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Thursday, 18 April 1985
Page: 1197


Senator WATSON(11.03) —The reintroduction of the Taxation (Unpaid Company Tax) Assessment Amendment Bill and the Dividend Recoupment Tax Bill shows the Government's persistence in trying to inflict on the Australian public its abhorrent retrospective ideas in relation to taxation. Apart from a few minor technical corrections, the first of these Bills is identical to Government Bills that were introduced in 1983 and 1984 concerning bottom of the harbour tax avoidance schemes. One of the essential criteria or features of any good taxation system is certainty before the law. The introduction of retrospectivity creates an air of uncertainty in planning. All individuals and all corporations must be able to plan not only their structure but also their operations with an assurance that the tax law will not be changed retrospectively. It is fair enough that tax laws can be changed to apply from a certain date and thereafter, but not retrospectively. Retrospectivity creates an air of uncertainty.

While this whole question of retrospectivity continues companies have to face problems with cash flows. It is not doing anything to engender confidence in the Australian community at the very time that Bob Hawke and his fellow Ministers are trying to talk up the Australian economy. They are not doing it very successfully as far as the overseas operators are concerned, because the Government continues to devalue Australia's assets in terms of a lower exchange rate. The sad feature is that while the value of the American dollar is falling the value of the Australian dollar is not coming up as it should, which indicates an overseas lack of confidence in Bob Hawke's ability to govern, in Bob Hawke's ability to set in train a strong, sound and coherent taxation policy as well as an economic policy.

The question of continually bringing up this matter of retrospectivity I think has some dubious overtones. For example, we will know that at the moment the Government is short on legislation but at the same time it indicates that the sitting time of the Senate will be greatly extended. Surely the motive behind this is to rush through important Bills at the end of the session. The Government believes that the Senate, in the knowledge that the other House has risen, will give the nod to what is called important legislation. I hope that the Australian Democrats will join us in passing appropriate amendments and will not succumb to the theory of 'the other House is up; the legislation must get through'.


Senator Grimes —Do you have any shred of evidence for that? It is in your fertile mind, in your fertile imagination.


Senator WATSON —The indications are certainly there at the moment: There is a lack of legislative program; a lack of planning. We are short on legislation. The Government has indicated that it wants an extended sitting, and that will come about. The problem is that the Australian Labor Party feels that it can get a bit of mileage out of continually pushing the anti-avoidance debate. It feels that by using the heavy hand of retrospectivity somehow it will make all people honest. The Government is just pushing the anti-avoidance barrow when it knows that as from 1980 this whole question of the tax avoidance industry has been dead. Why is the Government not focusing attention on the present system, which everybody sees to be unfair? It is over-taxing savings and reducing incentives for those who are caught in the tax net but it allows others to escape, such as those in the cash economy. This legislation pays no attention to the cash economy and the like.

The indirect tax base is unduly narrow and creates distortions, particularly in the high proportions of revenue received from cigarettes, alcohol and petroleum products. This legislation fails to recognise that there is a proper balance between direct and indirect tax. We have heard various spokesmen from the Labor Party raise their voices against any form of increased indirect tax. I suppose this is natural, because they are starting to worry about the effects of inflation. They know that inflation is about to set off; that it will soon catch the New Zealand rate, which is now about 13 per cent. According to the statistics our inflation rate is relatively good. In the next few quarters it will take off and be quite frightening.

What has happened? Surely the Labor Party has recognised that there is something of a tax revolt within the community. People are paying too much pay as you earn income tax. Since the 1950s the marginal rate for people on average earnings has risen from 22 to 46 per cent. This concern about the high levels of taxation they have to put up with is rising, almost to the extent of rage, within the community. What is the Government doing about it? During the election it decided upon a taxation summit. Unfortunately, some of the informed as well as the uninformed opinion and the divisiveness which this summit has caused within the Labor Party indicate a possibility that a taxation summit may not be held at all or that, if it is held, very little will come out of it. Sometimes the idea of raising matters of national interest through a properly balanced summit can have some merit, but one wonders whether the whole question of a taxation summit will have appropriate balance from all sides. What has happened at present is that it has given the spokesmen of the far Left of the Labor Party an opportunity or vehicle to push onto the Australian community their ideas of introducing a wide range of capital taxes, inheritance taxes, death duties, gift duties and so on.

