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Wednesday, 20 March 1985
Page: 492


Senator PETER RAE(3.05) —I move:

That in the opinion of the Senate, the following is a matter of urgency:

The urgent need for fundamental reform of the Australian system of the raising and expenditure of revenue which involves the need for- (a) the total review of expenditure;

(b) the restoration of the incentive and opportunity for the creation of economic growth and national wealth;

(c) the reduction in the burden of personal taxation;

(d) the relief for families by the introduction of income splitting for tax purposes and also of tax rebates for child care;

(e) the review of the distribution of the tax revenue base between the various levels of government; and

(f) the emphasis upon neutral, efficient, and equitable taxes.

This is a matter or urgency and the Opposition will speak to it as a team. The first point that I emphasise is that the Opposition will speak as a team on this matter because, as I shall elaborate a little later, unfortunately the public debate on this most important issue has been confused by the disparate nature of the desperate measures taken by the present Government in encouraging public debate of the issues involved. There is no doubt that the tax system is in need of fundamental reform. That is a widely held view. It is held by the public, as demonstrated in the Bulletin of 19 March. In that issue, the results of a Morgan poll were published which showed that 58 per cent of Australians believed that as far as they were concerned the general level of tax was unreasonable; that is, nearly three-fifths of Australians believe that the general level of tax is unreasonable. When one has regard to how many taxpayers there are, one sees that almost all taxpayers believe that the level is unreasonable. The Prime Minister, Mr Hawke, in the policy speech on 13 November 1984 said:

. . . a thoroughgoing review and reform of the entire tax system . . . will be central to all our tasks in our second term.

He then set out nine principles which would apply to that review of taxation. Those nine principles are well known. I will not pause to read them in detail, but they have caused considerable concern. I will deal with them later as they constitute some restraint on the approach which can be adopted to the overall review. In an article in the AFR Review of December 1984, Christopher Jay made some comments which I would adopt. He said:

The problem is that large proportions of the community's savings, the funds which should be bankrolling productive enterprise and economic growth, are being diverted into avenues of marginal economic utility.

The culprit is Australia's tax system, more specifically the high rates of marginal tax which virtually ensure that for a large proportion of investors the primary consideration in any rational investment program is how it can be structured to minimise taxation payments.

That misallocation of resources needs to be overcome. Paragraph 5.1 of the taxation policy issued by the coalition in respect of the election last year reads:

The Coalition parties not only believe that the current overall burden of taxation is too high, but also that the taxation system is in need of reform. Labor has preferred to hide behind the convenient excuse of extended consultation, devoid of any policy framework, to avoid having to reveal its plans for new taxes on capital and assets before its unnecessary early election.

It is asking for a blank cheque on tax.

That, apparently, is still the situation. What was eventually forthcoming from the Prime Minister during the election campaign was a statement of what he chose to call a trilogy. The trilogy can be summarised in these words: First, the Government would not increase Commonwealth taxation as a proportion of gross domestic product; second, it would reduce government outlays as a proportion gross domestic product; third, it would not increase the deficit as a proportion gross domestic product. I was impressed by what Mr Maximilian Walsh, well known for his commentaries on public matters, said when he referred to the Oxford Dictionary meaning of 'trilogy' as 'a set of three tragedies to be performed in immediate succession'. That may be an unfortunate characterisation of what this Government is taking Australia towards. The trilogy, if it is to be implemented, will simply freeze us into the present high tax, high spending situation which has existed in this country since this Government came to power. We are now suffering from paying the highest percentage of tax and having the highest expenditure as a percentage of our national wealth since this country was formed at Federation. That is the situation which this Government has brought this country to.

