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Tuesday, 8 December 1998
Page: 1617

Mr ANDREW THOMSON (7:58 PM) —I rise to speak on the goods and services tax legislation with a great sense of anticipation. I think I am the only member of the House who has had the privilege of operating a business in a jurisdiction which has a VAT or a GST in place, that is, Great Britain where I built a golf course before entering this parliament.

Mr Kerr interjecting

Mr ANDREW THOMSON —I believe it was also a part of Great Britain, that being Scotland, whence the honourable member for Denison—or was it his forebears?—came. I had the privilege of doing business there and I found the system of VAT, which is really what we are talking about in this bill tonight, to be very simple and efficient. I was very surprised at the end of the financial year to see my accountant in Edinburgh to tally up the books and find out what tax obligations our company owed. On being asked whether I had paid our liabilities for VAT every month, I said yes, we had and that I had been over to the tax office at Dundee with the cheque book—there were many hundreds of people sitting there in cardigans and neck ties—to pay my VAT every month. My accountant said, `That's it for the year, Mr Thomson. You owe no more tax.'

Upon coming back to Australia I was surprised to find it was a struggle to carry out the same sort of enterprise—that is, constructing a golf course—in a jurisdiction with a very complicated system of tax, to say the least; and to say nothing of the industrial relations and other regulatory environments. At the time, John Hewson was proposing Fightback, and I felt that it was a very good idea. As time passed, ironically enough, I followed John Hewson as the member for Wentworth. With the further passage of time the government has set the bills before the parliament. We now have a mandate to introduce a GST and the opportunity to vote on it, and I look forward to doing that with great relish.

I want to raise a few aspects of the environment in which we are introducing a new tax system—not simply the domestic environment, which is a very healthy one in an economic sense, certainly at the moment—but also the horizon beyond our borders. I want to examine the notion of a GST and what it means in terms of the political will or strength that we must summon to take our country forward into a future that will be a much less certain environment than the one we have experienced—certainly in the last 10 to 20 years.

Tax reform has certainly been a long time coming. You might say it started with the Asprey report. Judge Asprey, a judge of the Supreme Court of New South Wales, was commissioned by Billy McMahon to inquire into Australia's tax system. It came about, of course, that he delivered his report to Prime Minister Whitlam. But in that report he recommended a change towards a value added tax such as to shift the burden from direct to indirect taxation on the basis that the Australian economy at that time had changed a lot since the 1930s when the system of wholesale sales tax was introduced. Of course the service component of the economy at that time was seen to be very large.

We saw the then Treasurer, Paul Keating, try and fail to introduce what Judge Asprey proposed in 1974. He was followed by John Hewson, as I said, with the Fightback package in 1993. Now, finally, we have succeeded with a new tax system. Firstly, in an electoral sense, in the 1998 general election under John Howard. And now we are here debating our package in the House.

Plainly, a new tax system—one that is adapted to changes in our economy—can really only be a matter of commonsense. No-one would propose climbing Mount Everest with Sir Edmund Hillary's equipment. This would be an act of lunacy. You would be described as, perhaps, having left your senses behind. Nor, of course, would you seek to engage in a solo voyage by yacht around the world using pre-World War II communications equipment; hardly so, you would have everything as modern as possible to ensure your safety. Nor, of course, would anyone propose equipping our armed forces with Lee Enfield rifles to take on whoever it was posing a threat to us. This, too, would be seen as an act of lunacy.

And yet what we are proposing here is adapting our system of indirect taxation to deal with the huge changes in the economy since the 1930s. This is opposed by people who, according to those examples I gave, would be climbing Mount Everest with equipment from the 1950s, or going to war with Lee Enfield rifles—people would simply describe them as mad.

Taxing consumption in a transparent and uniform fashion is just plain commonsense. That is illustrated simply by the large numbers of countries in the world who now use a system of value added taxation rather than the one that we are burdened with. We share that dubious distinction with the Solomon Islands, Swaziland and another country that escapes me for the time being.

Mr Pyne —Ghana.

Mr ANDREW THOMSON —Ghana, indeed. Who is a greater friend of the people of the Solomons, Ghana and Swaziland than, perhaps, the member for Sturt and me? But they are no models of economic rectitude; and we should make it quite clear that we do not propose to follow them any further down the track in the way that they see fit to tax their citizens indirectly. We are about removing the burden from business inputs. That recognises the fundamental role or importance of wealth creation in our society—of value adding and the effect that has on employment and the health of our society in general.

More than that, of course, it gives our government a much more secure revenue base. For any person who is interested in maintaining a proper welfare safety net—one that has served Australia well in the past and I feel we will need, perhaps even more so, in a more troubled future—the certainty that a GST will bring about is invaluable. And yet, there are a lot of people who complain about nothing else than the supposed effect or burden of a GST on consumers. This is a misguided notion because, in discussing or debating the quantum of income people have, you should not be addressing that question via the tax system. That was the basis of what the early Marxists were about and it was quite evidently a failure.

