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Monday, 1 December 1986
Page: 3060

Senator VIGOR(3.49) —I rise in this debate to point out that the tax cuts that are talked about in the matter of public importance are useful mainly to the wealthy. The Budget, of which we are now seeing the effects, disadvantages mainly the poor, the young, the aged, Aborigines, migrants and the unemployed.

Senator Parer —And the single income family.

Senator VIGOR —It also disadvantages the single income family. The postponement of indexation of pensions and benefits, including the age pension, sickness benefit and the unemployment benefit, is another way in which those people are being affected. The delay in the tax cuts from September to December, which is what we are talking about, has meant an effective loss to taxpayers of around one quarter of the promised tax cuts.

The tax cuts which have come into effect today, discounted as they have been by the delay, would not have come in at all, however, had the Australian Democrats not taken a strong stand on supporting the Government's way of trying to get a more equitable tax system and had we not passed the fringe benefits tax and capital gains tax legislation, the main impact of which is on the larger corporate entities within our community and the more wealthy people of this country. We passed that legislation, not because we approved of the way in which it was drafted in those cases, but because the taxing of fringe benefits and capital gains made the taxation system much more equitable.

The set of tax cuts that we are getting today is meant to be simply a redistribution of tax from the wealthy to the poor. However, the Government, by the back door, has managed to achieve exactly the opposite; that is what the Democrats are worried about. The Government has left in the taxation system a large number of loopholes that are currently being exploited by the wealthy and by those people who are influential enough to employ clever accountants who can do creative tax accounting. The rorts that have arisen, and the loopholes that have come out of the new round of taxes that the Government has imposed, appear to be almost as bad as the rorts that were there before.

However there have been tax cuts today and the ordinary pay as you earn Australian taxpayer is grateful for that, even though it is only three-quarters of what was expected. It is better than nothing. Taxpayers would have received nothing if the Opposition had been handling it. Its friends, the large corporate entities, would have continued--

Senator Messner —I take a point of order, Mr Acting Deputy President. Quite clearly, this is a lie that Senator Vigor is perpetrating, to the effect that we would not be introducing tax cuts.

The ACTING DEPUTY PRESIDENT (Senator Elstob) —Order! Senator Messner, you must withdraw the word `lie'.

Senator Messner —I withdraw the word `lie' and say that he is speaking untruths about the Opposition's policies in this area.

The ACTING DEPUTY PRESIDENT —Order! There is no point of order.

Senator VIGOR —The Opposition in fact flat-footedly opposed the Government's measures providing for these tax cuts. You voted against these tax cuts, Senator Messner.

Senator Messner —We did not.

Senator VIGOR —Effectively, you voted against these tax cuts.

The ACTING DEPUTY PRESIDENT —Order! Senator Vigor, will you please address your remarks through the Chair?

Senator VIGOR —I believe it is important that the Opposition realise that the Democrats' stand on the tax package was predicated on the fact that the tax cuts would be given, as promised by the Government. We are annoyed that the Government did not in fact give them at the time that it promised it would give them.

However, currently, the Government is getting around these tax cuts as they affect the poor people in our community. The Government has removed the family allowance for most children aged over 16. It has introduced a $250 tertiary fee with no concessions for age pensioners or part time students. It has restructured assistance for Aboriginal housing so that only new capital works are funded and ongoing maintenance programs are cut. The Government has cut so much out of the programs which helped the poor that the poor are in fact worse off as a result of the general measures in the Budget. In other words, the income tax changes today advantage mainly the wealthy.

Our current inflation rate is more than twice that of the average for Organisation for Economic Co-operation and Development countries. Wages and pensions have now been discounted so that effectively, while inflation last year to 31 March was 9.2 per cent, wage awards rose by only 3.8 per cent over the year to June 1986. Average earnings rose faster than award rates, reflecting the increased disadvantage of our lower income earners who have borne the brunt of wage restraint through loss in purchasing power, through inflation and discounting. These tax cuts will return some of that advantage to them but not as much as will be returned to the wealthy. It is noteworthy that the rate of increase of Government revenue was well beyond that of wage awards and wage rates. Government revenue increased in 1986 by 12.6 per cent, and again this year by 11 per cent. This rise is obviously due to more than just covering wage costs in the Public Service.

