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Wednesday, 17 October 1984
Page: 1817


Senator JACK EVANS(10.14) —by leave-I move:

That the Bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows-

This Bill seeks to provide machinery and a timetable for the formulation of comprehensive reforms of the Australian taxation system, public comment and the introduction into the Parliament of legislation to give effect to those reforms.

The Bill does not seek to present the philosophies or policies of the Australian Democrats, nor any other party, as a part of the reform process. It merely seeks to initiate a process and timetable for reform to occur.

In general terms, the Bill provides for the establishment of a cross-party Joint House Committee. The Committee, with the assistance and advice of consultants and staff has the following functions-

(a) to review-

(i) the reports of the Taxation Review Committee (the 'Asprey' Committee); and

(ii) the report of the Committee of Inquiry into Taxation and Inflation (the ' Mathews' Committee);

(b) to formulate, in the light of its review of those reports and of any evidence taken by the committee for the purposes of that review, comprehensive reforms of the taxation system; and

(c) to prepare draft legislation to give effect to those reforms.

The Committee shall present copies of its draft legislation to the presiding officers of the Parliament before 1 July 1987. The presiding officers shall table the draft legislation within 15 sitting days after it has been presented.

After being tabled in the Parliament, copies of the draft legislation shall be made available for public comment for a period of 12 months. During that 12- month period, any person may make representations to the Committee and suggest amendments to the draft legislation.

After the 12-month period of public comment, the Committee may amend the draft legislation in light of representations, suggested amendments or any other evidence. The Committee has 12 months in which to make any such amendments.

Within 2 years of the tabling of the initial draft (i.e. 12 months of public comment followed by 12 months of Committee amendments) the Committee shall present copies of the final draft of the legislation to the Minister. The Minister shall then, within 6 months, seek the leave of the House of Representatives to introduce the legislation.

The Time-table

Minister seeks

Amended draft

leave to introduce

Committee

Draft

presented to

legislation into

formed

tabled

the Minister

parliament

1984 1985 1986

1987

1988 1989

1990

Formulation of reforms

Public

Amendments

Leave sought

draft legislation

comment

in light of

to introduce

public

legislation

comment

into parliament

This time-table will result in the Minister seeking leave to introduce the draft legislation during 1990. If the Parliament at that time supports the legislation and it passes through the Parliament and receives Royal Assent, it does not necessarily mean that a new taxation system would immediately come into effect.

Both Government and business are tied into long term plans and investments. It is not practical for the taxation system to be reformed in a short time span. Consequently, although the legislation may receive Royal Assent in 1990, that legislation may not necessarily commence on the same date. It is possible that the date of commencement may be delayed for some years.

Alternatively, there may be several commencement dates so that the reforms are phased in. This Bill does not specify when the legislation shall commence. That decision is left to the Committee and to the Parliament at that time. This Bill merely provides for the drafting and introduction of reform legislation, not the manner of its implementation.

The reason for this Bill is that the present taxation system has become a complicated, anomaly ridden mess.

In simplistic terms, a taxation system needs to be simple, efficient and equitable. The present system fails on all three counts. The present system is anything but simple. No single person could truthfully claim to be aware of, and to understand, the taxation law as it now stands. The tax system is contained within thousands of pages and a multiplicity of inter-related Acts. It has suffered thousands of amendments and contains large numbers of exceptions, anomalies and loopholes. It is a system which even Q.C.s cannot predict or master. The average P.A.Y.E. taxpayer has little hope of understanding the multiplicity of laws which affect him or her.

The complexity of the present system is a major reason for its inefficiency. The system abounds with loopholes, anomalies and inconsistencies. Consequently, tax avoidance has blossomed. Blatant tax avoidance schemes have proliferated and although the parliament is attempting to stamp them out, the result is that the system becomes increasingly complex and only marginally more effective.

The existing system encourages tax practices which, while not constituting evasion, could be seen as being on the borderline between legitimate minimisation and illegal evasion. At present, there is a very fine line between astute business acumen and tax evasion. This is intolerable. A businessperson should be able to operate a concern and know what is clearly acceptable and what is not. There should be a clearly distinguishable line between legal minimisation and illegal evasion.