Let me come back to the purpose of this legislation. It empowers the Government to recover retrospectively company tax, including undistributed profits tax avoided by vendors, shareholders and promoters. It is avoided; it is not evaded. In other words, according to this proposed law that which was legitimate at the time is now wrong. Another damaging feature of the legislation is that it relates to the period between January 1972 and December 1980. It is going back a heck of a long way. A lot of people who were then involved are probably dead and buried; others are out of business or have changed their operations completely. The cut-off date is December 1980. That is the date when John Howard brought in his legislation to overcome this sort of thing. That put an effective end to all these so-called blatant schemes of tax avoidance. That is a recognition of the fact that major tax avoidance is certainly dead, except in the cash economy area.

Another problem that is draconian is the proposed election of the so-called innocence clauses in the Taxation (Unpaid Company Tax) Assessment Act. It makes the provisions of that Act harsher than the Crimes (Taxation Offences) Act 1980. In fact, at that time there was a lot of debate as to whether crimes provisions should be introduced into taxation legislation at all. They were introduced because of the problems of tax avoidance. But the Labor Party now wants to put the boot in even harder. This legislation is even harsher than the Crimes (Taxation Offences) Act. In effect it deprives vendor-shareholders of the right to be relieved of that part of the recoupment tax liability where it can be shown that before the sale of the shares that person reasonably believed that the relevant company did not have that marginal tax liability.

Another feature of concern about this legislation, if it is passed by this Parliament, is that it threatens the whole concept of limited liability for companies. For hundreds of years this concept of limited liability has been one of the cornerstones of the separation between the individual and the corporation. If this legislation is successful it could break down the whole concept of the difference between the owner and the incorporated organisation. But if the Labor Party were really serious about trying to do something to solve tax avoidance, it would not be bringing in this draconian legislation to catch a few people right back in 1972. The Government would be thinking about introducing compulsory identity cards. What is wrong with that? No, the Labor Party will not have a bar of that because it could impinge on individual liberties. But in relation to retrospective taxation Labor members are not concerned about individual liberties.

The Labor Party has double standards. Why does it not consider the gradual introduction of compulsory identity cards as a preferable means to overcome both the taxation avoidance industry and as a possible alternative to new broadly-based indirect tax? After all, it is not novel; it is supported by Eric Risstrom, who is the head of the Australian Taxpayers Association. But the real answer lies not in gaining access to increased sources of revenue; it lies in cutting down government expenditure, in cutting out government programs. It is unfortunate that the whole emphasis in this tax debate is on getting increased sources of revenue. The focus should be shifted to the real problem of trying to reduce government spending. Until the Government gives that emphasis up, there will be problems for the Australian taxpayer.

The big problem with the Federal Government at present is its concern for wealth redistribution. If one looks at all the successful economies of Asia, which are trading nations, one realises that those countries recognise that increased trade brings increased wealth and improved living standards. In Australia we are seeing reduced living standards because, with the taxation creep, more and more PAYE taxpayers are coming up into high marginal tax brackets. Average earnings now attract marginal tax rates of 46c in the dollar. All these new, strong, emerging economies in Asia-and the shift is going away from Europe with its high levels of taxation; the prosperous economies are now in the Pacific area-give a low priority to redistribution of income and a high priority to increasing their income. If Australia is to emerge from its current problems, it must give a bigger and better priority to moving away from the worrying aspect of all the debate in Australia and the attitude of the Labor Party and concentrate more on wealth creation and less on wealth redistribution.

Another big problem is that the Government now recognises that there is not much more that can be squeezed out of PAYE taxpayers to obtain additional revenue. So what does the Labor Party do? It takes the view that it must look for new forms of taxes. One of those new forms of taxes is in the category of retrospective tax which comes under the ambit of today's debate. But it not only seeks retrospective taxes to pick up the additional revenue, but new taxes such as capital gains, wealth taxes and possibly the reintroduction of estate duty-all these are almost a certainty in order for the Government to do something about its burgeoning deficit, which is so worrying.

The Labor Party surely must take note of some of the problems as perceived by the community. Perhaps that indicates a major shift away from some of the previous attitudes by some of the different sections or factions within the Labor Party to various forms of new tax. In fact, the Bulletin indicated that most electors feel that the general level of taxation is unreasonable. Some 40 per cent said that their first preference would be for lower income tax and higher sales tax. Surely the Labor Party will recognise that the whole level of taxation is too high. Some sections of the Labor Party are concerned about the impact of an indirect tax on the lower income tax earners, but if one examines what is happening in the Labor Party one sees that it is divided into a whole host of factions. There are the ALP Right, the ALP Centre Left, the ALP Left, Labor Unity and so on. A number of people have noted perceptible changes in the last few months within the various factions of the Labor Party in relation to the number of options.

