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Wednesday, 18 March 1987
Page: 855


Senator MAGUIRE(10.28) —No government anywhere is reforming taxation with more vigour, imagination and determination than this Hawke Labor Government in Australia. Today we are debating the Taxation Laws Amendment Bill (No. 5) 1986 and the Income Tax Amendment Bill 1986. As part of the tax reform package, the Government is introducing an instalment system for the payment of provisional tax by individuals to commence next financial year. Of course, provisional tax is payable where a person's non-salary income exceeds $999 a year. The new system of quarterly payments for provisional tax will apply to those individuals whose provisional tax liabi-lity exceeds $2,000 per annum. They will be required to pay the quarterly instalments in the year in which the income is derived. The important thing to bear in mind about this measure, which is part of the Government's taxation reform package introduced in September 1985, is that it will bring provisional taxpayers more into line with the ordinary wage and salary pay as you earn taxpayers in Australia.

The new system of quarterly payments for provisional tax is designed so that the taxpayer will not pay more tax than is payable under the current arrangements for provisional taxation; only the timing of payments will be altered with the introduction of a system of quarterly payments. Those taxpayers who are liable for provisional tax and receive less than $2,000 per annum in non-wage and salary income will continue to pay provisional tax on the normal annual basis. Overall, some one-half of the 1.6 million provisional taxpayers in Australia will not be required to pay under the new system of quarterly instalments to commence next financial year.

There is a very strong case on grounds of fairness and equity for introducing an instalment system for provisional taxation so that its payment more closely matches that of pay as you earn taxation in this country. For example, if a wage and salary earner is paid on a weekly, fortnightly or monthly basis, he or she will normally pay tax on that basis. After nine months of the financial year the cumulative tax instalment deductions from gross pay will approximate three-quarters of the total tax liability for the current year. In contrast, however, a provisional taxpayer currently has available the full amount of his or her income for the first nine months of the year. That is the big difference under the current arrangements in taxation. That is why reforms have been necessary.


Senator Messner —What if he does not earn his income until the last three months?


Senator MAGUIRE —There are items in that legislation which provide for people with unstable incomes. Possibly there are people in the Liberal Party of Australia, which is a very unstable Party at the moment, with unstable incomes. This is a very important reform and is long overdue. It brings provisional taxpayers more into line with the ordinary taxpayers, the pay as you earn taxpayers of Australia. The benefit to the provisional taxpayer from the availability of funds for the first nine months of the year under the present system far outweighs the cost of paying their annual tax instalments in advance by three months, which is the present arrangement. Of course there are wider economic factors involved in this reform. They are of a monetary policy nature in that they involve spreading provisional tax payments more throughout the financial year rather than having them bunched up in the last quarter of a financial year. At present some 90 per cent of provisional tax payments are made at the end of March and then through the June quarter in each financial year. This contributes to very large seasonal fluctuations in liquidity and they can be reflected in disruptive volatility in domestic short term interest rates. Such volatility imposes unnecessary costs on the private sector and hinders effective monetary management.

I am very pleased indeed to see this reform being introduced as part of the Government's tax package. In fact, over the years that I have been in this place, on a number of occasions in Estimates committees and in this chamber I have raised with relevant Ministers the problems caused for monetary policy by the bunching of tax payments at particular times of the year. I am very pleased indeed to see that the introduction of quarterly payments for provisional taxation will, in fact, smooth out the Government's liquidity flow, will smooth out the need to issue securities to borrow funds for government activities through the course of financial years and therefore remove seasonal distortions and disruptions in interest rates.