I find it more than passing curious that the trilogy commitments were given, because they were given when the economy was suffering very severely from the impact of external and internal events. So far as external events are concerned, the export markets available for both our rural products and our mining products are squeezed both as to quantity and as to price. We are suffering the judgment which was inevitable from the time that the Australian dollar was floated, something with which we do not disagree but something which subjected this country, its management and its economy to the judgment of the international market-place; and the international market-place has this year passed that judgment. It has devalued the Australian dollar, as Senator Chaney said when speaking earlier, by 13c in the three weeks leading up to the Governor-General's speech. It has devalued the Australian dollar as a judgment of the management and re-election of the present Government. It is a judgment of no confidence in the present Government of this country. I believe that again will make the achievement of the trilogy that much harder.

When one has regard further to the increased demands being made from various sectors of the community, including the Australian Council of Trade Unions, regarded by some as the real government of the country, one finds the prospects of the achievement of the trilogy are so small as to be likely to induce people with anything in the nature of a suspicious mind to believe that perhaps the confusion being created in relation to the taxation debate at the moment is an obfuscation to cover up the fact that net taxes will be increased to overcome the problems of the present Government but under a different guise so that the Government cannot be accused of a direct breach of the trilogy. I believe we must approach tax reform from a different point of view. We must not approach it from the point of view of setting down certain basic and fundamental principles outside which we cannot go, thus winding up with a situation which, whatever we do in the discussion and the consideration within the Parliament, within the parties, in government and within the summit, is subject to the veto of an outside body, the ACTU. That is the situation which as late as this afternoon Senator Walsh reaffirmed in the way in which he answered a question I asked of him. Whatever happens in the debate which takes place, it is subject to the veto of the ACTU which, if it does not get what it wants, can then say that it will not play ball in the way in which Senator Walsh outlined and, therefore, the whole thing cannot go ahead.


Senator Walsh —I did not even mention the ACTU.


Senator PETER RAE —I will quote what has been said by others as well so that, if Senator Walsh does not wish to be involved in it, he can just increase the number of differences within his party. Let us first look at the essentials. The first essential we believe it is necessary to look at in this country is a reduction in expenditure, in the rate of growth of public indebtedness. The rate of growth of taxation is a reflection of the rate of growth of public expenditure in this country at a Commonwealth level and at a State level as well as at local government level. Public expenditure in this country has risen dramatically. We must look also to the creation of wealth because, without the creation of wealth, there is a diminishing tax base and all we can then look at is which taxes we are going to impose to try to make up for the fact that we get less from each form of tax because the total wealth available has been diminished. The Australian Labor Party is not going down that track. It is going down the track of the intrusion of an ideological prejudice-an economically ignorant, economically inefficient and economically counter-productive approach, a doctrinal approach, to tax reform which will leave Australia and its taxpayers still disenchanted, without incentive and suffering the feeling of injustice which exists in this country at the moment as a result of the introduction of the assets test as it is felt by the small family farmer.

There is an apparent manic determination on the part of the Government to seize capital at all costs as if capital, rather than being for the generation of growth and employment opportunity in this country and for the creation of national wealth, were some vile disease to be stamped out at all costs. We see the Hawke-Keating Government again succumbing to its Left extremists as it did over the MX missile matter and the ANZUS matter when we had the back-tracking which took place. So extreme is the factionalism with regard to this matter that the Australian Labor Party Centre Left held its own seminar on taxation at the beginning of March in which its members came up with their own policy. It was interesting that their chief adviser and spokesman is reported to have advised them that a capital gains tax, the darling of the Left as a tax reform measure, would be unrewarding in the return it would provide.

Let me refer very quickly to the Opposition's approach. At the time of the election last year, after 20 months in government, the Government still refused to tell Australians whether it would introduce a capital gains tax, death duties and a wealth tax-and it still refuses, although many of its members are on record as saying that they favour this course; whether it would be broadening the indirect tax base-and again today Senator Button and Senator Walsh refused to commit themselves to a view in relation to that; whether it would be doing something about the average wage earner moving into the 46c tax bracket or the 47c bracket, as it really is; or whether it would do something to relieve the tax burden on the family. In contrast, firm and clear policies have been put forward by the coalition, which proposes the provision of a new deal for families to reduce the tax burden and to assist with the cost of child care, and to relieve the tax burden for one income families in the 46c bracket or those who are moving towards it. This will be partly paid for by a broadening of the indirect tax base, a firm commitment to direction so that people know in which direction we wish to move. We will not be introducing a capital gains tax, death duties or other taxes on capital; and we will not have a bar of Labor's assets test or the 31c tax on lump sum superannuation. Those are the measures which, in government, the coalition would take.

