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Tuesday, 12 June 1984
Page: 2850


Senator MISSEN(6.11) —I rise to continue the debate on the Income Tax Assessment Bill (No. 3). Tonight I desire to speak on only one aspect of the Bill, which does a number of things of significance. There is one area with which I have had some association over the last year or two, that covered by friendly societies. For the first time, friendly societies in Australia are to be taxed. In all our income tax assessment Bills since 1915 there has been no provision for taxing friendly societies. Friendly societies operate very extensively throughout Australia. Generally they provide services for people in the community who are on lower incomes. They have operated on a mutual basis for many years and in both the State and Federal sphere they have been free of taxation. But under this Bill they will be taxed for the first time. This is not , I think, one of the things of great credit to the Government. Unfortunately, this will occur. The strenuous efforts of the friendly societies over the last year of two have succeeded to some extent in moderating the Government's earlier plans, but nonetheless taxation will be imposed on them for this financial year.

I refer briefly to the description of the Bill. Clauses 28, 36 and 51 mainly impose this assessment of certain investment income of friendly societies and other organisations. The accompanying memorandum to the Bill described the provision in this way:

The Bill will give effect to the proposal announced in the 19 May 1983 Economic Statement to impose income tax on the investment income of friendly societies from their life, disability and accident insurance business for the 1983-84 and later income years. The relevant taxable income is to be taxed at a rate of 20 per cent. Full details of the taxing arrangements were announced on 17 April 1984.

That rate of 20 per cent is considerably less than what was first feared. Nonetheless, some important considerations should be taken into account. I raised objections when this statement was made on 19 May 1983. This matter came as a considerable surprise to the friendly societies. In the previous year when there was some discussion of other amendments to the law relating to friendly societies, the Secretary of the Friendly Societies of Australia Federal Council received a letter from the then Treasurer, Mr John Howard, dated 22 October 1982 which included the following statement:

Should any such proposal--

he was referring to any proposal to amend the income tax law as it related to friendly societies--

come before the Government, you may be assured that the submission would be taken into account, and in that event you could expect your council to be given the opportunity to discuss the proposal.

Of course, the Council did not receive that notice. These and other matters of criticism were raised by me on 20 October 1983 in a speech which I made on the Appropriation Bills last year. It will be noted that this matter has been hanging over the heads of the friendly societies since 19 May 1983, more than a year. I believe this in itself is very unsatisfactory. In the speech which I made in the Senate on 20 October 1983 I set out arguments-I will not repeat them -which I raised concerning what I believe was the unjustified decision to tax the friendly societies. Those arguments were based partially on a paper which I had prepared by the Economics and Commerce Group of the Legislative Research Service of this Parliament. It is current issues brief No. 10 of 1983 entitled ' Taxation Status of Friendly Societies'. That paper sets out the very many substantial arguments which were raised as to why the imposition of this taxation was unfair to the friendly societies and was likely to cause them considerable damage. Since that time there have been considerable negotiations between the friendly societies and the Government. In the ultimate, most of the friendly societies have apparently decided that discretion is the better part of valour. They have secured very considerable concessions on what was said in the original statement. Perhaps it would be best if I mentioned them because the are set out in the Press release of the Treasurer (Mr Keating) of 17 April this year . Mr Keating said:

In settling details of the new arrangements, there has been extensive discussion and correspondence with representatives of the Societies-and that has necessarily taken considerable time.

He referred to the details that were provided and said:

It is not proposed that each and every provision of the income tax law which applies to Life offices should extend to Friendly societies.

He mentioned a simpler system which was to prevail and went on to say:

Tax will not apply to income from their sickness and funeral policy business.

In calculating the taxable income of the societies, a deduction will be allowed for all expenditure that relates wholly to the earning of assessable income.

Further, he pointed out:

Other expenditure incurred in earning income (but which is not directly related to a specific income source) will be prorated between exempt and assessable income, and the part based on assessable income will be deductible.

He referred to the 30-20 rule which would not apply to the friendly societies. He concluded by saying:

That average-effective-rate of tax is well below the nominal rate of 46c in the $ applied to the taxable income of the Life offices.

In setting the rate of tax, account has also been taken of other factors- including constraints which apply to investment policy of Friendly societies.

In the light of the foregoing considerations, a tax rate of 20c in the $ will be applied to the taxable income of Friendly societies.

I might say that that in itself will provide a considerable difficulty for the friendly societies. They are subject to a number of restrictions. Because they were created under State law they are restricted in the type of investments which they can enjoy. Consequently, their income is not as high as it would otherwise be. The friendly societies hope that the rate of taxation will not be increased. I think it is the duty of this Parliament to watch in the future to see that the rate is not increased and that further deprivations are not made on the income of friendly societies which would inhibit their ability to carry out the very worth while work which they do in this community.

I refer to one other matter in connection with this proposal. This tax is to apply for this financial year. Therefore, the tax will be collected for the whole of the period up to 30 June 1984. On 6 June 1984 the Standing Committee for the Scrutiny of Bills issued a digest No. 7 of 1984 in which it made reference to the retrospectivity which will apply in respect of this and a number of other provisions in the Bill. Regarding clause 60, which deals with retrospectivity-the clause relates to a great number of provisions in the Bill- the Committee stated:

This clause gives retrospective effect to a number of amendments made by this Bill.

The Scrutiny of Bills Committee then referred to clause 6 which is not relevant to my argument. The Committee continued:

Clause 60 also states that the changes made by various provisions of the Bill shall apply to assessable income for the year commencing 1 July 1983. Most of these changes were foreshadowed in the Government's Economic Statement of 19 May 1983 while others were announced on Budget night in August of 1983. Income tax on the various types of payments referred to in the relevant clauses is not assessable until the end of the financial year, thus these provisions may also be regarded as acceptable.

Quite frankly I do not regard that as being fair so far as these friendly societies are concerned. It is true that they have received notice, because notice was given on 19 May 1983. It may well have been that this legislation might not have been passed. Where it not for the attitude which the friendly societies are taking, there are many in this chamber who I think would have felt inclined to resist this move. But to say that because of the notice these provisions may be acceptable, I do not regard as being necessarily so. The Scrutiny of Bills Committee finalised its comment by stating:

The Committee continues to take the view that Senators should be alerted to retrospectivity in legislation and thus notes this clause in that it might be considered to trespass unduly on personal rights and liberties.

I think that as Deputy Chairman of the Scrutiny of Bills Committee I should draw that to the attention of the Senate. I have not received any requests for any amendment or action to be taken, but I do consider that this is in some ways an unfair matter because the friendly societies have been operating throughout the year, and now they will be subject to taxation. Unquestionably this is a retrospective operation in relation to this and a number of other provisions.

I merely want to say in conclusion that this provision of taxation is unique in the records of this Government-if it likes to be proud of this decision-and it is one which I hope will not damage unduly the excellent work which the friendly societies have done over many years. I trust that it will not be the forerunner of increases in attacks upon them but, in fact, that this matter will be watched very closely by the Senate and the Parliament to ensure that no further imposts are imposed.