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Wednesday, 20 March 1985
Page: 505


Senator WATSON(4.28) —I support the urgency motion moved by my colleague Senator Peter Rae and spoken to so eloquently by Senator Rae and Senator Robert Hill. First, I must correct an impression gained from Senator Maguire, the previous speaker for the Australian Labor Party. He seemed to imply that an indirect package was no part of the proposals of the Liberal Party of Australia. There is a strong attitude in the community that levels of government expenditure and the taxes required to finance that expenditure are far too high, that they are excessive. The failure of the Government to discuss taxation during the election campaign led the Prime Minister, Mr Hawke, to seek a screen for deferral. This was achieved through a suggestion in a radio interview in Western Australia during the election campaign when the idea of a tax summit was raised by an interviewer.

In stark contrast to the Australian Labor Party's policies, which lacked objectivity and foresight and relied on the charismatic appeal of the Leader, the Liberal Party of Australia at that time was the reforming Party, the radical Party, the Party which presented strong alternatives such as its plan for family income splitting to ease the burden of higher taxes and consequent lower living standards for the average and low income earners and so to improve family welfare.

I remind you, Mr Acting Deputy President, that the need for reform did not emerge in an evolutionary way from the Labor side of politics or within the social democrat tradition. The need for reform was born of an election expediency and was latched onto by a desperate man, the Prime Minister. We now see the radical Left of the ALP and the Australian Democrats picking up the vehicle of a tax summit to push their extreme views on punitive wealth taxes, death duties and capital gains, measures designed to redistribute wealth from the rich to the poor in the very best of socialist traditions. For years, a massive redistribution of capital has been a pipe-dream of the Prime Minister. One has only to read his biography to realise the extent of his social goals. Now that he is very much the captive of the radical Left, as evidenced by his MX missile backdown, the Labor Party is in a position to implement changes that will radically alter the face of Australia, not to be benefit of the overwhelming number who supported the Prime Minister but to a minority of radicals and intellectuals.

Let me give but one example of how low income earners will be disadvantaged. The Treasurer (Mr Keating) now appears to have adopted a package involving a retail sales tax of 10 per cent, with a promise of 25 per cent tax cuts. Firstly, the plus and minus figures do not equate. So there is something missing which must take up this shortfall. We presume this must be the attack on perks in business. A retail tax of 10 per cent, as suggested by the Treasurer, will discriminate severely against low income earners, philosophically the very people whom the Treasurer should be protecting. Even the Australian finance industry's proposal limits indirect tax to 5 per cent. Given the finance industry's background, it proposal shows how severe Mr Keating's proposed tax package really is, because his package contains no redistribution to help the very low income earners. If it did, it would appear a lot more reasonable. To bring in sufficient income to provide tax cuts of the magnitude needed, there would need to be very few exemptions in the indirect tax package offered by Mr Keating. We would have taxes of 10 per cent on food, clothing and basic necessities. There would be loaded onto the expenditures of low income earners. Given the hue and cry of the Labor Party when the coalition was in government and attempted to introduce a two and a half per cent tax on books, the Government's tax package shows how hypocritical the Labor Party has become now that it is in government.

Earlier I mentioned that there was a need for an additional source of funds for the Labor Party to fulfil its promise of a 25 per cent tax cut. The euphoria surrounding the first announcements of a tax on non-tax benefits and on the cash economy by, for example, selecting the perks of business sounded fine until there was a counter-move in the Press which outlined the substantive benefits that parliamentarians, including Ministers of the Hawke Government and even the Prime Minister, received by virtue of their offices. Therefore, it was not surprising to read of a very quick Government back-down. What a charade! I ask: How much of the proposed original 25 per cent tax cut is now available for tax relief as a result of that back-down? It is a mystery. The truth is that the Labor Party wants extra sources of tax to fulfil its ambitious spending program. The Labor Party is a high taxing, high spending government. Having gained extra access to tax sources it is a relatively easy matter for it to change its mind and, subsequently, to raise income tax rates again.

The ALP has not proved to be a responsible Government. In its last Budget it lost the opportunity of substantially reducing the deficit which came, firstly, as a result of savings due to the Fraser wages pause, and, secondly, from extra income from a one-off item, the breaking of the drought. The Government failed to act in the interests of the nation. It had the chance of a lifetime. It sought short term popularity. It failed to rein in or check expenditure. The Labor Party has an unfortunate choice of terminology which has the intent of misleading the public. Let me use but one example. There are numerous examples. The Medicare levy is, in fact, a tax. It is fixed by reference to income rather than to medical history or a taxpayer's needs. It is the imposition of a compulsory extraction of funds from the personal income of a taxpayer. So many of the Labor Party's new taxes, such as lump sum payments on retirement, attack people at a time in life when they are least able to restore their financial position. Many of the proposed taxes, like the recent newer taxes, will mean an extra intrusion of the bureaucracy into people's financial positions and lives. Many of the proposed taxes, like the recent newer taxes, will mean extra bureaucratic activity. Such intrusions can have unfortunate repercussions, as was evidenced by the assets test forms. I quote from the December editorial of the Australian Tax Review because I think it puts, in a very emotional way, the implications that such changes can have on people's lives. It states:

Unfortunately, the feelings of the elderly when their financial security is threatened, when their personal affairs are inquired into minutely and when they receive intimidating communications from taxation officers cannot be measured numerically. They do not affect the ordinary economic indicators; they do not inconvenience the revenue authorities; and they are easily overlooked when politicians, captains of industry and trade union leaders settle down for cosy chats to plan the future of the country.

