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Thursday, 19 March 1987
Page: 1017


Senator VIGOR(6.14) —The Taxation Laws Amendment Bill (No. 5) 1986 and the Income Tax Amendment Bill 1986 deal with three different tax reforms, closing tax loopholes through short term financing arrangements, taxing foreign exchange gains and losses as income rather than capital transactions, and increasing the Government's revenue by changing its cash flow, by requiring quarterly rather than annual provisional income tax payments. The legislation also peripherally gives tax deductibility to income from investments by the British Phosphate Commissioners which cover any compensation claims for mining operations on Banaba, formerly Ocean Island, which were closed down in 1980. The British Phosphate Commission is being wound up following cessation of mining on Christmas Island and its previous immunity from tax is being lost as a result.

Senator Haines and Senator Siddons have already raised some of the problems with this legislation and they have proposed certain remedies to some of those problems, in particular the difficulties we see involved with the foreign exchange amendments and the scope they open up for substantial tax evasion. This leads me to believe that these provisions should be referred for investigation to the Senate Standing Committee on Finance and Government Operations, as the Opposition has proposed. The Australian Democrats believe that investigation before the vote is taken on the legislation is extremely important.

I fully endorse the remarks made by many other senators concerning the difficulties which are currently being faced by small business. The major problem which small business has these days is that it is being completely bound up in red tape by bureaucrats who create more and more red tape to justify their existence. Most of the brave new tax changes which the Tax Summit was going to bring in have foundered on the rocks of bureaucratic excesses. The quarterly provisional tax payments will improve the Government's cash flow but will not help the cash flow of the people who have to make the payments. They will also increase the amount of associated paperwork which is yet another imposition upon small business. There will be yet more red tape and paper work and yet more stress on this most valuable sector of the Australian economy. The farmers, who earn between 50 per cent and 60 per cent of Australia's export profits, depending on the vagaries of world trade, and the small business people, who are the major employers in Australia, are going to bear the main brunt of this. This is why the Australian Democrats want to give them the opportunity to get out of that requirement if it suits them. The cost to Government of the extra impositions on these sectors may exceed the apparent cash flow benefits. Through putting this extra load and pressure of red tape on farmers and small businesses, it may force more bankruptcies, redundancies and business closures. I commend the Australian Democrats amendment to allow elective rather than mandatory quarterly provisional tax payments by farmers and small businesses.

I believe that big business can handle the payments. It has creative accountants who have been spurred on by the ever more imaginative bureaucracy of the Treasury Department. At some stage we have to cut through all of this to cut out the encouragers of tax rorts and to cut out the people who egg them on by making the taxation law such a thick-in more ways than one-document. I share the concern of honourable senators about the long delays between the announcement of the tax measures and their passage through this place. Even though there has been this long delay the Australian Taxation Office, as in the case of the fringe benefits tax, jumps the gun and gives people false information. This creates even more chaos within the community.

I share Senator Michael Baume's worry, which he has expressed in his proposed amendment to the second reading motion, about the long term economic viability of Australia Incorporated. The problem is caused mainly by action of both this Government and the previous Liberal coalition governments. Their failure to manage the economy is the major cause of the current business uncertainty. People can put up with taxes with a stable environment but the type of thing that is happening now with ever-changing laws, with a complete quicksand of legislation which even the Taxation Office cannot answer questions on-I have had a number of complaints of this type-means that business really has dire problems in trying to keep up with the law. More and more people are being forced into the hands of accountants. These pieces of legislation are no different from the rest. They are convoluted and still have inherent problems. I hope that by looking at the legislation in the Finance and Government Operations Committee we can elucidate some of the problems and maybe couch the legislation in wording which is understandable to ordinary people. They are the people we are here to represent. That is why I believe we have to pass this legislation on to a committee.

There has been a real problem with the Australian taxation system. The Government's attempts to patch it up are, as far as I can see, making it worse and worse. The fringe benefits tax is an example. The principle of the tax is right. It is reasonable that people should pay tax on whatever form of remuneration they get, if we are going to have an income tax. However, the application is wrong and the masses of red tape that are involved in actually satisfying the requirements, if taken seriously, are really damaging. It is very difficult here and now to realise the effects of having all these taxation measures coming in. People are being forced to go more and more to accountants. It seems to me that there is a collusion between the accountants in Treasury and the private sector accountants to make their jobs more important and more significant within the community. Australia needs more productive people, more value added in the community. I do not believe that there is any value added in having people poring over papers trying to find creative tax solutions.

There is a cost to the community in all this. I believe that the Government should look very closely at the large number of people in Treasury-I think it is growing-who are involved in both the collection of taxes and the handling of economic advice. Frankly, we are not getting the solutions. It was shown in the debate during General Business this afternoon that the solutions are not forthcoming. They are not forthcoming from the politicians in the coalition, nor from those in the Labor Party. As the amendment moved by Senator Michael Baume to the second reading motion and the Government's response show-this amendment will pass this Senate-the current Government's economic policy is indeed in tatters.