The better policy is to either transfer payments through the welfare system—albeit, of course, judiciously so as not to encourage mendicancy among those receiving them—or simply to concentrate on increasing people's incomes generally by other policy measures. But, sadly, opposition to this reflects an anti private enterprise culture that still flourishes in parts of Australia today.

I saw an example in the newspaper this morning with Mr Grollo's proposal to build the world's tallest building in Melbourne. In essence, I think this is a very good idea—it would certainly attract a lot of people to Melbourne. It is perhaps a symbol—not necessarily of greed, but of simple aspiration. He is wanting to put his city more in people's minds. And yet, predictably perhaps, a Melbourne churchman stands up and attacks the idea as reflecting a culture that is insecure and shallow. I do not think the notion of aspiring to be the best is insecure or shallow. I do not think that feeding Australian families by creating construction jobs is particularly shallow either. I think that sort of criticism is, frankly, a code for a hatred of financial success. It is a sort of contempt for people who try their best and who succeed by putting more energy and intelligence into their work.

Tax reform is really symbolic of a national aspiration to do a lot better. Too many people seem to say, `This is the high tide of reform. If we do this, if we get it through the parliament, that's it, we can relax a bit and there will be days of wine and roses ahead.' That is hardly the case. Tax reform has to go much further. We have to work towards repealing the capital gains tax regime that this country is saddled with. I regard that as a temporary tax, one that was introduced in 1985, and I would dearly like to see it removed. I would also like to see a continuing effort to lower the burden of personal income tax. That will only deliver more incentive to Australians and make ours a more favourable country in which to invest.

I think the future, at least in the short or medium term, is going to be a reasonably troubled one. I do not think it is going to be an easy ride ahead, propelled by more and more changes or improvements in technology, especially information technology. There is an orthodoxy abroad now that a rapid increase in the pace of information technology somehow or other assures prosperity. If that were the case, one might ask why economies which have a large stake in that particular sector, such as Japan and Korea, are doing so badly.

I think there is a good chance that there will be a reasonably savage bear market in equities and bonds. I say so because I have always had great regard for a financial commentary magazine called the Bank Credit Analyst, published from Montreal, and the current editor of that organ, Mr Martin Barnes—who was interviewed in the weekly investment newspaper Barron's this week—points out some very stark facts concerning the 16-year bull market in worldwide equities and bonds. He points out that the compound real return on equities over that 16-year period has been 16 per cent per annum which, compared to a historical average of only 6½ per cent in compound real return, is very high and points to an extreme overvaluation of those equity markets. Likewise, the compound real return on bonds over that period has been 11 per cent per annum compared to a historical average of only three per cent. The falling interest rates since the early eighties having delivered that, it does point out that you cannot have a permanent bull market.

As disinflation is perhaps coming to an end, the great danger is that the deflation in economies in Asia could very easily spread to the United States and European economies. The valuations are high, so high as to make it a great risk. The prospective price earnings ratio for the S&P 500 Index is now 26 times earnings. Historically, it has always been around 14 to 15. That puts me in mind of the all-time high on the Japanese stock index, the Nikkei 225, in about 1988 of about 40,000. The prospective PE then was just over a hundred. That was certainly the zenith of that equity market, but it led to a very savage bear market that is indeed still under way almost 10 years later.

You look at that valuation, you look at the corporate restructuring that has gone on in the last decade and at the megamergers that are going on now as the very largest of corporations struggle to improve their profit margins and you have to say that those corporate profit margins must be almost at the peak of their natural cycle. Those megamergers of oil companies and of some banks are evidence of that.

There is other fairly gloomy news on the horizon. Gross domestic product in Japan is still falling. Indeed, government debt in Japan has just overtaken, for the first time, the total quantum of annual GDP. Wholesale prices are still falling. There is no political will evident to carry out any genuine restructuring. Across the China Sea, the condition of credit in the Chinese economy is almost fantastically rotten in places. Some of their largest investment vehicles have been shut down before they fail of themselves and lead to great runs.

Right next door to us there are some very destabilising forces gathering in Indonesia, perhaps the most destabilising forces to gather since the Cultural Revolution in China in the late 1960s. Likewise, in Indonesia there is a huge debt still owing to the Japanese banks. In my mind, all of this points to the need not for some pause in reform but, if anything, for an acceleration of it to make sure that we are not simply fireproofed against any short-term troubles in our own region but ready perhaps for a long period of falling asset prices globally—equities, bonds and other such things.

This is no time to relax. For that reason, and for the many others contained in the bills themselves, it is essential that this House and the other place pass these bills so that we have the opportunity to introduce a new taxation system as soon as possible.