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Wednesday, 10 September 2003
Page: 19758


Mr KING (6:53 PM) —The Taxation Laws Amendment Bill (No. 7) 2003 improves the income tax legislation and related legislation in several respects, and this debate affords me the opportunity to make some general comments in the House about tax reform. Without doubt, a sound tax system is essential to good government. My view of appropriate fiscal arrangements is that such a system should be fair, as simple as circumstances permit, transparent and effective, but it should also derive from and promote the values in a sound tax system which are important to everyday Australians. Those values are the principle of a fair go, self-reliance and enterprise—by which I mean the ideal that Australians are encouraged to have a go. It should also give effect to the general economic policies of the government. The history of tax reform in this country suggests that, if the government does not refer to or satisfy those general principles, reform will fail because the people will not support it—and in that case it deserves to fail.

Let me make some initial comments regarding the current situation in respect of the increasing complexity of the tax system in this country. A recent report of the Joint Committee of Public Accounts and Audit on the Taxation Office's management of its relationship with tax practitioners noted that what has happened in recent decades in relation to our fiscal tax system is the rapid expansion of the scope and complexity of tax law, accompanied by shifts in reporting obligations on taxpayers, flowing from the new tax system. In that regard, it is noted that there are now some 8,800 pages in the tax legislation and, on the most recent assessment of the six major professional tax and accounting associations involved in the tax system, some 170,000 practitioners around the country.

Also of significance has been the growth in complexity of business operations in the economy, making the task of those involved in the collection of tax more difficult. In addition, individual taxpayers have become involved in investment activities and have income derived from sources other than their own personal exertion, including overseas activities and corporations with overseas involvement.

The next development has been the increased use of the tax system to make social payments as well as to collect revenue. That development is perhaps not so recent, because we can go back to the royal commission recommendations in 1932 and the government's response to them in 1935 when Mr Casey, the then Treasurer, introduced reforms into the House which saw the first endowment of 50 per family, I think, paid for each individual dependent spouse—and then, of course, child welfare rebates. Finally, there has been the shift towards self-assessment as the guiding principle of tax administration.

Those significant developments have made our current tax system a system of some complexity—or perhaps I should say of some sophistication—requiring a sophisticated response. Nonetheless, in the administration of the tax system, the principles to which I have referred are absolutely essential—indeed, I would say they are fundamental—if any reform of the tax system is to be effective and accepted by the broader community. That has been the history of tax reform under the current government, from 1996 onward.

But let us go back a bit in time to see whether or not the tax reform propositions that I have put forward will stand up. In his speech in this House on 5 December 1935, in which the first Income Tax Assessment Act was introduced, Mr Casey, the then Treasurer, spoke about the need and the movement for securing uniformity in the taxation laws of the Commonwealth and the states of this country. He spoke about how being hammered by both the state and federal authorities in relation to tax collection was a source of annoyance for taxpayers in general across Australia.

As a result of an important royal commission, chaired by the judge Sir David Ferguson, with the assistance of Mr E.V. Nixon, a distinguished businessman and practitioner in the tax area at the time, the important reforms that are the basis of the modern taxation system in this country were introduced. Then, as we know, the Second World War expedited that whole movement and the establishment of the current tax arrangements in this country, particularly with respect to income tax.

An interesting point is that in 1935 when the act was introduced there were only 267 clauses in the whole statute and it was only 82 pages long. Section 23, which dealt with deductions, although extending over some nine pages, was comprehensive as a statement of what the appropriate deductions in respect of income tax then payable were. A new principle was established in relation to those deductions—namely, that they should be earned in respect of costs and expenses relating to the business or to the earning of the assessable income itself. So fundamental principles were established which were simple, clear, administratively workable and effective. For present purposes it is interesting to note that at page 2721 of the Hansard of 5 December 1935 the then Treasurer, Mr Casey, referred to the collection of gifts by charitable institutions and the deductions that they were entitled to in respect of those gifts. I will come back to that point in a moment when dealing with the amendment of the member for Kingston.

I want to finish by making reference to some final comments of the then Treasurer and member for Corio, who spoke of the absolute importance of simplicity, uniformity and fairness being the main objectives of the new tax system that was established at that time. Those words have rung through the decades and have underpinned the Commonwealth's administration of the fiscal system since that time. There have been other attempts to reform the system by wholesale means. For example, in 1985 the then Treasurer, Mr Keating, attempted wholesale reform of the tax system and failed, because the perception in the broader community—and indeed in this parliament, following debate—was that it was not giving people a fair go. In 1993 there were further attempts at tax reform by then Treasurer Hewson, but again the view was that aspects of the proposed reforms would operate oppressively in their administration.

Therefore it was not until 1998 that Treasurer Costello was able to advance not a new tax but a new tax system—a new tax system for a new century, he called it. In this House, at page 1087 in the Hansard of 2 December 1998, he outlined the idea of the new tax system which is the subject of the reform proposals in the Taxation Laws Amendment Bill (No. 7) 2003, which we are debating tonight. He said:

Today's legislation sweeps away an outdated, inefficient tax system that does not serve the needs of the modern nation. The new tax system rewrites Commonwealth-state financial relations. The new tax system will lighten the burden of income tax for families and average wage earners.