There is in Australia at the moment very high taxation and very high public sector borrowing, leading to the assessment that public sector debt has risen to the stage at which it costs the average taxpayer $34 per week simply to fund the interest bill alone on public debt in this country. There is accruing and accrued, but undisclosed, through a number of matters, another huge debt, part of which relates to the devaluation which has taken place and the overseas loans and the cost of interest and repayment of those loans in Australian dollars, which will now be billions of dollars more than it would otherwise have been. There is also accrued, but not disclosed, a liability in respect of Commonwealth superannuation, particularly by statutory authorities, of mammoth proportions. This is a public debt which is not included in the public debt to which I referred.

I wish to be taken not in any way as talking down the Australian economy but, rather, as being realistic. There is an urgency that we face these matters and face them fairly and squarely. We find in today's Australian Financial Review that the front page headline is: 'US investors scathing about Australia'. The article states:

One of the largest and most influential broking and investment banking groups in the US has delivered a virtually unequivocal thumbs down to the Australian market.

It talks about 'the stifling tax regime' as being one of the important aspects of that problem. We must remove the stifling nature of that tax regime. We must take those measures which will ensure that this country is not viewed in the way in which that group of American bankers viewed it after a visit here.

We need to look at the tax base and, in particular, at the extent to which the tax base has been narrowed by the development of the mixed economy and the extent to which areas of that mixed economy are able to engage, through statutory authorities and other government bodies, in the avoidance, evasion or non-application of tax which would otherwise be applicable to economic activity which is being undertaken. I remind honourable senators that revenue forgone in that way is equivalent to a tax cut and amounts just as much to a subsidy as would a direct subsidy. Australia Post Courier is a good example of that. It carries out an economic activity that can be carried out equally well by other areas of the community but is not carried out because government carries it out without paying sales tax, excise duties and all the other taxes which would normally be paid on that sort of undertaking.

We find that there is a proposal for a capital gains tax, which is generally regarded by small business as absolutely anathema. The Council of Small Business Organisations of Australia has made that abundantly clear. The ineffectiveness of such a tax was made clear in an editorial in the Australian on 18 March this year and by a series of articles by Dr Ian Spry, QC, the editor of the Australian Tax Review, who has equally made clear the disastrous potential effects of that tax, which include one matter which has not been specified yet-I pick it under the limitation of time-the increase in housing rentals, because inevitably a capital gains tax would contract the stock of rental housing available and would increase the rentals demanded by the owners of rental houses. COSBOA has made clear its objection to the constraining influence of the nine principles. I refer to its January 1985 review. Finally, it was reported on 1 November 1984, and reaffirmed by Senator Walsh today-as was my understanding-that the Prime Minister had said that before any increase in indirect taxation 'it will be necessary to get an agreement with and from the trade unions to ensure that that does not add to the inflationary process.' In other words, honourable senators opposite are not in government. Mr Hawke is not in government. The Australian Council of Trade Unions has to give its imprimatur irrespective of what may be agreed to at the tax summit.

In summary, the true nature of what is happening is a vast charade, a ploy to change the system without reducing the revenue. On this matter, the Hawke Government is falling apart. It is desperate for funds and disparate as to how to gain those funds. We need genuine reform, a total review of expenditure and the restoration of the incentive and opportunity for the creation of economic growth and national wealth. We need the reduction in the burden of personal taxation and relief for families by the introduction of income splitting for tax purposes and for tax rebates for child care. We need the review of the distribution of the tax revenue base between the various levels of government and the emphasis upon neutral, efficient and equitable taxes. That is an urgent necessity for this country.