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Wednesday, 18 March 1987
Page: 860


Senator SIDDONS(10.58) —We are debating the Taxation Laws Amendment Bill (No. 5) 1986. This Bill is notable more for what it leaves undone than for what it in fact does. It touches the tip of the iceberg, so to speak, without really attacking the fundamental problems underlying the tax system in this country. We heard a lot from Senator Maguire about how the Australian Labor Party, while in government, had attacked the loopholes and the lurks and had brought down a fairer tax system. If that were true I would be delighted. Unfortunately it is very far from the truth. The fundamental problems of taxation have not yet been attacked by the Labor Government.

For instance, the much talked about cuts in the marginal rates of personal income tax have been virtually negated simply because there is no indexation of the tax threshold. So inflation has taken over all of the promised tax cuts. The fact is that as a percentage of total income the tax which individuals pay is much higher this year with the tax cuts than it was last year before the tax cuts, simply because inflation, running at 8 per cent, has overtaken the benefits of those tax cuts. Whilst this Bill attacks one or two abuses of tax avoidance in the corporate sector it does not really come to grips with the fundamental problem of the artificial schemes which are being used by raiders on the stock markets of this country to avoid tax and therefore to beat the market.

There is no doubt that taxation is the fundamental issue concerning Australians today. The unfortunate thing is that the debate has been about generalities and there has been no fundamental assessment of what the political parties are offering and what is reasonable and what is not reasonable. In the few minutes that I have available to me I want to take some time to look at some of the details and to see where we are going and where we can go. Let us look first at personal income tax. Although marginal rates have been reduced somewhat, on incomes of $25,000 or $30,000 per year-the level of the average Australian income-the marginal rate is still 40 per cent. That is a marginal rate which was designed no less than 20 years ago to attack the millionaire. A 40 per cent marginal rate of tax is far too high for the Australian on the average income.


Senator Robertson —Talk about average tax.


Senator SIDDONS —I am going to do that in a minute. I thank the honourable senator for that interjection. I intend to talk about the average tax rates. That is the only way to look at the matter. I have some figures here in a very carefully detailed submission on tax by the Unite Australia Party. It is available to any honourable senator who wants to look at it. The proposal has been very carefully costed. I will use the figures I have in front of me to point out how misleading some of the statements are.

Let us look at the much talked about 25 per cent flat rate tax of the National Party of Australia. This was first floated by Sir Joh Bjelke-Petersen at the Australian Taxation Summit some 18 months ago. He advocated a flat 25 per cent marginal rate of tax, plus a rebate of $1,150 to those people below an income of $25,000. Let me call out some figures. The Unite Australia Party is saying that the maximum rate of marginal tax should be 35 per cent, no higher, and that the company tax rate should also be 35 per cent, no higher. We have shown how those tax reforms could be funded as well as the fundamental reform of indexing tax for the tax threshold each year. Under the Government's existing rates-the rates that have just been introduced-on an income of $25,000 a year the total tax paid as a percentage of income would be 22 per cent, a tax of $5,500. Under the Unite Australia Party's proposal, the total tax paid on a $25,000 annual income would be only 18 per cent of total income, a tax of $4,500. The interesting thing is that at that rate of income a flat tax of 25 per cent, with a rebate of $1,150, would represent a 20.4 per cent rate of tax or a tax of $5,100. So we see that a 25 per cent flat rate of tax, as advocated by the National Party, in fact is almost as high on incomes of $25,000 a year as the present Government tax.

The point I am making is simply that that is still too high. The Unite Australia Party has said that we should get that down to a level of 18 per cent of total incomes at about the average income level. Total taxes at the various income levels as advocated by the Unite Australia Party have been worked out and costed, and the cost of revenue would be $9 billion. The cost to revenue of reducing company tax to a maximum rate of 35 per cent would be $1 billion. So it would cost a total of $10 billion to introduce fundamental tax reforms for both personal income tax and company tax. How can this be financed?


Senator Tate —Yes.