In other words, what this government has done is address the accretion of the years, the concatenation of legislative reform, so-called, the bit by bit adding on to the initial legislation of 1935. Sweeping away, looking anew and, in the Treasurer's words, bringing into effect a `modern, broad based, low rate, goods and services tax', it abolished nine types of tax, in consultation with the states, and introduced a system of administration in relation to a new indirect tax that has had the effect of reducing overall income tax, which was becoming a serious burden for middle Australia. It was summed up this way in its relationship to the economy—and it was important to economic policy.

The Treasurer said, in conclusion:

This government is committed to pushing ahead with economic reforms to build on our achievements and to continue to strengthen the economy to withstand external crises like those affecting our region and other areas of the globe at present.

The new tax system was more than just a new tax. It involved fundamental economic reform. It complied with the various principles that I have mentioned and it gave effect to the general economic policies of the government.

One reason, if I can put it this way, for the government's economic success story over the last seven-odd years has been its deft handling of the tax system and its courage in addressing the problems to which I have referred in a way that accepted the values I have identified. It seems to me—not only as a person interested in the administration of the tax system but also as a representative of the people in my electorate—that it has done it in a way that has been a resounding success both fiscally and economically.

Let me turn briefly, if I may—because most of the provisions in this amendment bill have been accepted by the opposition—to the bill before the House in its particular aspects. There are two aspects that are not accepted by the opposition. The first relates to tax exemptions for Australian residents who receive compensation payments from an overseas fund relating to the Second World War and the second concerns the method of updating and adding new recipients to specifically listed deductible gift recipients.

In relation to the latter, which is the really fundamental opposition to this bill, the member for Kingston sought to draw a parallel or a linkage between this and the charities bill, which the Treasurer introduced recently, and sought to oppose it by doing so. But why? He seemed to give three reasons which, upon examination, do not bear support. He firstly suggested that the new method of listing will limit the charities to which exemption is granted. But says who and on what basis? How can he say that when he has no idea what is being proposed in relation to the list? He has the benefit of the Shepherd report; presumably he has read it. That report sets out the desirability of an amendment to the legislation along the lines as proposed in the House and in the charities bill. In the absence of any specific examples, the point made by the member opposite has no merit whatsoever. Then he suggested that it is unnecessary—that this is an unnecessary codification of a law which is 400 years old. No doubt he is referring to the Statute of Elizabeth, for those of us who have an arcane interest in the law. He is perhaps sad to see it passed. But the truth is that ordinary Australians do not want to have to go back and attempt to read the Statute of Elizabeth or the preamble to the statute in order to work out what are the appropriate heads of exemption for charitable bequests in this country. It just illustrates that the opposition and the honourable member are completely out of date. They are not prepared to proceed to advance a tax system that is simple, based on a clear set of values and transparent. That is the problem with the Labor Party and the problem with the approach of the honourable member for Kingston, who has not proceeded on any principle whatsoever that makes sense. He would rather live, as it were, in the Dark Ages. He would rather proceed on a basis which has no credibility.

The member for Kingston then suggested a third objection—that the procedures available in the legislation make it political. He suggested that the Treasurer would in some way or other abuse his power and only list, or perhaps even delist, those organisations available for fiscal dispensation which accord with the government's view of the world. That is an entirely inappropriate comment. There is no basis for it whatsoever. The Treasurer would act upon advice in relation to these matters. He has honourable and politically competent staff who would act appropriately in relation to all applications of this type. The manner in which the legislation proposes that the deductible gift recipient status will be accorded through the legislation process, through the regulations, accords those involved in this House an opportunity to object one way or the other. The real truth is that the member for Kingston has no proper objection to this legislation. His amendment is bogus. The opposition position is unworthy of support.

The member for Reid then appeared to be supporting the objection of the member for Kingston on the basis that the victims of the Chilean and Uruguayan regimes—those who were affected by the nefarious practices of those regimes 30 years ago or more—will miss out on payments by those governments. In truth, that objection from the member for Reid appeared to be related more to schedule 1 of the bill than to schedule 2, as was that of the member for Kingston. With the greatest respect, that objection is nonsense. If the victims of the Chilean and Uruguayan regimes are appropriate recipients of charitable bequests then there are methods by which they can receive them. If they are not already listed as deductible gift recipients or organisations with that status, they can make an appropriate application. That is the way to do it—by a transparent and proper approach; not by harping on and making irrelevant points relating to the operation of the legislation or seeking to undermine the general tenor of the Shepherd report.

The Labor Party, again, have failed to address the basic principles involved in fiscal legislation and they have failed to address the particular reforms that are being proposed in the legislation before the House, which are beneficial and will assist the tax system in its operation. The true position in relation to the Labor Party is this: they have in fact no sensible policies for reform. I support the bill in its entirety. (Time expired)