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Friday, 15 June 1984
Page: 3121


Senator MACKLIN(12.11) —I apologise to the Minister for Resources and Energy (Senator Walsh) but I shall have to speak at this stage since it seems that we shall not be having a Committee stage on the Loan (Income Equalization Deposits) Amendment Bill and the Income Tax Assessment Amendment ( Income Equalization Deposits) Bill. I wish to speak to the Opposition's second reading amendment. Senator Dame Margaret Guilfoyle said that the Opposition would not be opposing the Bills, but the effect of the amendment is to do precisely that. Hence I shall have to speak to the amendment now. Although it is not the option that the Australian Democrats would prefer, we shall, nevertheless, be compelled to support it, for reasons I shall now discuss.

The effect of the first part of the Opposition's amendment would be to restore tax deductibility to the money invested by a primary producer. This would enable primary producers to use the scheme to minimise the tax effect of fluctuations in their income. The second part of the amendment would have the effect of causing interest to be payable only on that amount of money invested that remains after the effect of tax deduction is taken into account. Hence a farmer who invests, for example, $100 and attracts a $60 deduction would have the interest paid only on the $40 remaining. A farmer who invests $100 and attracts a $30 deduction would have interest paid on $70. The merit of this approach is that it overcomes the equity problem inherent in the scheme as it has operated since 1976, since interest was then paid on the total amount invested. The actual interest benefit received was dependent on the marginal tax rate, and the higher the marginal tax rate, the higher the interest rate benefit.

It was this inequitable situation that led the then Opposition to move-I think it was the Minister for Resources and Energy who is at the table now who moved it-a motion of disallowance, in November 1981, to disallow the increase in the rate of interest applying to income equalisation deposits from 7 per cent to 9.5 per cent. Senator Walsh then attacked the scheme as a tax haven for Pitt Street farmers. When Senator John Siddons, speaking on behalf of the Australian Democrats, informed the Senate that the Democrats would be supporting the then Government, he recognised the possibility that the scheme could be abused by the wealthy. He made the point then, however, that the bulk of the IEDs were relatively small. At that stage, 75 per cent of the deposits averaged a little over $6,000, and therefore the scheme was not being abused by the wealthy. The latest figures available are for 1982-83. They show that of the 187,702 taxpayers involved, 8,683-4.6 per cent-were in the higher marginal tax rate. Of course, we cannot assume that these people are abusing the scheme. But it shows that basically the middle or low income earners are using the scheme to assist them with fluctuations in the rural sector. That was the original intent of the scheme, and it still remains the intent of the scheme. Therefore, we believe that demonstrably the scheme is being used in a reasonable way. In any case, the Opposition's amendment, most of which is supported by the National Farmers Federation, would remove the avenues of abuse.

In discussions with us the National Farmers Federation argued that the rate of interest ought to be linked to the bond rate. For example, it should be 2 per cent below the going bond rate so that the interest paid would not, from time to time, become a matter of political controversy. I think it appropriate at this stage to seek leave to incorporate in Hansard the amendments circulated in the name of the Australian Democrats so that these may be on the record.

Leave granted.

The document read as follows-

Group 1

(1) Page 2, clause 2, paragraph (a), definition of 'Class A interest rate', line 10, leave out 'above', insert ''below''.

(2) Page 2, clause 2, paragraph (a), definition of 'Class B interest rate', line 16, leave out '3', insert '5'.

(3) Page 3, clause 2, paragraph (b), after the proposed definition of ''income from property'', insert the following new definition:

' ''investment component'' in relation to a person in relation to a year of income, means the investment component ascertained in relation to the person in relation to the year of income under section 4BA;'.

(4) Page 5, clause 2, paragraph (b), proposed definition of 'relevant income amounts', line 24, after 'income' (first occurring), insert 'and taxation'.

(5) Page 5, clause 2, paragraph (b), proposed definition of 'relevant income amounts', line 29, at end of proposed definition, add the following new paragraph:

'(c) the amount of the taxable income of the person in respect of the year of income; and

(d) the marginal rate of tax applicable to the deposits made by the person in the year of income or the marginal rates of tax applicable to different parts of those deposits, as the case requires;'.

(6) Page 7, clause 4, proposed paragraph 4A (2) (b), lines 28 to 31, leave out the paragraph, insert the following paragraph:

'(b) in respect of the investment component of so much of the amount of the deposits (other than conversion deposits) as does not exceed the Class A interest deposit limit in relation to the person in relation to the year of income-the Class A interest rate; and'.

