003 a marginal income tax rate of 47 per cent. In 1954 someone on average weekly earnings paid an average tax rate of nine per cent; now it is an average tax rate of 25 per cent.

This system of rising marginal and average income tax rates is a system that the Labor Party seeks to defend—a system that is propelling average Australian income earners into higher and higher income tax brackets. In 1970, one per cent of this country was in the top income tax bracket; by the year 2000, 20 per cent will be in the top income tax bracket. Yet this is a system that the Labor Party seeks to try and defend.

The current system is just not fair to battling, hardworking Australians. Not only is the system not fair but it provides no incentives to the average worker to go out and work harder. The average worker who does a bit of overtime is faced with a problem of paying almost 50 cents in the dollar on every extra dollar that they earn. There is no incentive to do overtime, there is no incentive to study, there is no incentive to seek promotion and there is no incentive to save. Yet the Labor Party seeks to support a system that destroys all the incentive in this country.

The only incentive with the current system is an incentive to evade tax and avoid tax—an incentive to promote the burgeoning black economy in this country, a system that the Labor Party would seem to want to support. There is incentive for elaborate tax minimisation, tax avoidance and tax evasion methods. The trouble is that these are available only to the wealthy while the PAYE earner, who does not have access to elaborate tax avoidance schemes, gets slugged the full rate. The problem is that the current tax system, which is supposed to be progressive, loses its very progressivity because of the access of higher income earners to tax avoidance measures. Yet the lower income earners, the PAYE earners, do not have access to those tax avoidance measures. So the current system that is supposed to be progressive in fact loses its progressivity. Yet this is a system that the Labor Party seeks to support and tells us is working okay. We had the member for the Hunter trying to tell us what a wonderful tax system we currently have and trying to convince us that it needed no reform whatever.

The current income tax system creates poverty traps with the interplay between the social security system and the high marginal income tax rates. The loss of social security at some levels involves an effective marginal tax rate for some income earners of up to 70 per cent, yet the Labor Party seeks to support a system that provides no incentive at all to work and to improve and to invest. Furthermore, the current system provides distortions to investment decisions because they tend to be based on tax minimisation criteria rather than on real returns, yet Labor wants to entrench these inequities, to entrench these disincentives and to entrench these inefficiencies.

The indirect tax system is every bit as bad. It is an outdated system based on a wholesale sales tax which remains in only a handful of Third World countries. No modern industrial country has the sort of wholesale sales tax system that the opposition wants to burden us with for another generation. It is full of hidden taxes—it is almost dishonest in its secrecy.

Many of those hidden taxes that Labor supports are on necessities such as soap, toothpaste, toilet paper, detergents, fruit juices—taxed with Labor's unfair hidden wholesale sales tax system. It is full of inconsistencies and illogical rates—12 per cent, 22 per cent, 32 per cent, 37 per cent, 41 per cent and 45 per cent—illogical inconsistencies that Labor wants to support. Engagement rings are taxed, wedding rings are not. Flavoured milk is, plain milk is not. Biscuits are, caviar is not. Cars are, aeroplanes are not. Toothpaste is taxed, toothbrushes are not. What is the rationale for these inconsistencies? There is no rationale, yet Labor wants to burden us still with these inconsistencies.

Furthermore, the current tax system burdens small business with massive compliance costs, estimated now to be hundreds of millions of dollars a year just in complying with the current indirect tax system. Much money and much time is spent in trying to minimise tax rather than trying to get on with the job. It is estimated that one in four dollars in tax revenue collected by small business is spent in trying to comply with the complex tax laws—a system that is strangling small business. After the election in 1996, a number of small businesses and accountants said to me, `Now you are in office, we want to see you reforming the current tax system. It's a mess, it's unfair, it's too complex, it's strangling small business and we want to see it changed.'

The other problem with the indirect tax system is that it has a shrinking base. It ignores the growing service sector where the wealthy spend their money and unfairly focuses on the goods sector. It is unfair because it ignores the area where the wealthy tend to spend more of their money. The household expenditure survey shows that the wealthy spend four times as much money on services as the lower income earners do, and yet, by leaving the service sector out of the indirect tax system, we are favouring the wealthy and putting all the burden of indirect taxes on the poor.

Over the past decade or so, the percentage of the total indirect tax paid by the lowest decile of income earners has nearly doubled. There is an increasing burden on low income earners by the current inequitable, regressive wholesale sales tax system. If we are going to make it fair and sustainable, we need to extend the indirect tax system to services. Yet Labor wants to retain the current wholesale sales tax system based just on goods. We have seen over the years what has happened to that system—a wholesale sales tax rate that started at 2½ per cent and is now averaging 22 per cent.