High interest rates have pushed up housing costs inordinately. Many low income earners, who were spending around 25 per cent of their income on interest payments on housing, are now in desperate straits as interest rates have rocketed through the ceiling. They find it very difficult to balance their budget. What is an extra $5 a week in take-home wages when one is faced with an extra $50 a week in interest payments?

The income tax cuts effectively decrease income tax for the wealthy to 49c in the dollar from 60c in the dollar. For single pensioners living below the poverty line, with as little as $5,000 invested at a rate of 11.75 per cent, the tax cuts mean an effective tax rate of 74c in the dollar. This seems grossly unfair. Pensioners, welfare beneficiaries and the 8,000 children living below the poverty line are being penalised, but the wealthy are getting the advantage of a healthy and hefty tax cut, some of which is being received today and some of which will be received next June.

However, the real problem facing Australia is our balance of payment crisis, which is exacerbated by the failure to invest in productive enterprises in Australia. This is due largely to high interest rates and the floods of foreign money which come in on the speculative markets and which are encouraged by this Government, as they were by previous governments, through its allowing negative gearing on takeover moneys. The people entering into these speculative arrangements for buying and taking over companies are getting Australia into real problems. This flood of speculative money pushes up the value of the dollar, which makes our exports uncompetitive because of higher relative production costs. It totally discourages investment in productive business ventures in Australia. We need to do something about that.

Taxation is avoided by the major large companies through transfer pricing arrangements which mean either that they pay very much lower taxes than they should pay or that the profit is made on the high seas or in foreign tax havens. We also have an unwarranted situation of high taxes on employment and work, which is leading to disillusionment amongst our small business owners, more and more of whom are giving up the unequal battle and essentially retiring from active business to enjoy the interest earned on their capital. It is the sign of a country going downhill.

In the investment gap left by these various people we have foreign investors. We are getting a large amount of foreign investment money slushing in on finance and insurance. It is coming in essentially free of tax, so the tax cuts do not really affect those investors. There is very little productive investment. Of the order of only 13 per cent of the total money coming in as capital is actual productive investment. In 1984, $1.2 billion was spent on takeovers; in 1985, the figure was $4.5 billion. So far this year $7.7 billion has been spent in just the Broken Hill Proprietary Co. Ltd takeover triangle, and that $7.7 billion has not gone in any way into productive investment. We are currently building up an enormous debt overseas, on which we are having to pay interest.

Takeovers are a relatively unproductive exercise, yet the taxpayers of Australia are financing them and helping them through our tax system. These people on takeover jaunts are being financed by the taxpayer through negative gearing arrangements which allow them to offset the profits of the companies which they take over against the interest paid on the money which they borrowed to buy the companies. This does not help. All it does is add heat to the stock market and make things much worse for the ordinary Australian.

We need to attack on a much wider front these types of rorts which we have in the system. An amount of $1.2 billion is available currently if we are willing to pursue transfer pricing. That could be translated into tax cuts. The Australian Taxation Office said in its September 1986 report, `A Taxing Problem', that, as part of the proposed priority setting mechanism outlined in its recommendation, it would like to have many more staff members transferred from technical assessing duties to compliance areas, such as field and in-house auditing activities. If this were done, it would be much easier for rorts and the people who are defrauding the tax system to be pursued. Much bigger tax cuts could then flow through to other people in the system.

Revenue is forgone through undisclosed dividends and interest incomes which are not caught currently because the Taxation Office does not have the ability within its system to match the records that it gets from the banks with those prepared by taxpayers. If this were solved, an enormous saving could be translated into tax cuts. I believe that the tax cuts are a good thing. People of Australia would not have had them without the Australian Democrats, who supported the Government's program for producing these tax cuts. I believe we should be continuing with this program of pursuing the rorts within the taxation system and lowering the tax rates in Australia so that all Australians get a fairer go.