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Wednesday, 24 November 1999
Page: 12491


Mr FITZGIBBON (11:43 AM) —I am now overwhelmed with confidence with regard to these business tax system bills, having heard the member for Corangamite say he hopes that there will not be any unintended consequences flowing from this package. That overwhelms me with joy and confidence. I am sure that those members of my small business constituency are similarly overwhelmed with confidence as a result of those comments. The group of bills we are considering in this cognate debate today seek to implement the government's so-called new business tax system. In his second reading speech on the New Business Tax System (Income Tax Rates) Bill (No. 1) 1999 , the Treasurer claimed that, as a result of the implementation of the Ralph reforms, Australia will have a world-class business tax system.

As the shadow Treasurer has indicated, the Australian Labor Party supports tax reform. We support any attempts to make Australia's business tax system more internationally competitive in the new global economy. Every tax system must be continually modified to meet the changing domestic and external circumstances. It must be adjusted to ensure that its operation does not distort investment decisions to the detriment of the economic and social wellbeing of the nation state's citizens. It must be modified to maintain equity in terms of its wealth and distribution effects. It must be continually strengthened to avoid abuse by those in a position to exploit tax loopholes.

In government, Labor did that all continuously and consistently for 13 years. It reduced marginal income tax rates. It reduced the company tax rate. It broadened the income tax base by introducing the capital gains tax and, of course, the fringe benefits tax. It made our tax system more relevant and efficient by introducing dividend imputation. It fixed up the now Prime Minister's legacy—the bottom of the harbour schemes, which were products of either his incompetence or his unwillingness to take on those who were perpetrating them.

Bill Hayden lost an election when from opposition he very bravely talked about dealing with some of these issues by introducing a capital gains tax. It is very brave indeed to talk about introducing a tax, even if the principle underpinning it is very sound. That principle is that, no matter how your earn your income, whether it be by the sweat of your brow or by buying low and selling high, you should pay your fair share of tax. It was only the findings of the Costigan royal commission that developed or facilitated the sort of community support that made it possible for the Hawke government to finally bite the bullet and put that principle into effect.

Today there exists a very great fear that these proposals before the House might be the beginning of the winding back of that important principle. The list of those who hold those concerns includes organisations such as ACOSS, Anglicare and the Brotherhood of St Laurence. Indeed, many in this House on this side at least—and I am sure on the government side—including me, share those fears.


Mr Slipper —You're on the government side.


Mr FITZGIBBON —Just give it a little bit more time. In the 1996-97 financial year almost 80 per cent of capital gains tax was paid by those in this country who earned more than $50,000. That should start the alarm bells ringing in the minds of every person in this place and, of course, every Australian.

A lot was said about the iniquitous nature of the GST both at the 1993 general election and at the 1998 general election. But it could be—if the government's own assumptions about the flow-on effects of these changes, particularly the supposed growth dividend, are wrong—that this package could prove to be the most iniquitous of all. Those estimates on the dividend flowing from the turnover of assets are certainly rubbery.

Let us look at how the government arrived at the conclusions on this additional revenue which it predicts will come from those additional realisations. Firstly, the Treasurer appointed John Ralph, the man who told a recent parliamentary seminar that, on the question of the effects of the removal of indexation at times of high inflation, we will probably have to reduce the capital gains tax rate further. John Ralph then commissioned the Australian Stock Exchange to deliver a report to him on the likely impact on realisations of a reduction of the rate of capital gains tax. The Australian Stock Exchange, in turn, commissioned US based advocates of lower capital gains tax rates to provide that information. It is of no surprise to anyone that those great advocates of lower CGT rates came back with the results the Australian Stock Exchange—which, I am cautious to say, does have a vested interest in all of this—was looking for.

That takes me to the opposition's major concern, which is the government's failure to meet its own test—that very important test of revenue neutrality. That is why the opposition are saying today that we support these changes in principle but we want to see the rest before we absolutely commit ourselves. That is eminently reasonable. We cannot be certain at this stage whether this package can be made fair until we have seen all of it.

