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Wednesday, 18 March 1987
Page: 864

Senator SHORT(11.28) —We are debating the Taxation Laws Amendment Bill (No. 5) 1986 and the Income Tax Amendment Bill 1986. Most of the remarks in this debate by all speakers have been devoted to the first of the two Bills. The Bills have several purposes. The main one is to introduce an instalment system for the payment of provisional tax. However, the Bill also contains amendments to the capital gains and losses provisions of the income tax law to exclude from those provisions foreign exchange gains and losses under certain hedging contracts. The Bill will also implement a decision announced earlier to treat shorter term redeemable preference shares as debt for income tax purposes. Finally, the Bill will exempt from tax the income of the British Phosphate Commissioners Banaba Contingency Fund.

The first thing to be said about the Bills concerns the inordinate delay in bringing in some of the provisions. For example, the very important proposal to introduce a system for the payment of provisional tax by instalments was first announced in the notorious RATS statement-entitled `Reform of the Australian Taxation System'-made by the Treasurer (Mr Keating) on 19 September 1985, 18 months ago. The proposals to treat foreign exchange gains as assessable income and to allow an income tax deduction for foreign exchange losses of a capital nature were announced as long ago as 18 February 1986, over 12 months ago. The proposal to treat shorter term redeemable preference shares as debt for income tax purposes was announced as long ago as 7 April 1986. I would point out that that latter decision was not announced in this Parliament. It was announced to the people of Australia in the form of a Press release in April 1986 at a time when Parliament was not sitting.

Those delays, I think, introduce some very serious considerations that this Parliament must take into account. In many ways, the Bills can be said to contain a significant element of retrospectivity, if not in a legal sense then at least in a practical sense, in that announcements which were made were followed, in some cases well over a year later, by the legislation to give effect to the proposals. No one knew-not even the Government or its advisers-at the time of making the initial announcement what would be in the final legislation. To have the sorts of delays that we are getting under this Government-I must say that we on this side of the House were not immune from criticism on that score when we were in government-is unacceptable. The situation has deteriorated dramatically under this Government. The delays that we are getting between the announcement of decisions and legislation to give effect to those decisions are getting longer. That is very debilitating and confusing and it provides a great deal of uncertainty and unfairness in our taxation and other systems.

It also raises the very important question of the role of the Executive relative to the role of the Parliament. As the Senate Standing Committee for the Scrutiny of Bills pointed out in its report on the Bills which we are considering today, the practice of Executive announcement followed a long way down the track by parliamentary legislation or enactment carries with it the assumption that citizens in our society should arrange their affairs in accordance with announcements made by the Executive rather than in accordance with the laws made by this Parliament. The implication in that, very clearly, is that Parliament runs the risk of becoming an anachronism and a mere rubber stamp for executive government. That extremely worrying trend is occurring in this country. It is quite contrary to the whole system of parliamentary democracy and it undermines the very core of our democratic traditions.

Despite the fact that the Government has had so much time between the announcement of the decisions and the introduction of the legislation, it has still produced, so far as the Opposition is concerned, a very shoddy Bill in terms of its drafting and the thinking through of some of the key provisions. It is for that reason that the Opposition seeks to refer important parts of the Bill to a Senate committee for further consideration. That is a considerable indictment of the Government. It has had all this time to consider introducing legislation which is good legislation, and quite patently it has not done so.

The Bills have been introduced at a time of great pressure on the Australian economy. The Australian economy is in crisis. If any doubt is attached to that, we just have to look at the facts and ignore the Government's spurious rhetoric which claims that it has produced policies which have led this economy of ours to a restructuring and a base for further developments which is positive. The facts speak for themselves, and they point to a totally different position. Let us consider some of the facts. Inflation in this country is now running at about 10 per cent, and on many counts it is rising. Even at 10 per cent, it is four times higher than the average inflation rate of our major trading partners. In some cases it is vastly higher than four times higher. For example, the inflation rate in Japan, our major trading partner, is zero.