The P.A.Y.E. taxpayer also has similar problems. Very few P.A.Y.E. taxpayers know exactly what are legitimate deductions and what are not. The poor taxpayer has little option other than 'punting' on deductions and waiting for the tax department to declare which are acceptable and which are not.

The problems, however, are not confined to those who honestly try to meet their tax commitments. There exists a huge cash economy which is still largely untouched by the tax system. Although recent legislation has made inroads into the black economy, it appears to be surviving and prospering.

The existing system is clearly inequitable. Professor Russell Mathews has argued that it would be difficult to improve on the present system if the aim was to deliber- ately design a tax system that requires the poor to pay more taxes than the rich.

Wage and salary earners are discriminated against in favour of business and other taxpayers. They do not have the same legal rights and they lack the flexibility afforded to business enterprises.

In addition, higher income earners have a greater capacity for tax minimisation . It is a sad fact that those who can afford good legal and accounting advisers are in a much better position to minimise their tax liabilities.

The system is inequitable in that it encourages the redistribution of wealth from the poor to the rich. Although the intent of the system is to effect a measure of redistribution of wealth towards the poor and under-privileged, it fails to effectively achieve this.

The failure of the present system has been recognised by large numbers of taxpayers. Individuals and groups from all sectors of society have publicly expressed the need for tax reform.

The call for tax reform has come from political parties, trade unions, industry groups, academics and welfare groups. Even governments have argued that reform is necessary.

Governments have instigated several official inquiries into the taxation system and they have had a series of reports and recommendations presented to them.

In June 1974, Mr Justice Asprey presented a preliminary report of the Taxation Review Committee. This was followed by the full report which was presented on 31 January 1975. As a part of that inquiry, a number of commissioned studies were undertaken and departmental papers presented.

In May 1975, Professor Mathews, Chairman of the Committee of Inquiry into Inflation and Taxation, tabled a report which examined the indexation of taxation, overseas practices and other tax matters.

While these inquiries were specifically tax reform inquiries, there have been two subsequent economic/ financial inquiries which have addressed aspects of taxation.

The first was the Committee of Inquiry into the Australian Financial System chaired by Mr Campbell. The Committee's report was presented in 1982 and was accompanied by a number of commissioned studies concerning taxation.

A review of this report was undertaken by a committee chaired by Professor Martin and the subsequent report was presented in 1983.

There have also been papers prepared for bodies such as the Economic Planning Advisory Council, Government departments, academics, interest groups and individuals.

Most commentators merely point out the failures of the existing system. Others have advocated specific proposals for either the restructuring of existing taxes or the creation of new taxes. The majority of commentators do not look at the entire system, but are merely concerned with specific aspects of the system.

A reform of the taxation system will need to be just that: reform of the system as an entity and not just mere piecemeal amendments. It is the 'fire-fighter' approach of amending the tax laws piece by piece that has been the cause of much of the present complex mess.

Reform of the system as a whole is not a simple task. It is not just the task of finding a simple, efficient and equitable system. Although reform of the tax system involves obvious considerations such as the efficient allocation of resources within the economy, the redistribution of wealth, social welfare, employment, industry protection, Federal State relations, international trade and the management of the economy. There will also be ramifications for the business community due to the effects upon the legal status, liabilities and responsibilities of legal entities such as corporations and trusts.

There will, of course, be philosophical and political considerations which will be taken into account. 'Real politic' will intrude on any kind of reform. Although it may not be a desirable consideration, it must be realised that such 'real life' pressures do exist.

The Australian Democrats do not seek to pronounce what should, or should not, be considered, nor in what form the committee's considerations should be. We, as do the other political parties, have our view of how the taxation system should be reformed. This Bill, however, does not seek to promote that view.

This Bill does not deal with the nature of taxation reform. It merely establishes a procedure and a framework for reform to occur.

This Government has talked of tax reform, as have the Opposition parties. The Australian Democrats are not content to merely talk. We are not prepared to ' pass the buck' and assist in perpetuating the piece-meal amending that is occurring.

I, therefore, present this Bill in the expectation that the Government and the Opposition parties will honour their rhetoric and will support this Australian Democrats' initiative.

I commend the Bill to the Senate.

Debate (on motion by Senator Grimes) adjourned.