However, the damage done to the quality of life by any new tax and by the feelings of insecurity engendered by recent events must not be underestimated. In particular, it must be taken into account as economists and others produce bright ideas for adding yet further taxes to our already overburdened system. Taxation reform is much too serious and has much too great a potential for harm for it to be allowed to remain in the hands of economists and politicians.

The burden on taxpayers is directly related to extravagant increases in government expenditure. Let us examine some of the maximum rates of personal income tax of some of our near neighbours. This is important, especially as, increasingly, our trade will be within the Pacific region. I cite a number of the maximum tax rates of our near neighbours. In Indonesia the rate is 35 per cent. In Singapore, a progressive nation, it is 40 per cent. In Malaysia it is 46 per cent. In the United States, the maximum rate of tax of 50 per cent is not levied for a married person filing a joint return until the taxable income level of $US162,000 is reached, which is in the order of over $A200,000. Although the United States has certain state income taxes, they do not add up to the Australian income tax take. The maximum tax rate in Australia of 61c in the dollar is paid on incomes over $35,000, approximately twice average earnings. I venture to say, as I mentioned earlier, that the quality of life has been impaired by the tax system. Too much tax revenue accrues from income tax on middle and low income groups. For example, taxpayers earning under $30,000 pay 83.57 per cent of the total income tax paid by individuals. Income tax raises 67 per cent of total Federal revenue.

There is a widespread belief in the Australian community that the tax system is not equitable, simple or efficient. The Liberal Party's policy, on the other hand, demands reductions in the tax burden through reductions in the size of government spending and sustained economic growth. During a first term, the Liberal Party would aim to reduce both expenditure and taxation as a share of gross domestic product. Other associated policies include freeing up the economy, less public intrusion, reduced regulation and a more flexible wages system.

The tax summit will be a farce if it does not look at the other side of the coin, expenditure restraint. It will be ridiculed forever and a day if the Australian Council of Trade Unions or individual unions have so much power that they are able to veto reasonable changes. An attitude prevalent in the Labor Party calls for introduction of a capital gains tax. Once a tax is introduced it is very difficult to remove. Therefore, the introduction of a new tax must be subject to a great deal of careful examination. My Party, the Liberal Party, is against a capital gains tax. It is reasonable and acceptable to be taxed on recurrent incomes, but gains or losses of capital involve different principles and should not be subject to levies. Capital gains taxes do not achieve either horizontal or vertical equity. The incidence of a new tax is unlikely to reduce the levels of other taxes because politicians notoriously increase expenditure levels. Thus, there is a little opportunity to reduce tax.

Capital gains tax is a disincentive to both savings and investment. Australia has a poor record in raising capital. Are we to remain dependent on foreign investment? Can we afford a further disincentive to investment? The idea that a wealth tax should be paid progressively as an asset increases in value has weaknesses. Such an idea has been put forward by the Left. Should a farmer progressively have to sell off his farm to pay his tax bill? Countries similar to Australia which have capital gains taxes had them before the onset of high inflation. If we were to introduce capital gains taxes now we would need a set of formulas to overcome illusory and inflationary gains. The revenue gained would not be great, but the costs of collection would be significant.

A capital gains tax is a call for the have nots to attack the wealthy, a grievance sort of attitude. A capital gains tax reduces investment and reduces the number of jobs available as the tax would fall mainly on enterpreneurs. It would not encourage high risk venture capital or entrepreneurial activity. The Prime Minister conveniently forgets that the large majority of businesses in Australia strongly opposes such a tax. The Council of Small Business Organisations of Australia, representing the biggest employers of labour in this country, has said that a new capital gains tax would decimate small business. The National Farmers Federation is also waging a strong campaign against such a tax, because a capital gains tax locks farmers into existing enterprises by discouraging resource movement. For example, there would be a disincentive to move from farming to an alternative investment if a significant proportion of capital would be lost to tax.

At a time when the Government is trying to get a restructuring of the enterprise, it is talking about a capital gains tax which locks up investment in free enterprise; it stops it moving. With the Labor Party now giving us some of the highest real interest rates in the world-that is the difference between the actual rate charged and the inflation rate-It is hard to see the creation of new capital in Australia. Experience has shown that reductions in capital gains taxes in the countries that have them have increased investment and employment in critical respects. The introduction in Australia of a capital gains tax would have an adverse effect on investment and employment. If the Government is serious about rejuvenating the economy it must be practical and not allow outmoded ideological beliefs to damage further the economic performance of an economy that is really in trouble. Australia must restore incentives to work and save by reducing income tax rates. A proper balance between direct and indirect tax must also be achieved, but not in the regressive manner suggested by the Treasurer. I support the resolution moved by my colleague Senator Rae.