In West Germany the inflation rate is negative; over the last 12 months there has been a decline in costs by more than one per cent. In the United States, another major trading partner of ours, the inflation rate is 1.3 per cent and the average for our major trading partners is only 1.7 per cent. How on earth can we compete as a nation and do all the things that this Government is trying to con us into believing that it is doing when we have an inflation rate of 10 per cent and our major trading partners have an average inflation rate of 1.7 per cent? The only conclusion that one can draw from that is that we are becoming more and more uncompetitive by the day. One of the important aspects of our inflation rate is the level of interest rates in this country. We now have--

Senator Button —I hope you can deal with all the other points so simply. That is simplistic.

Senator SHORT —I will be interested to hear the Minister's responses. I am sure they will give great weight to these points because he, as a responsible Minister having one of the most senior economic portfolios in this country, has a responsibility that he has not been exercising up to date to explain to this country just why the policies of his Government are leading us to bankruptcy as a nation. Let us have a look at interest rates. In this country today we have interest rates that are higher relative to the rest of the Western world than ever before in our history. The prime interest rate in Australia today is something like 18.5 per cent. The prime interest rate in Japan is 3 3/4 per cent. In Canada and France the rate is 7 or 8 per cent. In the United States it is about the same. Our interest rate structure is miles out of line, and disastrously out of line, with that in the rest of the world. That has enormous implications for the development of our country. It is one of the basic reasons why investment in this country is lagging so badly that we are not even replacing the capital stock on a depreciated basis. It is an explanation perhaps for the fact that this year we have the highest number of bankruptcies in our history. Last year we had the previous record level. When the Treasurer was asked about that he said:

Look you make no point about bankruptcies of small businesses, they are on all the time. What one must look at is the buoyancy of the economy and the buoyancy of business in particular and that's what this government has delivered.

What absolute nonsense! What a cynical statement! Most important of all, that statement completely ignores the realities of business and all the other implications that flow from those bankruptcies. We have a level of foreign debt exceeding $100 billion. That is a figure that no one can comprehend. It is a figure four times what it was when this Government came to office. Putting it into meaningful terms, it is a figure of $6,250 for every man, woman and child in this country.

Senator Brownhill —Even the newborn.

Senator SHORT —Even the newborn, as Senator Brownhill points out. The day a child is born in this country he inherits a debt to the rest of the world of $6,250.

Senator Button —Of which what percentage is private company debt?

Senator SHORT —I will come to that.

Senator Button —You are very dishonest with these figures; you know that. It was a totally dishonest figure.

Senator SHORT —Senator Button's statement completely demonstrates his total lack of understanding of the problems facing this country. It does not matter a damn whether the debt is private debt or government debt. The fact is that we have to incur that debt because of the record level of current account deficit that we have as a result very largely of the policies of this Government. I will come back to that. This Government has been trying to con the Australian public for months by saying that the problem of our balance of payments is caused by falling export prices. There is no denying that, in part, that is correct but it is only a small part of the total problem and I will come back to that later. It we are talking about a bit of sophisticated consideration of these issues and a bit of honesty in economic debate in this country, I suggest the Minister look to his own house.

A family of four in this country-say, a husband and wife and two children, a normal sized family-has a foreign debt, when looked at in that sense, of $20,000. The level of taxation in this country is higher than ever before in our history. The much vaunted trilogy promise of the Prime Minister (Mr Hawke) at the 1984 election that he was not going to let the level of income tax as a proportion of gross domestic product increase for the next three years was broken in each successive year. He has not honoured that commitment in any year. Perhaps we should not be too surprised about that because very few promises that this Government has made since coming to office have been honoured.

As well as our foreign debt we have a government debt. That is a debt that the governments of this nation owe. It has to be repaid. It is of the same order of magnitude as our foreign debt-more than $100,000m. All this has happened at a time when we have virtually no real growth in the domestic economy, and that is accepted even by the Government. It has happened at a time when housing approvals are down by 20 per cent over the last year or so. There is no real growth in retail sales. In 1986 car sales in Australia were at their lowest level for almost 20 years and the decline in car sales was the biggest drop we have had, certainly since the end of the Second World War and probably in our history. That is in percentage terms, not in volume. As I said, investment in plant and equipment is falling at a time when the restructuring that the Government so cynically talks about demands increases in investment, not decreases.