Senator SIDDONS —Right, the essential point. First of all we have a balance of payments problem in this country. It is absolutely scandalous that the Government allows imports unrestricted access to this country. I have said many times that we are importing tanker loads of orange juice from Brazil while our orange growers are letting their oranges fall to the ground because they cannot afford to pick them. If they do, it costs them $15,000. If they operate their properties in the Murray Valley this year, it will cost them $15,000. That is the Department of Agriculture's estimate of what it will cost them to pick their oranges, given the current price that they will get for them. Yet we are importing orange juice from Brazil in tanker loads. We import all kinds of luxury items-Swiss cheese, French perfumes and so forth. These are luxuries which we do not need when the country is on the brink of bankruptcy.

Surely the Government should tackle this problem directly, but it is not doing so. It says: `We will deregulate all the financial markets. We do not need to control what is going on'. When the country is going broke, the first thing one has to do is to stop spending money and stop borrowing money. I would have thought the country was in such a perilous position that it was about time that the Government said: `We will tackle our most urgent problem directly. We will do something to slow down the rate of imports into this country'. That could be done very simply by a 6.5 per cent tax on luxury imports, which represent probably at least one-third of our total imports. That would raise $450m, which is very short of $10 billion, but it is a start and it is attacking our balance of payments problem.

There is no doubt that there are abuses in the company takeover code. This legislation should tackle the fundamental abuse of the tax legislation that is being used by corporate raiders to take over companies that are producers in this country. The corporate raiders beat the market because they can use tax lurks. If those abuses were stopped, $1.25 billion would be raised. That is what it is costing revenue at the moment.

But the big revenue earner, believe it or not, is in a very simple area-debit transfer taxes. Every cheque that the average citizen writes out today is taxed. Small debit transfers are taxed. Very small debit transfers are taxed at up to 15 per cent. Very large debit transfers are virtually not taxed at all. So the average Australian, the small business person who is writing out cheques all the time, is taxed continually on every one of those cheques by a rate as high as 15 per cent. But big businesses, particularly international businesses, are virtually not taxed at all on their debit transfers. If an 0.2 per cent tax were imposed on all debit transfers, that would raise no less than $8.8 billion-an enormous amount of money. That tax could be readily introduced. It is non-bureaucratic. But the important point is that it would make big business, international business, pay its fair share of tax and take the tax burden off small businesses and average Australians who are writing out cheques every day of the week. Is that not fair? Does the Special Minister of State (Senator Tate) not think that the Government should give consideration to that sort of tax?


Senator Tate —Yes.


Senator SIDDONS —Well, I would be delighted if it would do that. We should look at real tax reform and at reducing the maximum marginal rate of personal income tax to 35 per cent and reducing the company tax rate to 35 per cent. Senator Haines, on behalf of the Australian Democrats, was quoted in the Australian yesterday as saying that she wants to increase tax on companies because they are not paying enough tax and that she wants to introduce a consumption tax. Those two taxes would increase our problems. A consumption tax would increase the cost of living, and certainly an increase in company tax would do the same. The whole tax debate has to be looked at carefully. It has to be looked at in detail. It will be a great pity if the Australian public is hoodwinked by rash claims about what should be done in tax reform without a constructive debate.

I will be delighted if other senators who speak in this debate really tackle the problem and come up with some constructive ideas and do not spend the time throwing mud at each other. We have heard debates on the economy so often. What do we hear? We hear from the Liberal Party of Australia that when it was in government it did this, this and this. The Australian Labor Party returns the compliment by saying: `We are in government and we have done more than the Liberal Party ever did'. It is point scoring. What we need in this place is a constructive debate in which figures are looked at and debated and in which constructive solutions to our very serious economic problems are debated in depth. We are here to look for solutions, not to win points. The country is on the verge of bankruptcy. It is about time that the seriousness of the situation took hold of politicians in Canberra and that they looked for solutions. I have some figures here for a constructive tax proposal. It is costed and is available to any honourable senator who wants to look at it and say what is wrong with it. I invite them please to do so and to be my guest. The figures are available.

I have said that this Bill is more notable for what it leaves undone. I have further pointed out that in the Unite Australia Party's tax proposal $1.5 billion or thereabouts in additional revenue can be gained by closing takeover loopholes. What does this Bill do? First of all, the Government has said that redeemable preference shares are really a form of debt financing rather than equity financing. This Bill states that any fund raising by way of preference shares or any shares at all that are issued for a period of less than two years will be treated as debt for tax purposes. One does not have to be very clever to get around that amendment. Presumably, all one has to do is to have redeemable preference shares issued for a period of two years and one day to get around the legislation. I am afraid that the abuses of our tax legislation relating to debt financing as opposed to equity financing are still wide open. This legislation does nothing to close that rort.

