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Thursday, 2 June 1994
Page: 1165

Senator KERNOT (Leader of the Australian Democrats) (10.27 a.m.) —The Taxation Laws Amendment Bill (No. 2) 1994 is the latest of those regular `plug the hole' bills that come before this parliament. Like other tax repair bills, it is hard to continue to justify the government's stated commitment to simplifying the tax laws because we are adding section after section of what some people consider to be almost incomprehensible gobbledegook.

  The vast majority of the bill deals with new avoidance provisions on capital gains tax in share and financial transactions. Other parts of the bill deal with HECS contributions, uniform deductions, gifts, taxation of variable return financial instruments, extending the development allowance, offshore banking units, minor changes to foreign investment funds, and entertainment expenses. I want to make a few comments about the components of the bill we will be supporting before turning to the section of the bill we will oppose.

  Dealing first with the capital gains tax proposals, these are almost incomprehensibly complex. The Australian Democrats support, and have supported, the taxation of capital gains. We recognise that, as forms of investment become more complex and varied, of course the tax laws must follow. But it makes one wonder, in all these complicated changes, where we are with compliance costs and whether compliance costs could now be outstripping the tax raised. I question whether black letter jargonised law that takes four QCs and a tax officer to understand is superior to simple, common English law.

  I recognise the need to legislate against deferral of tax liabilities, but does it make sense to deem gains to be realised when a taxpayer transfers an asset to a trust of which he or she is the sole beneficiary? No money might change hands, beneficial interest stays the same, yet a tax liability arises. The government assures us that this is a loophole. There is an urgent need in the tax simplification process, after all this time, for capital gains tax to be rewritten. One is not questioning the principle; it is the application.

  Another area of law needing to be rewritten is the taxation of financial arrangements. The move to taxation on accruals means that taxpayers can be paying tax long before they receive any income. Yesterday the government received a submission from the finance and business communities calling for major reforms to its accrual taxation system and a consultative process in the development of a new tax system. They pointed out that compliance costs of the evolving regime will be as much as $200 million. They even said that they were prepared to concede an additional $80 million in revenue to the government in exchange for a simpler system. I think it is worth the government's while to consult with that community, and I would hope that measures such as those contained in division 2 of this bill would then be modified and made fairer and more effective.

  I also have some reservations about the amendment to the entertainment expenses. I appreciate that clauses 125 to 131 of this bill are largely relief provisions from earlier badly drafted FBT laws governing entertainment expenses, and obviously this area must be one for detailed review in the government's announced review of FBT compliance costs. The situation we now have is an accounting nightmare, with company accountants required to work out for FBT purposes how many hors d'oeuvres are eaten by employees and how many are eaten by guests. We know the principle, but it is in its application and compliance that I think questions are raised. The Democrats recognise that taxation of fringe benefits closes a large loophole in the revenue base—we accept that—but a tax has to be understandable. It has to be capable of being determined without too much fuss to be acceptable and understood.

  I am concerned that the compliance cost of some of the recent FBT extensions could actually exceed the revenue gained, and we look forward to this review of the compliance costs of FBT. It must be fully comprehensive. If it shows that the compliance costs on a particular item are exceeding revenue, the government will face a heavy onus to justify continuation of taxes on the particular items. I am looking to that review with great interest. I guess that we support this provision in some respects conditional on a proper review outcome.

  The bill also contains provisions in clauses 90 to 93 to allow the inclusion of HECS debts in the calculation of provisional tax. This was one of what we considered to be a range of regressive measures in last year's budget to claw back HECS payments at an accelerated rate. The Democrats have opposed all of those measures in this place and, consistent with principle, intend to oppose this one. My colleague Senator Bell will be speaking in more detail on these provisions later in the debate.

  (Quorum formed)