Last week we had yet another very large wage increase, against all economic rationality. Even the Australian Conciliation and Arbitration Commission seemed to recognise this in its judgment but it gave the increase in a dangerous attempt once again to buy industrial peace. I totally support the call by the Victorian Employers Federation and other employer bodies for the granting of no second tier increases unless they are totally met from fully substantiated productivity increases. I also note in passing that the Hawke Government was a key supporter, indeed a sponsor, of this economically damaging and entirely unwarranted further blow to economic growth and price stability in this country.

The Government's support for that wage decision last week just highlights the hypocrisy and the political cynicism in the Government's totally cosmetic announcement last week of its intention to establish some form of consumer prices bureau. That decision is cosmetic because it cannot achieve anything. It is politically cynical because the Government knows that it will not achieve anything. The best evidence for that is the appointment of Barry Jones as the prices Minister. If the Government were really serious about this attempt to look at prices it would surely have appointed a senior Minister and one with a demonstrated track record. I do not say this in any personal sense at all but Mr Jones's track record politically is strewn with bungled hurdles.

The Government's decision is hypocritical because the Government itself has been responsible for the very price rises that it seeks to monitor, or whatever it seeks to do. It has not spelt out just what it is proposing to do. The Government is responsible for these price rises because its economic management has been quite appalling. Its failure to exert internal discipline on its own finances has been the major cause of our present crisis. As I said earlier in response to Senator Button, the Government has been trying to camouflage the real causes of our crisis by blaming them on falling prices from many of our traditional exports, leading to our enormous balance of payments deficit. I do not deny that some of the causes of our problems do lie in our deter-iorating terms of trade. But the equally undeni-able point is that the major part of the problem lies not in that direction, but with the fiscal, monetary and wages policies of the Hawke Go-vernment. One major manifestation of those crippling policies is the enormous cost burdens imposed on the business sector in Australia by the Hawke Government in the past couple of years. The number of new taxes and the increase in taxes on the business sector have been absolutely staggering. We have had the capital gains tax, the fringe benefits tax, the elimination of even the most legitimate of entertainment-type expenditure from tax relief, the elimination of negative gearing, the automatic indexing of many excises, the increase of 7 per cent in company tax rates to a figure now of 49 per cent and a whole range of other imposts.

Senator Button —An increase of how many per cent?

Senator SHORT —An increase of 7 per cent; 46 per cent to 49 per cent equals a 7 per cent increase. Not only business has suffered from these tax increases, but also average wage and salary earners, farmers, families and particularly two-parent single income families with dependent children have suffered. Not only has the Hawke government reduced the standards of living of all Australians in the past four years; it has reduced most the standard of living of those Australians least able to bear the brunt of its attack, including taxes.

The Bill that we are discussing, the Taxation Laws Amendment Bill (No. 5), adds yet further burdens to business. This is especially so in respect of the proposals for changes in the payment of provisional tax. The effect of the changes that are being proposed-essentially a proposal that provisional tax be paid quarterly rather than towards the end of each financial year, using the Government's own figures which could, in some ways, be regarded as an underestimate-will be to bring forward provisional tax collections into 1987-88, the first year of application of the proposal, and to increase tax revenue by some $90m. Depending, as the Government says, on interest rate assumptions, it is also estimated that annual expenditure savings of up to a further $100m will result from the need to issue fewer treasury notes. That is another burden on business because it is a prepayment, if you like, relative to the present situation of what business and all provisional taxpayers pay in provisional tax. Somehow or another business and taxpayers will have to find that additional $100m. It is either in the form of income forgone through the investment of what they will now be paying in taxes, or in other ways. Whichever way one looks at it, it is an additional impost of $100m on the community because it will raise an additional $100m in revenue for the Government.

