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Wednesday, 18 February 1987
Page: 162

Senator REYNOLDS —My question is addressed to the Minister for Finance. Has his attention been drawn to an article in this morning's Daily Telegraph by Brent Davis, chief economist with the Australian Chamber of Commerce, on the 25c in the dollar flat tax rate proposal? What are the deficiencies of that tax proposal outlined in this article and advocated by the newly self-appointed Queensland leader of the flat earth party? Is it true, as Mr Davis claims, that Mr and Mrs Joe Average on $22,000 a year would have an increased tax burden with a 25c flat tax rate?

Senator WALSH —There are two basic matters involved here; the first is the revenue target and the second is the mechanism by which that revenue target is achieved. If we are to take as given the present revenue collected by income tax, then the application of a flat tax in the way that Sir Joh Bjelke-Petersen suggested would leave the revenue short by about $5 billion in personal taxation alone. If the company tax rate were to be reduced from 49c to 25c in the dollar, then about another $3.5 billion of revenue would be lost, making a total of about $8.5 billion. That is what would happen if the tax system proposed by the mouth from the north was actually put into operation. I might add that it would seem to be absurd, to say the least, to have a company tax rate twice as high as the personal income tax rate, which would be the consequence unless the company tax rate was brought down in accordance with the maximum personal rate. That would be a pretty quick way of finishing both the proprietary and joint stock companies; they would disappear from the face of Australia pretty quickly.

It is possible, of course, to design a flat rate taxation system which yields the same amount of revenue as the tax rates scale that will come into effect on 1 July. If that were to be done-and leaving aside for the moment the company tax question-it is certainly correct that people on a $22,000 a year income would be paying more tax. It is also correct that people on incomes very much higher than that would be paying more tax. Ironically or curiously, one of the identifiable occupational groups which would be most adversely affected, really punished hard, by the movement to flat taxation would be the farmers whom Sir Joh Bjelke-Petersen claims to represent. Given the fact that farmers' average taxable incomes are probably about $15,000 or $16,000 at the moment, they would be hit harder than any other substantial identifiable occupational group. I observe in passing that it seems curious to say the least that the National Farmers Federation is still playing around with doing research on the effects of flat taxation. One does not have to do very much research at all to realise that the people whom the NFF purports to represent would be very much worse off. It would seem that the objective of the NFF has more to do with serving the interests of its President and his fellow Elders IXL Ltd directors than it does with serving the interests of the people whom he purports to represent.

However, in round terms, for the same revenue yield from personal income taxation, about 80 per cent of taxpayers would be paying more tax than they do now were a flat rate system to be introduced. In addition, I do not think it could be reasonably denied that the huge anomaly that would then stand out-a company tax rate double that of the maximum personal rate-would require that the company tax rate be brought down as well, leaving a revenue shortfall of an additional $3.5 billion.