We saw what happened with the Labor Party when they got back into office in 1993. Right across the board, they raised wholesale sales taxes by two per cent because the current tax system is unsustainable. As the Institute of Chartered Accountants says, `If Australia does not get a GST, inevitably the wholesale sales tax system will increase,' and it will increase and keep increasing.

Look at the list of goods that had no sales tax at all when Labor came into office in 1983 that now carry rates of 12 per cent and 22 per cent: agricultural machinery, anti dandruff treatment, skin repair creams, household disinfectants, tractors and ride-on mowers, sunscreen agents, wines, non-alcoholic wines and ciders, biscuits, snack foods, ice-cream, domestic stoves, water filters, wrapping material, fruit juice, muesli bars and health food bars—no sales taxes when Labor came in 1983, now most of them with 22 per cent and some at 12 per cent tax because the current wholesale sales tax system inevitably, and especially under Labor, requires ever increasing rates. And that is exactly what will happen if we do not broaden the indirect tax base to include services. These were all zero in 1983 and under Labor they have risen and they have kept rising.

The current wholesale sales tax system penalises exporters because the wholesale sales tax is built into the products that we export, yet our competitors rebate the value added tax when they export. Labor wants to retain a system that penalises our exporters, makes it harder for our exporters and makes it easier for the countries they are competing against.

The current system is unsustainable. If we are going to have a tax base that will provide the ever increasing services people expect from governments, it has to be an expanding tax base based on expanding expenditure based on services, not a shrinking narrow tax base that the head in the sand opposition wants to burden us with for years to come. Not only that, the current system, as we know, costs us billions of dollars in evasion and avoidance.

This government has put forward a proposal that will remove these inequities, give us a sustainable expanding tax base, remove the inefficiencies, remove the complexities and provide real incentives. These changes are long overdue. This government's tax reform package has significant reductions in income tax—reductions in income tax totalling around $13 billion, reductions in income tax right across the board for all income earners, reductions in income tax that will leave the average family $40 to $50 a week better off net from any increases due to the GST. The average family will be $40 to $50 a week better off, and yet the Labor Party is saying to these average families, `No, you can't have these tax reforms. We want to lumber you with the current, inefficient, inequitable sales tax system for another generation.'

It ought to be on the Labor Party's conscience that it is depriving average families of those sorts of tax cuts, those sorts of incentives to work, those sorts of incentives to improve themselves. The government's proposals remove 10 hidden taxes: wholesale sale tax, which I have already talked about, financial institutions duties, bank account debit taxes, bed taxes, conveyancing charges on business property and five different stamp duties. It removes provisional tax which is a pain in the neck for small business and a burden for self-funded and independent retirees. It wants to replace these with one simple, across-the-board, fair, broadly based 10 per cent tax on goods and services. The government's proposals have adequate built-in compensation for low income earners and pensioners that will in fact see them better off as well.

We have heard much from the other side about how bad this will supposedly be for small business, yet small business wholeheartedly supports these proposals. Angela Ryan, the Tax Director of the Australian Society of Certified Practising Accountants, said:

The appeal for business is the simplicity of the system.

Rob Bastian from the Council of Small Business Associations said:

Losing provisional tax and the uplift factor were shots in the arm for small business . . . the income tax cuts represent the big win for the sector.

Kerrie Clayton, an ASCPA small business adviser, said:

The best part about the proposal is that it contains tangible initiatives that will save many small businesses a lot of time and money.

Small business is in support of this package and these measures. The National President of the Association of Independent Retirees said this:

All fair minded Australians have been calling for a total reform of our current Tax system which is unbalanced and unfair to many Australians. The proposed Tax Reform Plan is both comprehensive and imaginative. It should provide a sound basis for the future.

The Government seems to have provided more than adequate compensation to those on low incomes . . . if we reject it, we may never get another opportunity to update our taxation system.

The support for this tax system is logical. The support for these changes is well founded. The support for these changes is widespread. The editorial in the Australian Financial Review the day after the tax reform package was announced said this:

The coalition must be applauded for its proposal to broaden the tax base and lower the rate structure. There are many reasons why its tax plan should be supported.

There are many reasons why the government's tax plan should be supported, yet Labor supports the old system. Labor wants to retain the system that is unfair, that is inefficient, that is unsustainable. Labor's approach in this is hypocritical. It is obstructionist for playing politics for the sake of it. It is backward looking and it has no answers for the future. Labor stands condemned for their approach to tax reform. They stand condemned for their hypocrisy, condemned for their obstruction, condemned for their ineptitude and dishonesty, and, most of all, condemned for putting their own political interests ahead of the interests of Australia. This is necessary reform. It is what Australia needs. We cannot delay any longer on these tax reform proposals.