The government is asking us to trust it, but of course we know it cannot be trusted. We all remember very well the never, ever GST—the non-core promises as opposed to the core promises. This is a government that is not to be trusted. It is eminently reasonable for us to ask to see the devil in the detail before we absolutely commit ourselves to this package, before finding all the evidence that this package does meet the revenue neutrality test and all the evidence we require to ensure that the government is serious about cracking down on tax avoidance. That is eminently reasonable.

I want to turn to my strongest area of interest in respect of this package, and that is how the changes in this package of bills will affect the small business sector, including those small firms operating in the tourism sector. The government has hailed this package as a great thing for small firms. I am happy to acknowledge some of those strong points but in a somewhat different way to that of the member for Macquarie, who was in here waxing lyrical and telling us what a wonderful thing all of this is. It always amazes me how you can have an independent press taking such a divided line on some of these issues, day by day bringing up anomalies and problems for small business, business and the taxpayer, and yet you get the member for Macquarie coming in here saying, `The world is a bed of roses. This is the perfect package.'


Mr Hawker —You wouldn't do that, would you?


Mr FITZGIBBON —No, I would not do that, the member for Wannon knows. I said that I am happy to acknowledge the package's measures: the lowering of the company tax rate, the retention of accelerated depreciation, the new simplified tax system, the 50 per cent CGT concession, the additional concession for over-55s with active assets held for more than 15 years and the immediate write-off of expenditure for new capital equipment. They are the core points and I am happy to acknowledge them. But are they enough? Are they enough to compensate small firms for the adverse impact of the GST—a GST which makes the more than one million small firms in Australia unpaid tax collectors for the government? Are the Ralph concessions enough?

Before trying to compare them, let us go very quickly back over those points that I have already acknowledged. The first was the lowering of the company tax rate. As the member for Wannon will recognise I am sure, fewer than half of Australia's small firms are incorporated. So there is no benefit to the small sector in that—at least for those who are not incorporated. Of course, for many of those who are incorporated, for many reasons—including workers compensation, for example—the company is simply a vehicle from which they draw a wage at the marginal tax rate. So there is very little gain there for those people.

We are now hearing about profits-first principles. We are now hearing about 80 per cent rules for dependent contractors, which will further erode any advantage that those who have not incorporated might derive from a lower company tax rate. The retention of accelerated depreciation is a good thing, but it is something that the small firm sector already has. This is something that the government puts up there on a pedestal, but it is something that it already has.


Mr Hawker —And simplified.


Mr FITZGIBBON —The simplified tax system is a good thing—I acknowledge the member for Wannon. The Labor Party supports it, but it has a $1 million threshold, I say to the member for Wannon. One million dollars sounds a lot to the person on the street, but when you start to talk about some small firms with high turnovers and small margins it is not a great deal of money. He knows there has been a great deal of pressure to have the threshold increased coming from those who represent the small business sector, but the silence is deafening on the part of the government.

I give a tick to the measures of the 50 per cent reduction in CGT and the additional concession to over-55s. I have no argument with that. They are a good thing for small firms. I suppose you could think the immediate write-off of expenditure for new capital equipment is a good thing for cash flow in year 1, but it is bringing forward a benefit that already exists. The government says that there will be $130 million or $170 million in the first year because the savings are brought forward, but what about in the long term? Even if it is $170 million, that in itself, in the context of the government budget, gives you an idea of the value of that concession to small firms. Let us not hear that bringing forward a benefit that already exists is some great boon and a panacea for all the ills of the small firms sector.

