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Wednesday, 19 November 1986
Page: 2498

Senator WATSON(4.05) —I hope that the tens of thousands of bank employees tuned in to listen to Senator Vigor's fine speech, in which he stated that they will not really be disadvantaged, that they will actually be advantaged because they will get more as a result of the fringe benefits tax. Senator Vigor should try to convince them. He does not have a hope. He has just wiped out tens of thousands of votes for his Party by the stance he has taken. At least Australian Labor Party back benchers are decent enough and have the honour to remain silent and cringe in their corner.

The Senate is debating as a matter of urgency the need to abolish an indefensible tax, a new tax the first payments of which are due in just a few days time. I refer, of course, to this indefensible, inequitable Hawke Government fringe benefits tax. It is not a Labor Party tax in the true sense. Save for only one exception, and then only in very limited circumstances, it has no equal anywhere else in the world. It is morally indefensible because it requires one person who is not in receipt of an income or gain from the benefit, to pay the tax on the benefit or gain which is given to another person, that other person being an employee.

In a nutshell, a person has a statutory obligation to pay another person's tax. This, I believe, is a precedent which could have far wider ramifications. For example, it could require an employer, as the next step, to pay part of the group tax. It is preposterous that a person paying the so-called benefit-and there are hundreds of cases in which one could hardly call it a benefit-must pay a tax at a rate which is equal to, or greater than, his own personal tax rate. That is preposterous. Even more cruel and stupid is the fact that this tax must be paid quarterly. Unlike other taxes, such as the prescribed payments tax or income tax, there is no annual adjustment or equaliser. The Labor Party has introduced a flat tax on ordinary individuals. It bears no relationship to a persons' ability to pay. It is a tax on costs; it is not a tax on profits.

Following months of public dissent, despite what honourable senators opposite say, the Hawke Government finally conceded that the fringe benefits tax was unworkable. But it was not honest enough to use those words. It did say that there were some technical problems. It did say that there were some unintended consequences. It had a big tax summit or something like that, but very little resulted from it. Following the review, Louise Dodson, in an article in the Australian Financial Review of 30 October, stated:

The fringe benefits tax . . . emerged intact from the Federal Government review . . . the modifications, while designed to stem the rising electoral opposition preserve the essential structure of the tax . . . the outcome of the Government's review reflects political rather than economic considerations.

I repeat: Political rather than economic considerations. Is that not dreadful? It is not a tax which is based on equity grounds, it is not a tax which is based on economic grounds; it is a tax which is based on political grounds, because the Government lacked the fortitude to do it in the right way. It could not get it right. So it had political considerations. Indeed, the Government has merely tinkered at the edges and has offered no change to the flawed basic assumptions or principles of the tax. I contend that the fringe benefits tax remains complex and difficult to understand, and it is an administrative nightmare. Despite the deletion of a few of the more ridiculous imposts regarding such needy individuals and organisations as the aged, the physically and mentally handicapped, working mothers and companies that give minor safety awards and emergency aid to employees, I believe, and the Liberal Party believes, that the Treasurer (Mr Keating) has failed to address the numerous anomalies which must be regarded now as intended consequences-not unintended consequences, because the Government reckons it has wiped them out.

Investors are not investing at present and this is having a detrimental effect on both employment and growth. The Economic Planning Advisory Council, which is really a government body, has shown that private sector investment as a percentage of gross domestic product is at its lowest level for 25 years and is falling. Our manufacturers are not on the verge of a dramatic export boom as some colleagues of the Minister for Industry, Technology and Commerce, Senator Button, would like him to believe. In fact, the major disquiet of business is coming from high interest rates, uncertainties in the economy, high inflation and high taxation. Business will only invest in productive resources when the real rate of return on a particular investment exceeds the available return on low risk financial assets such as Commonwealth bonds. I have said that time and time again. Honourable senators opposite have said that it is boring, but it is correct, and until the Government gets that message it will never get things right.

The studies by EPAC and Syntec all point to the same thing-that taxes and costs are crippling business. Today business estimates that merely to cover the costs of borrowing funds and paying taxes-honourable senators should listen to this-the rate of return has to be 25 per cent. Good on the Government; it has to be 25 per cent! I take it as a compliment that when I come into this chamber to speak I can fill this House with Australian Labor Party senators. It was an empty chamber before I came in and it is a compliment that I am getting so many interjections. Government senators try to stop me speaking on every occasion. There are still major problems with this tax despite major changes and despite the nearly 100 pages of income tax rulings to get it right. What have we got? It is still excessively complex and it is excessively filled with prescriptions. It includes a wide range of items which are incidental to employment and which are not regarded as fringe benefits so far as businesses are concerned.