Takeovers are a serious matter for the simple reason that under present legislation a raider can very easily beat the market. A company that is trying to expand by increasing its productive capacity, by investing a certain amount of its resources in research and trying to develop new products for Australia that can be exported around the world, finds that all these things cost money. This has the effect of reducing profitability somewhat in any particular year. The raider can come along and say: `Right. We will offer double the market price of the shares'. This has happened in many cases. Has it ever occurred to people why raiders can do that? They can do it because mechanisms are available to them that enable them to circumvent the paying of any corporate tax. They can treat interest on debt as a legitimate deduction from their corporate tax and they can spread their interest commitment over all the activities of their company. A corporate entity can earn money from activities as diverse as making beer or making clothing. However, it can spread its debt raising interest commitments across all its activities. That is done by applying artificial structures which have the effect of bypassing the true intent of sections 46 and 50 of the Income Tax Assessment Act. It is a form of negative gearing, but it is a very important form of tax avoidance. Very large corporations that have grown dramatically in a very short period of time are getting away with paying virtually no company tax. They are 49 per cent better off than the company paying its fair share of tax.

It would be great if in this legislation the Government had attacked these abuses of sections 46 and 50 of the Tax Act. It could have. It addressed these two sections in order to bring in reforms on redeemable preference shares, but it has done nothing about reforming the big abuses which are going on and which responsible financial journalists have estimated are costing the Government at least $1.5 billion. Why is not the Government doing anything about this? That is a good question. I am afraid that too often this Government has attacked small business and left the large corporate raiders and the large overseas companies unscathed.

If all companies were paying their fair share of tax and if we got genuine, honest tax reform we would restore incentive in this country. While typists and toolmakers are paying marginal rates of tax at 40 per cent they are not going to work overtime, make an effort to work harder or contribute to getting this country out of the very severe mess it is in. They look around and see large companies making fortunes overnight and paying little tax. They see that they have to pay a 40 per cent marginal rate of tax. Immediately this has the effect of killing any incentive. The sorts of reforms I am talking about could be easily implemented and would have an immediate and dramatic effect on the whole community. Instead of that the Government has touched the fringes; it has not gone for the jugular and it has not gone to the essential problem. The Government talks about tax reform and about cutting down on lurks and perks, but it has not cut down on the major lurks and perks that are around.

This raises the question that what is really needed in this country is a fundamental change of economic direction-about a 180-degree turn in economic direction. We have to do fundamental things such as encourage export oriented manufacturing. We have to deregulate the financial markets to do something about the high interest rates. At present interest rates in Australia are 18 per cent while in Japan they are 4 per cent. We will not get our interest rates down to levels comparable with our competitors unless we reregulate the financial markets and by that I mean reregulating both the banking system and the non-banking financial system. In this country we cannot have the luxury of complete deregulation. That is the policy we have been pursuing and it is a policy that has been absolutely catastrophic. It is a laissez-faire policy which reflects that governments have no real responsibility.

If the Government changed its attitude and said that it was going to manage the economy in the interests of all Australians, it would do things such as assisting in export financing. In Japan, for instance, it is possible for companies to get very low interest loans from government on production of an export order. That is a very simple but innovative way of getting companies interested in exporting. Japanese companies virtually financed their whole expansion on government money just by being able to produce a firm export order. These companies received low interest loans to the extent of their export orders.

The Government should do much more about the recruitment and training of skilled workers. Above all, the Government should do something to encourage the introduction of employee participation so that we break down confrontation in industry and get everyone working in the one direction. I have spoken before about the importance of this. It cannot be underestimated. While we have confrontation in industry and while we have a work force that is demoralised or not motivated, we will never develop a manufacturing sector in this country which can be internationally competitive. The solutions are very simple. The manufacturing sector has to be prepared to allow the work force a slice of the action. It has to be prepared to say to the workers of Australia that it will introduce profit sharing schemes and employee share ownership so that employees are a part of the activity and are sharing in the rewards of their efforts. Unless the Government takes the initiative and encourages the introduction of these sorts of schemes in Australia, we will talk about it until finally we fall over the edge of the cliff-we will talk about it and we will do nothing.