As I indicated, this legislation is an integral part of the Government's tax reform package. It has taken a Labor Government to bring in the most comprehensive reform of taxation laws in Australia. It was something that was fumbled-the buck was passed-by the Howard treasurership of 1978 to 1982, when there was no substantial tax reform. It has taken a Hawke Labor Government to introduce the most far reaching and fundamental tax reforms in modern history in Australia. The most important thing, despite the nonsense being parroted by Senator Messner this morning, is that the tax package restores fairness to the Australian taxation system-a long overdue measure restoring fairness and equity to the payment of taxation in Australia. The tax package essentially has done that by broadening the tax base and reducing the income tax burden on ordinary pay as you earn taxpayers, the ordinary wage and salary earners of Australia who bore the lion's share of the taxation burden under the Howard treasurership, when income tax in Australia, I regret to say, was a voluntary tax for the wealthy. The Government has achieved its far-reaching reforms of the taxation system by cracking down on tax evasion and avoidance practices. It has cracked down on the disguising of income in the form of tax-free capital gains-a way of circumventing the income tax laws by artificially creating gains. We have cracked down on devices by which wealthy people sheltered their principal incomes from taxation by getting involved in all kinds of negative gearing activities in respect of assets, usually property. They deducted interest payments on that property from their main income and therefore reduced their tax liabilities.


Senator Messner —All you have done is cause rents to go up for those who cannot afford it.


Senator Robertson —Madam Acting Deputy President, I take a point of order. I ask you to draw the attention of Senator Messner to standing order 422. We are long-suffering on this side of the chamber; but, heavens above, we want to give the speaker the opportunity to develop an argument without all the inane interjections coming from the other side.


The ACTING DEPUTY PRESIDENT (Senator Giles) —The interjections are verging on the disorderly. I take the point that Senator Robertson raised and suggest to Senator Messner that his interruptions be toned down a little-if he is unable to cease them altogether.


Senator MAGUIRE —Thank you, Madam Acting Deputy President. As well as cracking down on devices by which the wealthy sheltered their principal incomes-their incomes from exertion-from taxation, we have brought in a most comprehensive form of taxation, in the taxation of so-called fringe benefits. What a misnomer that term is. In some cases much of the total remuneration of high income earners was received in a non-salary form, such as the provision of company cars and the payment of private school fees for children of employees by employers. All kinds of reimbursement constituting tax-free remuneration were described, as I indicated, by the misnomer `fringe benefits' when they were such an integral part of the total remuneration of the wealthy groups in this community.

We have cracked down on the tax-subsidised lunch, the so-called `free lunch'. We are all waiting to find out what the Liberal Party policy is going to be on that one. It seems to be fluid. Recently the Liberal Party seems to have been backing away from its pledge of 1985 and 1986 to reintroduce the tax-free lunch. Let us wait and see what is going to happen on that one. The practices we have cracked down on, such as the disguising of income as tax-free gains, the sheltering of income by using tax shelters and the provision of fringe benefits, were costing the community tens of millions of dollars every year. As a result, the pay as you earn taxpayers of Australia were forced to shoulder the burden more and more. As I indicated earlier, income tax had become essentially a voluntary tax for the wealthy. No responsible government could have tolerated a tax system which forced low and average income earners to subsidise the lurks and perks of the rich. That is what was going on. The Liberals did nothing about it. It took a Labor government to crack down on and destroy these lurks and perks.

The measure we are debating today, the quarterly payment of provisional tax, is an integral part of the Government's tax reform package. Our tax reform package will close the loopholes and eliminate the rorts. The fringe benefits tax, the capital gains tax and the disallowance of entertainment expenses will ensure that high income earners pay their fair share of tax. The revenue raised by these measures will finance income tax reductions for ordinary pay as you earn taxpayers, the wage and salary earners of Australia. This point has been totally misrepresented by the Opposition. The Opposition has seized upon parts of the tax package. All it can see are the individual elements; it cannot see the totality of the reforms. It has seized upon parts of the package and tried to create the impression that the Government is raising taxation. That is the sort of fiction the Opposition is going on with in the community. Nothing is further from the truth. The Government is not raising the level of taxation.


Senator Messner —It is.


Senator MAGUIRE —Basically it is closing loopholes, eliminating rorts and redistributing revenue in the form of tax cuts.


Senator Messner —You have raised total taxation.