The other big problem is that it is a tax on the employer and not on the employee. One of the atrocious features of this tax the Labor Party has introduced is that it legitimises the payment of fringe benefits, as never before in the history of this country, to the tall poppies, to the top people. People in managerial positions are better off under this Government's fringe benefits tax than under the previous regime. The people who are worst off are the lower paid people, the poorer ones, the bank employees, who are generally the people who are supposed to vote for the Labor Party. But the real losers are the middle income earners, the salary earners and all these sorts of people.

I think there is a lack of appreciation of the real costs to business and the administrative burden imposed as a result of the compliance provisions of this tax. I know that Senator Button tried to reform it, but he did not try hard enough because he did not win the day on this. I wish to give a warning to the Government. One of the iniquitous features of this Government's fringe benefits tax is that it has made a decision not to introduce these so-called far reaching amendments until 1987. The Government had five clear weeks between the time of its so-called summit, which was a shemozzle and a farce, to the rising of the House of Representatives to at least introduce that legislation. That the Government did not do so reflects its low priorities in this area. What did it say? It gave a poor excuse, a bloody poor excuse, I might say, because it said that the parliamentary draftsmen were too busy. What an excuse!

The ACTING DEPUTY PRESIDENT (Senator Colston) —Order! Senator Watson, when I am in the Chair that type of language will not be used. I ask you to resume your speech and not to use that type of language again.

Senator WATSON —It is a low reflection of the Government's priorities in relation to this area. It had five weeks in which to put that legislation. Taxpayers will be required to lodge two instalments, not knowing what the legislation is as it will not have been passed. The Government has not even had the decency to say that it will be passed some time in 1987. Instead of removing the complexities, the Government has added to uncertainty and problems. What are the taxpayers going to be liable for? If, as a result of the uncertainty, taxpayers omit something, they are told that there will be no penalty but they will be liable to pay an additional 20 per cent, plus the 49 per cent tax which is owing, and there will be no dispensation on the tax return for that 20 per cent penalty interest. If a taxpayer overestimates his benefits, the Commissioner will reconsider it some time in the future, a refund will be granted and interest will be paid at the rate of 14 per cent. But the taxpayer will pay full tax on that 14 per cent of his assessable income. By cripes, the Government has it loaded against the taxpayers.

Let us talk about the log book. The Government reckons it has done a great thing by reducing the period one has to keep a log book to just three months. But what the Government is doing is enabling some of the biggest rorts to be exercised by business that could ever be imagined. The Government has fallen for the three card trick and it is going to make the system work for those who are prepared to push the system, and push it to the edge. Some people will be able to buy a Mercedes Benz car, legitimately drive it hard for three months and get maximum private milage out of it. It is an absolute disgrace the way that the Government has handled this. The small print or the catch clause that people are not aware of in this iniquitous tax is that if there is a 10 per cent variation in business usage, they will have to re-do their log books. Effectively, everybody is going to have to keep a log book continuously because, by virtue of the penalties, they cannot afford to have more than a 10 per cent variation in their original calculation. It is going to be abused by country travellers who have a country and city constituency. They will run up country milage pretty quickly and quite legitimately.

This is a real rort and the Government has not thought it through. It is creating more rorts for the top people. This is the blessed problem that the Government is introducing. Honourable senators opposite love examples and I will give them the example of a Labor Party electorate in New South Wales. Obviously the poor tend to be in Labor Party electorates. A lot of country kids find it difficult nowadays to get jobs in country towns or in the bush. So mum and dad send them into the city to try to find jobs. They are conscious about the need to have a reasonable state of accommodation for their children. They cannot afford to pay too much, so a number of community groups and church groups have organised boarding houses in which there is provision for 24-hour supervision by an adult who has free board and accommodation. There is a condition attached. Most of these organisations require some discipline and that is the attraction for parents. They send their kids to these boarding houses because they do not want them to mix with too rough an element. There are thousands of conditions but one of the conditions could be that the kids have to attend church once on Sunday-no particular religion because it does not matter. It is iniquitous that these organisations should pay fringe benefits tax.

The real sleeper for the Labor Party is going to be the capital gains tax. When all our sporting heroes change from amateur status to professional status and receive a signing on fee, capital gains tax will apply. There is no cost base for offsetting this provision. They will be punished for good. This is going to be the real sleeper. The Labor Party is going to lose thousands of votes after the introduction of the capital gains tax because all this is going to be taxed at the marginal tax rate. The Labor Party is in trouble. It is embarrassed and it wants to know what the Liberal Party's attitude is. It is in trouble and it cannot find a way out for itself. I can tell honourable senators opposite that we are going to keep them on tenter-hooks because we are not going to let them have our secrets. We have got the answers. They are looking for them. They are in trouble and they have to face the next election. When they tell us when the election is, we will appropriately tell them how we are going to reduce taxes for the Australian electorate.