These initiatives will not be introduced by a government that continues to say that it is for complete deregulation of the Australian economy and for the internationalisation of the Australian economy. The net result of those policies inevitably will be that Australia will be a satellite of Japan and that we will lose our independence as a nation. I asked in this place a little while ago whether the Government was moving to disband the Foreign Investment Review Board. I got a very ambivalent answer. I do not know whether the Government is or is not moving to disband it, but I do know that many overseas organisations would be delighted to see the Foreign Investment Review Board disbanded. They would then have open sesame to buy whatever wealth producing industries they liked in this country, and at bargain prices because of the devalued dollar against other currencies.

Do we want to maintain our independence? Do we want to be able to manage our economy? We will not be doing that if we say to Japan, Singapore, the United States of America and the United Kingdom: `Come in, there is no restriction; buy up whatever wealth producing industry you like'. That is the policy that has got us into this trouble-we have been selling our assets. One of the big factors in our balance of payments is the so-called invisibles. If we look at the debt breakdown of our overseas trade we shall find that about two-thirds of that debt relates to the invisibles, which means paying interest and shipping costs and sending dividends overseas. We have got to the point where, because we cannot service the interest on the money we borrow, selling our assets is no longer an option. We can no longer afford to let a company come in and buy up an industry and then sit back and watch the dividends from that industry go overseas for ever and a day.

No overseas company will buy an Australian company unless it can get its money back in a period of about five years. So let us look at that. If a Japanese company takes over an Australian-owned company whose dividends have been distributed to Australian shareholders, no doubt it would have the intention of getting its money back in the form of dividends in a period of five years. We will get a capital inflow for the initial purchase but it will be dissipated in five years, and then for ever and a day those dividends will go to Japan and will not benefit the Australian economy one iota. That has been the trend and it has been accentuated by the policies of the present Government. But the tragedy is that the Liberal Party also is saying: `Let us have more deregulation and a more open economy. Let foreign companies come in and buy up our assets'. The Liberal Party is saying that, the National Party of Australia is saying that and the Australian Democrats are saying that. No political party in this country seems to be concerned about Australia maintaining its national independence. We cannot be an independent country if we are beholden to foreign capital markets or if we adopt the policy that to pay our bills we must sell off our industries.

I am afraid that all this adds up to the need for a reassessment of the underlying principles that are being used by the Government and the underlying principles that are being advocated by the National Party, the Liberal Party and the Democrats. We need to reassess where these policies will lead us in a very short time. I was amazed to see that when the Labor Party came to power it adopted a policy for a more de- regulated economy than could ever have been adopted by the Liberal Party. When the Liberal Party was in power at least it saw the need for the continuation of the Foreign Investment Review Board. It appears that the Labor Government is saying that we do not need the Foreign Investment Review Board; we do not need to assess which of our wealth producing industries are being taken over by other countries.


Senator Button —Senator, could you leave the spooky part of it alone for a minute and just tell us what you are talking about in terms of-


Senator SIDDONS —I thought that the honourable senator would understand fully what I am talking about.


Senator Button —I understand.


Senator SIDDONS —I will say it in a few simple words. Deregulation has not worked. Allowing market forces to run the economy has not worked, it is not working, and it will never work. Unless the Government wakes up to that, we are headed for disaster. We cannot continue with the present policies.


Senator Button —It is not a market force economy; you know that.


Senator SIDDONS —You could have fooled me. We have had deregulation of the banks, open sesame for foreign banks, no attempt to control the non-financial institutions of this country, and the Prime Minister (Mr Hawke) saying that he wants to internationalise the economy-whatever that means. He is on record as saying it. Senator Button says that it is not a market force economy. If it is not, I do not know what it is. It is the laissez-faire approach: Let money flow where it will; do not try to control it and do not accept any responsibility to encourage the productive use of the precious capital that we can still raise overseas. The Government intends to make no effort to encourage that capital into productive areas. It is quite happy to let $5.5 billion go into the speculative stock market.


The ACTING DEPUTY PRESIDENT (Senator Bjelke-Petersen) —Order! The honourable senator's time has expired.