Senator MAGUIRE —Senator Messner claims that this Government has raised the total level of taxation. I invite Senator Messner to consult Budget Paper No. 1 and look at the share of taxation in gross domestic product under the Howard Treasury. I invite him to look at that because I can remember that, as a candidate for the House of Representatives in 1974 and 1975, the Liberals paraded around this country claiming that the tax burden was too high and that they would cut taxation. I remember those promises very well and no doubt Senator Robertson, who is here today, also remembers those promises. But the fact is that the share of Australia's gross domestic product going in taxation was 1.7 percentage points higher when Mr Howard finished in the Treasury than it was at the inception of the Fraser Government. That is a fact which is in Budget Paper No. 1. Senator Messner should go and read it, because the Liberals claimed that they would cut taxes. We had that scandalous election in 1977 with a fistful of dollars being retailed to us on television. Senator Messner was part of that Government which claimed that it would reduce taxation-and what did it do? The share of gross domestic product going in taxation in 1982-83 was 1.7 percentage points higher than it was when the Fraser Government came to power. I invite Senator Messner to check that figure.

The Hawke Government basically is closing loopholes, eliminating rorts and redistributing revenue in the form of tax cuts. The Government is easing the burden on honest taxpayers by taxing the evaders, avoiders and tax cheats. That is very commendable-weeding out those in the community who are not paying their fair share and ensuring that the burden on ordinary wage and salary earners is reduced. From 1 December last all marginal tax rates were reduced under the Hawke Government's tax package. Those reductions in marginal rates meant that a taxpayer receiving some $400 a week received a tax cut in the order of $5.10 a week.


Senator Siddons —But they have already lost that due to inflation.


Senator MAGUIRE —The second instalment will be introduced from 1 July next. I hope that Senator Siddons can wait until 1 July, because the second instalment will produce further reductions in income tax rates. When Mr Howard was the Commonwealth Treasurer for five dark years from 1978 to 1982, the top marginal tax rate was 60c in the dollar; from 1 July it will be reduced to 49c in the dollar. That is the difference between the taxation practices of the Labor Government and the Liberal Government. The marginal tax rate paid by many wage and salary earners, which was 46c in the dollar under Mr Howard, from 1 July next will be 40c in the dollar. That is a significant, major tax reduction which will be available to the ordinary wage and salary earners.

As I have pointed out on a number of occasions in regard to taxation, the bottom marginal tax rate-the rate in the lowest tax bracket-when Mr Howard was Treasurer in 1982 was 30c in the dollar. That is the best Mr Howard could ever achieve for the lower paid employees; a bottom marginal tax rate of 30c in the dollar. Under this Government's tax package the lowest marginal tax rate will not be 30c in the dollar or 29c in the dollar; it will be 24c in the dollar. That is a major reduction in marginal tax rates and those reductions will be available not only to pay as you earn taxpayers but also to those who are subject to the provisional tax laws dealt with in the amendment that we are debating today.

As a result of the tax package the Government will be lifting the tax free threshold-that is, the exemption that is available to all taxpayers on the first dollars of their income-from $4,595 to $5,100 from 1 July. That is another major reform that the Liberals could never introduce. They were never able to deliver a tax free threshold in excess of $5,000. It has taken the Labor Government to exempt that amount of income from the income tax laws. As a result of the Government's tax changes and the alterations to the marginal tax rates no Australian will pay more than half of his or her extra income in taxation, because the top marginal tax rate will be 49c in the dollar. Along with the other reductions in the tax rates-from 46c to 40c in the dollar, and the bottom rate going down to 24c-they are clear proof of the Hawke Government's commitment to lower taxation. By 1 July we will have delivered three rounds of personal income tax cuts in three years.

Mr Howard, the present Leader of the Opposition and the former Treasurer, claims that he can cut taxation. We are entitled to inquire who left the principal marginal tax rate at 46c in the dollar. He says that he will cut taxes, but he left ordinary wage and salary earners paying at the rate of 46c in the dollar. We will be reducing that rate to 40c in the dollar. Mr Howard was recently quoted in the Adelaide News as saying:

I think the high marginal rates of tax are increasingly out of line with the needs for more incentive in our tax system.