It was interesting to note that the Labor Party factions initially wanted to attack the fringe benefits of big business. However, when a few newspaper journalists came along and pointed out the fringe benefits that went with a member of parliament's salary or a Minister's office or the Prime Minister's occupation of the Lodge, the debate suddenly went quiet on attacking fringe benefits. It appears that that option is no longer open because if they attack big business fringe benefits they also have to attack the fringe benefits of their own members, benefits such as getting a ride to Parliament House in a government car and so on. That is a fringe benefit worth a few thousand dollars a year to each member that technically should be added to a member's salary. Now that it has realised that this opens a Pandora's box, this option is suddenly closed off.

One of the essential canons of taxation is that it be administratively simple and easily understood by the public. This legislation is a Pandora's box of problems. One has to have a law degree to understand its legal implications. It is time we got back to a taxation system which is administratively simple, one which people can understand, a system under which people can operate with a degree of certainty, a system which is fair and just and which has horizontal and vertical equity.

The Australian Labor Party seems intent on pressing for some form of capital gains tax. The revenue to be derived from capital gains tax is not all that great. That is one of the problems. If the Government is to get its revenue, it has to go a little further than an ordinary capital gains tax. The problem for Australia of a capital gains tax in the face of rising inflation is that it is going to be a disincentive to both savings and investment. Capital gains taxes were introduced in some of the older countries many years ago at a time of relatively low inflation. Adjustment will have to be made for inflation and for losses. That will effectively create a vehicle for reducing the value of the revenue raised.

As I said, capital gains taxes create disincentives to both savings and investment. We have a poor record of capital raisings in Australia and we are going to put further emphasis upon and remain dependent upon foreign investment. This is one of the sad features of the low value of the Australian dollar at present. It means that overseas interests can come here and buy Australian assets at relatively low prices compared with prices ordinary Australians would pay. This is a tragedy. Pushing a capital gains tax is going to create further problems in being able to accumulate money for savings and investment. It will make us more and more dependent on foreign investment. The very people who are arguing against foreign ownership, et cetera-the Labor Party-are pushing a capital gains tax right around Australia. Can we afford further disincentives to investment, given this climate. We have to recognise that a capital gains tax not only reduces investment but also reduces the number of jobs available because the tax will fall mainly on entrepreneurs, the very people who are providing jobs within Australia. Further, it will not encourage high risk venture capital or entrepreneurial activity.

Another major problem of a capital gains tax is that it discourages capital from moving from one area to another. At the very time when the Government is preaching to industry that it should become more efficient and move out of the old inefficient areas into the new high risk areas, it is talking about introducing a capital gains tax. People are not going to move out of those areas because a capital gains tax effectively locks entrepreneurs into their old industries for fear of being taxed on the capital as a result of that transfer.

At the very time the Labor Party is asking for readjustment and restructuring of the Australian economy, the gurus of the Labor Party are talking about a capital gains tax that will effectively prevent capital from moving into new industries-industries that are going to be the big employers of labour-and to the small entrepreneurs. They fail to recognise that the very people who are going to pull Australia out of its economic mess are the small businessmen and the small entrepreneurs with their small amounts of capital. The big boys are shedding labour, shedding capital, moving out of Australia and moving into technology. We have to create an environment where the small businessman has the opportunity to accumulate savings to invest, to take risks and to pay tax on profits. We should not have to pay tax on capital gains and so lock out industry and prevent private enterprise. The whole thrust of government taxation legislation from back in May 1982 or so when it decided to tax lump sum superannuation has been to take capital and to take savings.

I believe this is an unfair tax. I believe that the Labor Party has lost its way in relation to the tax debate and that when we have the final result of the taxation wash-up after the taxation summit, all we are going to find is increased taxes and continued high levels of government expenditure. The Labor Party will get over this tax creep or tax push by finding new avenues of taxation and at the same time further dampening down the Australian economy in an environment of higher inflation and higher interest rates. We wonder what is to be the future of Australia under this legislation. I condemn retrospective taxation legislation. I will vote against it and for the sake of Australia I hope that this legislation does not pass through the Senate.