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Wednesday, 18 February 1987
Page: 171


Senator MAGUIRE —My question is directed to the Minister representing the Treasurer. I refer to the Government's introduction of a fairer taxation system in Australia. Is the Minister aware of claims made by Senator Messner, the Opposition's tax spokesman, in June of last year that the capital gains tax would remove the incentive for shareholders to sell shares purchased before 19 September 1985, which was the commencement date for the capital gains tax? Can the Minister inform the Senate whether there has been a reduction in the volume and value of shares traded on stock exchanges in 1986? Have investors in the share market been deterred by the capital gains tax?


Senator WALSH —Senator Messner, last June, I think it was, stopped doodling for long enough to make a prediction about the effect of capital gains tax. He stated:

The long term effect of that-

I interpolate, capital gains tax-

is likely to be a stiffening-up in the market-place-financial arthritis, if you like-with people hanging onto their assets to avoid paying a capital gains tax.

I realise that Senator Messner was trying to vilify the Government's tax reform policy, of course, but it is hard to believe that a chartered accountant, which I understand he is-or was-could be so silly as to suggest that a capital gains tax would stop people seeking a profit if they thought they could get a profit through the sale of shares. However, leaving that aside and moving on from prophecy and hypothesis, we now have some empirical evidence on this matter. It was summarised quite well, I believe, in an article in the Australian Financial Review of 8 January which, among other things, stated:

Last year's bull run on the stock market increased the turnover in shares by 78 per cent . . .

I repeat: It increased the turnover in shares by 78 per cent. So it is a pretty well lubricated case of financial arthritis, with a 78 per cent increase in turnover in shares. The report continued:

. . . pushing the value of all shares traded last year to $40,051 million.

It also reported that the volume of securities traded in 1986 had increased by 54 per cent from $15.5m to nearly $24m. It should be noted for the record that there will almost inevitably be some double counting in those figures, or even multiple counting, as the same particular share changed hands more than once. Nevertheless, the enormous increase in both the volume of share trading and the value of shares traded proved beyond all doubt that Senator Messner's predictions about the effect of the capital gains tax on share trading were, to say the least, wildly exaggerated.