All of this is in the context of the GST, a GST which the Treasurer, since the dirty deal with the Democrats, has described as a `nightmare on main street'. We have seen Charlie Bell's report—or I hope most in this place have—and we know from that, and from many other reports, how much time small firms are required to commit to filling out paperwork and remitting PAYE and all those other things—PPS, you name it—back to government. We know that from experience and from all those reports. And now we have people like John Cohen, a tax partner at Deloitte Touche Tomatsu, who tells us that, for small firms dealing with GST, compliance will be like doing their annual returns monthly or quarterly, depending on the turnover of the firm in question. He says that for those very well organised firms—and, without being critical of the sector, that is certainly far from always the case—that might be so. For those with the ready capital available to invest in the systems they need to be organised, that might be an hour or two each time round. But for those more typical firms I think I could respectfully say that is more likely to be a day or two which, for small business operators around this country, is a weekend each month out the window. This comes from a government which, prior to the last election, committed itself—and I bet it is regretting it now—to reducing by 50 per cent red tape for small firms. What a great job it is doing with respect to that commitment!

But I do not want to dwell on the GST for too long today, other than to put it in context with the Ralph reforms. Suffice to say that by Christmas next year small firm operators will have come to their own conclusions about the impact of the GST, any compensation that might have arrived through Ralph and the combined effect of those changes on their business.

I know what small business are thinking now, and the government is very conscious of it. They think it is going to be a nightmare on main street. They do not see too much in the Ralph reforms. They will get through the government's rhetoric on those issues I have already outlined. Come Christmas next year, they will still be losing those weekends to additional paperwork and they will still be paying off the loans they have raised to purchase the equipment they require to put in place those systems to deal with those compliance issues.

What is the government's response to all that? It has created a $500 million compensation package for our more than $1 million firms. As the opposition said many months ago, if you divvy that up between them, that is $500 for each business. But it is not $500 any longer, because the government has already spent about $135 million of that money on peak organisations, such as the CPAs, the Tourism Council of Australia, the NFF, et cetera. The NFF did very well—$15 million. It seems to me that the main criteria for grabbing money from the bucket is to have been a longstanding supporter of the GST. That seems to be the main criteria if you have a look at those organisations that have been able to secure those funds.

So $135 million is gone. We have more than $300 million left. What does this government propose to do with that? It is going to send everyone a voucher. But, of course, the voucher is not now worth $500; it is worth somewhere between $200 and $300—more likely, on my calculations, to be around $200. Why is this so? Everyone knows, including Minister Reith's own departmental head, Dr Shergold—and we have him on record in Senate estimates—that that is a dumb way to spend that money. It is insufficient money to start with, but being so insufficient what we needed to do was spend it wisely and efficiently. That is certainly no way to do it. Why is the government doing it that way? Because the government knows it is in big trouble with the small business constituency. It knows that from its own private polling, the Yellow Pages Small Business Index and all those other surveys. Its own backbenchers are telling it that, and I bet the member for Wannon has had a word or two to his Prime Minister. Their stocks there have never been so low.

What is the natural political response? You put a cheque in the mail. Unfortunately for the government, the cheque is worth around $200. Estimates of the average cost of compliance range from $3,500 to $9,000, if you listen to the Victorian Chamber of Commerce—and they get $200. And, despite the Treasurer's response yesterday during question time, there still remains some doubt as to whether that in itself will be taxable. What a great boost—$200. There is no doubt that the small firms sector will welcome that cheque in the mail initially, but it will turn very sour indeed once it realises how inadequate that amount of money is to compensate it for the impact of the GST.

This is a real problem for the Minister for Employment, Workplace Relations and Small Business, because we know that this is not his view of the world, but we also know that the Treasurer has now taken the reins. The minister for small business first establishes the Small Business Consultative Committee, chaired by Curt Rendall, a very competent and highly regarded person. That committee had a close look at how the $500 million should be spent. That committee has now cost the taxpayer $5 million. A trip to New Zealand to have a look around, sitting fees and other costs now amount to $5 million. But have we seen the report? No. Why have we not seen the report of the Small Business Consultative Committee? Because there is information contained in there that would embarrass the government and that the Treasurer in particular does not agree with, and that is why he has taken the reins.

Very briefly, I have said the opposition supports this package of bills in principle, but it reserves its right to hold back until it is assured that the government meets its own revenue neutrality test and until the government demonstrates that it is absolutely committed to getting serious about tax evasion. (Time expired)