It is very important to note that the Liberal Party and the National Party of Australia are going about the community confusing the marginal rate of taxation, which is the tax paid on the highest or last dollars of personal income, with the average rate of taxation. The average rate of taxation is the average tax paid on every dollar of a person's income. When we look at those two concepts and distinguish them we can see that, while in a number of cases the marginal tax rates might be of the order of 40c or 46c in the dollar, the average tax rate-that is, the average across all income and not just income in the top bracket-is more like 20c to 25c in the dollar. When people parade around talking about flat tax and rates of 25c in the dollar, what they are really saying is that they will increase tax for everybody who has an average tax rate below 25c in the dollar. Of course, millions of taxpayers pay average rates of below 25c in the dollar.


Senator Tate —Eighty-three per cent of Tasmania.


Senator MAGUIRE —The Special Minister of State intervenes to say that a very high proportion of taxpayers in his State would be affected by that proposal and would face punitive increases in their income tax. Mr Howard had five years as Treasurer, from 1978 to 1982, to reduce marginal tax rates. But did he succeed in reducing tax rates paid by Australian taxpayers? He could not reduce the top income tax rate below 60c in the dollar. He left office in March 1983 with the middle tax bracket rate at 46c in the dollar. As I have pointed out here this morning, we have now set in train measures which will come to fruition on 1 July and which will result in the middle bracket rate being reduced to 40c in the dollar. That is the achievement of a Labor Government, compared with the dismal record of a conservative government. Yet Mr Howard, the present Opposition Leader, has the gall to claim that marginal tax rates under this Government are too high. He goes around the country saying that marginal tax rates under this Government are too high, yet we have delivered very substantial deductions in personal tax rates.

The Liberal Party is talking about lower taxes, but in reality it could not deliver them when in office. I pointed out earlier-Senator Messner is frantically looking for the page reference at the moment; I will not help him with that-that the share of gross domestic product taken by taxation when Mr Howard was Treasurer rose by a whopping 1.7 percentage points. To repeat, at the end of the rule of the conservative government in 1983, the end of the Howard-Fraser period, the share of Australian taxation in gross domestic product was 1.7 percentage points higher than when the Fraser Government was elected in 1975 on a promise to reduce taxation. That is the record. The Fraser Government had eight years in office to reduce taxation, to lower the marginal tax rates. It could not deliver. Therefore, one has to be extremely sceptical and the electorate has to be enormously vigilant in scrutinising the policies being put forward by Liberal politicians who say that they will reduce taxation. Their very record in government indicates that they are incapable of reducing taxation.

As Mr Howard's tax promises stand-I am having some difficulty working out which are operative and which have been deleted-they would add billions of dollars to the Budget deficit. That is the reality. Whatever is included in the tax promises that are operative, the fact is that it would still add billions to the Budget deficit faced by the Commonwealth Government. I have been hoping to hear what the promises are during this debate. I will be sitting here with my pencil and notepaper making a list of which taxation promises are still in force, and which expenditure policies are still in force and have not been vetoed by Sir Joh Bjelke-Petersen and the National Party. I will be listening very intently to hear which of these policies will be going forward to the Australian people at the next election.

I am particularly interested to hear whether the Liberals will still propose a cut in the marginal tax rates to 25c and 30c in the dollar. That would add some $6,600m to the Budget deficit. Will the Opposition persist with its claim that it would reduce company tax rates to 35c in the dollar? That would add another $2,200m to the Budget deficit. Will it continue with its policy to abolish the fringe benefits tax? If it did so, that would add another $900m every year to the Budget deficit. Would it reinstitute the free lunch? I am very keen to hear about that one. Certainly, in 1985 and 1986 very gung ho statements were made by the Opposition spokespersons about the end of the free lunch and one got the clear impression that that would be back on the table as soon as a conservative government was re-elected. Would it reinstitute that? If it did, it would not cost $30m or $50m a year. If it went back into law on the same basis, it would cost $320m every year. That is what the Liberals could add to the Budget deficit. It depends on the assumptions made, but it is a very substantial figure.