The reason for being worried about all of these new taxes is quite clear. We firstly must have statements of taxes which are simple to understand; that is, somebody must realise that he has a liability and be able to assess that liability. We have been making noises-when I use the word `we' I am talking as an Australian Democrat. We have been saying: Do something about the transfer pricing rorts which exist in our system. There is a requirement for everybody to pay tax on his income. What happens is that income is transferred overseas where it avoids tax. Very clever accounting procedures mean that the profits are not made in Australia, these profits are made on the high seas or they may be made in some tax haven overseas. The Australian Taxation Office has told us that it is quite unable to pursue those types of matters.

I do not see how, in accounting terms, it can actually, under this Bill, collect, specify and know the right details necessary to collect the foreign exchange losses and gains tax. I would really like the Treasurer (Mr Keating) to explain this. The second reading speech is almost silent on the subject. It assumes that somehow we can probably put on a larger number of extra public servants to check these types of things. A tax has to be collectable. It has to be on a recognisable entity. It should not be easily avoidable. The nature of the PAYE system, which has been so successful in collecting tax on the income of ordinary working Australians, is that the tax is collected at source and is collected before the person receives the income. It is somebody else who actually acts as a collector for the Government. It does work as a taxation measure. It is to try to get equity with this system that we have provisional tax in the process.

Associated with PAYE we have a whole group of accounting practices, computing programs and the like which allow us to handle these matters. The introduction of a quarterly collection of provisional tax is introducing a whole new bonanza-an unproductive bonanza, as far as the Australian community is concerned-in the computing industry by getting people to have forward estimates of budgets. It is known perfectly well that people in large companies such as Shell and Broken Hill Proprietary Co. Ltd-I could go on mentioning these companies-have got the wherewithal, and run their businesses on the basis of long term budgets, forward plans of production and all this type of thing. All right, we would like to get our small businesses doing this, but a small businessman who is looking for the next day's crust and is actually operating a small job shop in the back streets of Woodville in my State, or in the back streets of one of the major cities, has to go through a complete reorganisation of his administrative procedures in order to fit in with what are arbitrary rules applied to his accounting procedures by the Taxation Office.

It would not be too bad if this was the only set of arbitrary rules being thrust upon people but, in fact, it is just one of many. The Taxation Office must not think that it is unique in applying this burden on Australian industry. Dozens of licences are required by State instrumentalities. There is a vast amount of paperwork. I have seen various estimates suggesting that even a small backyard type of businessman can pay as much as $4,000 just to be able to comply with the red tape associated with all of these new measures.

There is no way that the Public Service can expect people whose dedication it is to produce a good product for a very small local market in their area and to provide a service, be they plumbers, builders or people of this nature. There is no way that we can expect them to grab an enormous bureaucracy and put it on top of them. There is no fast track package in this area which allows these businessmen to be able to do it. We have teachers, doctors, engineers and tradespeople-skilled workers who are quite unwilling to take the risk of becoming entrepreneurial. They stay within the PAYE system. It is good for the Taxation Office because the tax is collected early, but it is no good at all for Australia incorporated, it is not the type of thing that will lead to risk taking and to entrepreneurial activity and it is not the type of thing that will get us out of the jam we are in with a $100 billion-plus national debt.

What is happening is that we are killing small business-the goose that lays the golden egg. This legislation alone is not killing it; the Government is killing it by millimetres, by very small measures every time. The measures are small in themselves, but we have 26 departments in the Federal Government alone putting this type of pressure on small business and nobody is talking about it, nobody in government is doing anything about it.

Sitting suspended from 6.30 to 8.00 p.m.


Senator VIGOR —Before the suspension of the sitting I was outlining some of the problems of our very complex tax system. One of the main problems is that the Government announces taxation measures in advance of legislation and, if a tax measure has a fixed date for its introduction, the Parliament ends up being squeezed to make decisions under great pressure. One of the nice things about the present legislation is that although the measure for the quarterly payment of provisional tax was announced at the same time as the fringe benefits tax, back in September 1985, it does not suffer from the problem of coming into effect at a fixed time, 10 months later, in July 1986.

The Parliament did not see the fringe benefits tax legislation until eight months after its announcement in May 1986, which meant that only six weeks was left for community consultation, debate and passage through both Houses of Parliament, the latter depending on the sitting of the two Houses. The legislation was rushed through Parliament, which was still in the dark as to the rules and regulations which would make the tax work. An explanatory booklet was prepared and mailed out at enormous cost to every small business in Australia so they could prepare their accounting books for the next tax year. The booklet was rapidly withdrawn when it was found to be substantially inaccurate because the Parliament had not passed the measures exactly as the Government had proposed. It was another stuff-up by the Government and by Treasury and wasted an enormous amount of money. However, not quite as much money was wasted as was wasted as a result of the subsequent public outcry due to the public's ignorance of the legislation and the later contradictory information which was rushed through to each of the taxation offices. There was an enormous amount of confusion.