(7) Page 8, clause 4, proposed sub-section 4A (8), line 18 leave out '3%', insert '5%'.

(8) Page 9, clause 4, after proposed section 4B, insert the following new section:

Investment component

' ''4BA. (1) For the purpose of this Act, the investment component in respect of deposits made by an eligible primary producer in a year of income, being deposits (other than conversion deposits) not exceeding the Class A interest deposit limit applicable to the eligible primary producer is an amount ascertained by subtracting from an amount equal to the amount of those deposits an amount calculated by multiplying an amount equal to the amount of those deposits by the marginal rate of tax applicable to the eligible primary producer in respect of that year of income.

' ''(2) Subject to sub-section (3), the marginal rate of tax applicable to an eligible primary producer in respect of a year of income is the rate at which income tax would, if his taxable income for that year had been increased by an amount equal to the amount of the deductions allowed in respect of the deposits referred to in sub-section (1), have been levied on the amount of that increase.

' ''(3) Where income tax would have been levied at different rates on different parts of the amount of the increase, each of those rates shall be treated as the marginal rate of tax in respect of so much of the deposits as is equal to the part of the increase to which the rate applies and the amount to be subtracted for the purpose of sub-section (1) shall be the sum of the amount ascertained by multiplying those parts by the marginal rates applicable to them.'.

(9) Page 9, clause 4, proposed paragraph 4C (1) (b), line 23, after 'income', insert 'and taxation'.

(10) Page 9, clause 4, proposed paragraph 4C (2), line 29, after 'income', insert 'and taxation'.

(11) Page 9, clause 4, proposed paragraph 4D (1), line 37, after 'income', insert 'and taxation'.

(12) Page 10, clause 4, proposed sub-section 4D (6), line 13, leave out 'either of the relevant income amounts', insert 'any of the relevant income and taxation amounts'.

Group 2

(13) Page 3, clause 2, paragraph (b), after the definition of 'eligible primary producer', insert the following new definition:

' ''eligible small business'' means-

(a) a company that carries on in Australia a business, other than a business of primary production, otherwise than as trustee of a trust estate; or

(b) a beneficiary of a trust estate the trustee of which is a company that carries on in Australia a business other than a business of primary production,

being a company-

(c) that has at least one employee at all times during the relevant year of income;

(d) that does not, at any time during the relevant year of income, employ more than 100 persons; and

(e) the gross receipts of which from the business so carried on by it does not in the relevant year of income exceed $2,000,000;'.

(14) Page 7, after clause 2, insert the following new clause:

'2A. After section 3 of the Principal Act the following section is inserted in Part I:

Small businesses

''3A. (1) This Act extends to and in relation to deposits made by an eligible small business in like manner as it applies to and in relation to deposits made by an eligible primary producer.

''(2) For the purpose of the application of this Act in accordance with sub- section (1), unless the contrary intention appears-

(a) a reference in this Act to an eligible primary producer shall be read as including a reference to an eligible small business; and

(b) a reference to primary production shall be read as including a reference to the business (not being the business of primary production) carried on by the eligible small business.''.'.


Senator MACKLIN —I thank the Senate. We have accepted the merits of the arguments of the National Farmers Federation. In group 1 of the amendments circulated in the name of the Australian Democrats we have sought to follow that line. Therefore, it is now a question for us as to whether it is better to support the Opposition's second reading amendment--


Senator Walsh —Mr Acting Deputy President, I raise a point of clarification. I ask Senator Macklin whether he wants to incorporate also amendment No. 68 which is separate from the amendments in group 1 and group 2. Is amendment No. 68 included in the amendments to be put on the record?


Senator MACKLIN —Only amendments in group 1 and group 2 have been incorporated.


Senator Walsh —What are you going to say about amendment No. 68?


Senator MACKLIN —Amendment No. 68 is consequential upon the ones I have just incorporated. I wish to incorporate only group 1 and group 2 amendments in terms of the two aspects I am discussing in relation to the second reading amendment of the Opposition. The task for the Australian Democrats is to decide whether it is better to support the Opposition's second reading amendment, which would have the effect of leaving the scheme in place, at least until the Budget session, or whether we seek to go into Committee on the Bill. I am assured by the Opposition that if we did that there would be no support for what we are attempting to do. Hence that leaves us with no alternative except to support the Opposition's amendment and to hope that the amendments which have now been incorporated in Hansard showing the position we would like to take might be considered by the Government in the interim.