Would the Opposition restore negative gearing? We are waiting to hear about that. Would it reinstitute a process which enabled very wealthy taxpayers in this country to shelter their principal incomes from personal exertion, from taxation by being able to deduct interest payments on mortgages and so forth? If it did that on the same basis, it would add some $100m to the Budget deficit. We have had claims made about repealing the assets test for social security and veterans' pensions. If it restored that situation, we would be looking at another $160m on the Budget deficit.

When we look at all those measures and hear the figures-and I am eagerly waiting to hear which of them are still operative and which have been scrubbed as a result of the rampaging through the countryside by Sir Joh Bjelke-Petersen and his acolytes-we will be able to tot up the figures and see that they would add not millions of dollars but billions and billions of dollars to the Budget deficit.


Senator Robertson —Where is the money coming from?


Senator Tate —A good question.


Senator MAGUIRE —Where is the money coming from? That is the particular question that has to be raised and the honourable senators ask that now. How is Mr Howard proposing to pay for these tax promises, for his proposed expenditure cuts? It is a very pertinent question. We are waiting very eagerly here with pencils poised to do the sums and to see whether they are correct. There is no doubt that the Opposition is very short on answers on its policies. It is not game to retail them to the electorate. It is very short on those answers and it is very light on detail. Mr Howard ducks and weaves at any question which requires specific details about how to pay for his tax promises. That is the reality at the moment. He claims that the fine print of his tax policies will be released later in the year. I invite the Australian electorate to scrutinise that fine print at length and in great detail because I am sure that it will be very fine print indeed, that all the sums will not add up, and that we will find the conservatives coming into an election mode making all kinds of outrageous claims about problems in the country and how they will be solved by slashing taxes and slashing government spending. As I have indicated, there is no detail available. We have to be very vigilant in scrutinising the fine print and ensuring that Liberal and National Party politicians are put on the spot on all occasions and asked where the money is coming from.


Senator Messner —We would be very happy to do it.


Senator MAGUIRE —Perhaps we could invite the conservative spokespersons in the chamber in this debate to retail to us the Opposition's particular policies, the details of those policies, the annual costings and the effect on the Budget deficit. We are all eagerly waiting for the details and waiting to hear what the remaining speakers on the speakers list today will be telling us about how they are going to pay for their policies. I see that the vast majority of the speakers today will be from the two conservative parties. I think there are assumed to be three conservative parties-the Liberal Party and two National parties. We will be listening eagerly to hear where the money is coming from. We will want to know about the fine print and particularly how the conservatives are going to pay for their outrageous policies and programs for the forthcoming general election.

Mr Howard certainly has offered one means of paying for his tax promises. I am not sure whether it is still operative, but he wanted to introduce a consumption tax. I remember very clearly that Mr Howard wanted a consumption tax and that he wanted to scrap the taxes that this Government has very courageously imposed on the wealthy groups in this community. He wanted to scrap the Hawke Government's crack-down on tax avoidance and to replace that with a consumption tax, which would affect all Australians. Of course a consumption tax would push up prices across the board. While we have a conservative Opposition complaining about inflation, at the same time it appears to have a policy to introduce a consumption tax. Of course that would add quite a few percentage points to the consumer price index. It would also push up inflation. When Mr Howard was Treasurer in 1981 and 1982, he increased sales tax by 66 per cent in two Budgets. No wonder we had double digit inflation when Mr Howard was Treasurer-11 1/2 per cent inflation.

They are the very relevant and pertinent points about the Government's tax reform package. That package has restored progressivity to the tax system. It is based more fairly on an individual's capacity to pay. There will be more fairness in the Australian income tax system as a result of the reforms introduced by the Hawke Labor Government. We have closed tax loopholes, we have cracked down on evaders, we have cut marginal tax rates, we are easing poverty traps and those who can afford to pay will pay more. Fairness has been restored to the Australian tax system-a long overdue measure-and it took a Labor government to do it.