Very few people deny that a tax on fringe benefits, on payments in kind, is an essential part of a fair tax system. However, the way in which the fringe benefits tax was introduced and the fact that it was announced in advance without the Government knowing how it was to operate caused enormous problems. The reason for the introduction of the tax was to deter high income earners from avoiding tax by being paid in kind-in long term, low interest loans, in luxury houses and boats, in the payment of private school fees for employees' children, in free jaunts around the world and in free rides of various kinds. When the legislation came into Parliament its associated regulations caught many small business people in rural areas. The effect has been particularly nasty on people living in rural areas because the Government has made taxable things it regards as benefits but which are necessary to attract the right people to work in unreasonable conditions. The whole issue of the application of a fringe benefits tax to people in remote and rural areas was not properly thought through before the legislation was introduced.

The Taxation Laws Amendment Bill (No. 5) 1986, which is before us now, has been before us for only a short time. In that time there has been a reasonable amount of outcry and comment by people about it, similar to the outcry which occurred when the fringe benefits tax was first introduced. Because this Bill has no specific starting time of operation it is possible for us to consider it at leisure within a Senate committee. I believe that we should support its referral to such a committee.

Tax policy should be thought out properly before it is announced. Announcing tax policy before knowing what that tax policy is all about has an enormously destabilising effect on business. The details of the legislation must be known when the tax legislation is passed. I have no argument with the need to make such changes effective from the date of announcement, except where the legislation is not ready to go before Parliament. Governments should not make statements that they are going to do something when they do not even have before them the first words of the legislation drafted. That has quite obviously happened in this case because it has taken so much time for the legislation to be presented to us.

For example, decreases in sales tax announced in 1975 became effective two days before the announcement was made and passed into law only two months later. Had there been two months between the announcement and application of the sales tax reduction there would have been a complete breakdown in commerce for those two months as buyers waited for lower sales tax before purchasing. There was a reason for making the application of the measure immediate. It was essential for the stability and viability of a major sector of the Australian community that a measure to decrease sales tax take effect immediately, even though the legislation could not pass into law immediately. The delay between the announcement of the legislation and its passage into law was only two months. The gap between its announcement and public knowledge of its detailed terms was very short. Had time gone on and had there been uncertainty as to exactly what items were affected by the sales tax change, business would have been destabilised-as it has been by the combined efforts of this Government and the Treasury in the case of this whole package of legislation of which this Bill is one element.

We are still waiting for the imputation legislation. We are still waiting for legislation to tidy up the mess in the fringe benefits area. We have not even had foreknowledge of it in this Parliament. I expect that it will be slipped through very quickly in the dying days of this session. I hope that it is not, because the people of Australia deserve better. There is no way Australia can operate effectively unless the Government acts in a planned and organised way. I call upon the Minister to give us a timetable for the other measures contained in the momentous announcement in September 1985 and for the changes which were announced in the 1986-87 Budget. When are we going to see the full associated legislation? What is the timetable? It has not been announced, which is quite unsatisfactory.

The Labor Government came to power on the basis of its promises of economic reform and of full consultation and involvement of the people in the process of government. It promised justice and equity for the disadvantaged. Yet we are seeing a complete back down on these principles. The Government has caved in to pressure from big media interests, big business and major foreign military and economic nations. We do not know what type of tax system we are going to have. Most of the economic measures that are being forced upon us, are being forced upon us by implied threats from the gnomes of Zurich.

Australia's economic problems stem from a number of causes, not all of which are directly under the Government's control. However, poor management, particularly poor fiscal management, adds to difficulties for Australian business and makes it very difficult for people to operate effectively in these areas. High interest rates are hitting us particularly. Farmers and exporters are suffering most from high interest rates. Coupled with low export prices, they are bringing them to their knees. Yet at the same time we are slipping in this extra burden of red tape and extra provisional tax requirements. That is why we say that we want to make certain that small business is exempt from this requirement.

We have a real problem, as a small country, in relation to debt. More than 50 per cent-almost 70 per cent-of our national debt is in private hands, not in government hands. The person who controls 75 per cent of the nation's print media is a member of that debtor class. He has borrowed a large amount of money for takeovers, which is how he has got into that position. This Government is notorious for bowing to large media pressures, encouraging concentration of media ownership, and selling-out local, regional and multicultural television to make certain that our media is controlled. We have a problem in that our economic policy can be totally distorted by just one or two words from people in that type of position. Small people have the power to determine whether this Government should be re-elected. We have a real problem, when issues such as the Government's inability to introduce strong measures to produce real revenue from the very large business concerns, such as those of the media moguls and the takeover merchants who control our country. The Government seems to be quite unable to tax those people. We have negative gearing on takeover funds for those people, but we do not have negative gearing for the small person who is buying and renting a flat for his or her retirement or who is renting out a house while he or she is away on leave.

We have a problem because this Labor Government is bowing to these types of pressures. It is time to elect to government people who have not sold out and who will not sell out their principles for campaign funds and media support. We have to elect people who have the courage to tackle the real financial, fiscal and economic problems of this country; to get Australia going and to cut out the large amount of red tape which is stifling our industry.