We on this side of the chamber say that it is about time the Government stopped continually slugging taxpayers of all types, started getting its house in order and meeting its necessary commitment to reduce the deficit, a commitment which it is failing lamentably to do by reducing spending. The worst way in which the Government can attempt to solve the difficulties of this nation, particularly in terms of the Budget deficit, is to increase taxes. The only responsible way is to decrease revenue and expenditure. That is precisely what this Government seems to be unable to do.

The implications of the Government's proposal on provisional tax will be disastrous for all those people with fluctuating incomes. That includes a wide range of small businesses and, in particular, farmers. That is why the Opposition totally supports the view of the National Farmers Federation which has requested the Treasurer and the Government not to go ahead with these new provisional tax arrangements because, to quote the NFF, `they are totally inappropriate to agricultural income patterns'. The NFF points out that not only farmers but also others, such as authors, consultants and actors, often receive their annual income over a short period each year. Under the new arrangements they would be required to predict their annual income and pay tax instalments on it, sometimes before receiving any income at all. Because of the unpredictability, not only in terms of the receipt of that income during the year, but also the total amount of income they are going to receive, they will run a very grave risk of having to pay significant penalties-of the order of 20 per cent-through underestimating their provisional tax commitments. That is enshrined in the Bill. In our view that is also an iniquitous and inequitable proposal. We will resist that very strongly indeed. Let us look at not just the farmers and the others I have mentioned; let us look at a person who is a manufacturer of seasonal goods. For example, what about a person who makes surfboards or swimming gear or who specialises in, say, winter clothing?

Senator Brownhill —What about Easter eggs?

Senator SHORT —Or Easter eggs or anything that is of a seasonal nature. If those people underestimate their provisional tax liability by more than 10 per cent-that is not a wide margin, as I said-they will have demanded of them by the Commissioner of Taxation a penalty rate of 20 per cent. How will the provisional taxpayer find the money to pay that additional tax? The only way he will be able to find it, particularly if he is a business person, is to pull in his horns so far as his business activities are concerned. That is the last thing that this country wants. At a time when small business across the nation is reeling under the effects of inflation which, as I said is five times the average of our trading partners, the additional cost impost of this legislation is simply lunacy in terms of any type of economic rationality.

This Government is the largest taxing and highest taxing government we have had since Federation. It has caused enormous pain to average income earners and wage and salary earners around the nation. Its interest rate policy has pushed interest rates for housing to an unbelievable level. The minimum rate one will pay on a new home loan is 15 1/2 per cent; only five years ago that figure was 10 per cent; and back in the 1950s the rate was 3 1/2 per cent. The enormous escalation in interest rates and the enormous inflation that has occurred to cause larger borrowing requirements is putting essentials and goals of Australians, such as housing, out of the reach of all but the wealthy. It is saddening to look at the increase in average home loan repayments since the 1984 elections. Honourable senators might remember that in the 1984 election the Prime Minister gave every intimation that he was going to get the economy under control. We were told that interest rates were going to come down and that we were going to live in the land of milk and honey.

Let us look at average home loan repayments since the 1984 election. In my State of Victoria, average monthly home loan repayments are now $609 per month. At the time of the 1984 election, only two and a bit years ago, they were $405. In Senator Brownhill's State of New South Wales they are now $678 per month. At the time of the 1984 election they were $472 per month. A similar pattern exists in all States. Overall, the average level of home loan repayments has gone up in the last two years by 35 to 45 per cent. Not only has it gone up in that sense but also in the last five years the percentage of average, after tax family income spent on home mortgage repayments has doubled. In other words, today the average wage and salary earner pays on an average home loan repayment more than twice the percentage of the after tax income he paid as little as five years ago. They are the sorts of figures that are causing-very rightly-all Australians to feel an enormous squeeze on and deterioration in their living standards.

We are going backwards. We are going down the road to national bankruptcy. The Government knows that. Every Australian knows that. It is about time we started to take desperate action to correct this situation because, if we do not, we are not going to have a nation in the future for our children and our children's children. The Bills we are debating today are yet another part of the bludgeoning attack by this Government on the living standards of every Australian. The Government deserves to be criticised very roundly indeed for them.