Senator MURRAY (12:17 PM) —Before I commence my remarks on this bill and in accordance with standing orders, I declare the potential for an interest in this matter since I am a trustee of a family trust.

The Australian Democrats are very mindful that this bill contains a number of important, if unrelated, measures—it is really an omnibus bill. Most of these measures flow from the 1997 budget and are, therefore, way overdue for consideration—indeed, the savings tax rebate was the centrepiece of the government's 1997 budget announcements.

The Australian Democrats acknowledge that—everything else being equal—there is virtue in moving towards budget balance and a moderate surplus. But surpluses are only warranted if they are achieved without causing hardship in the community. And hardship has been the cost of the deregulatory policies and the economic rationalist policies of both treasurers Keating and Costello, particularly from the cost-cutting policies of the current government.

We believe the increasing division of Australian society under these policies is ripping the fabric of Australian society. Governments are not just here to provide a level playing field for business. In a liberal democratic society—and that is a small `l'- governments have roles in nation building, in supporting the development of a sense of community, and in providing the forms which give effect to cultural and social development and national self-definition. Governments also have a responsibility to provide services and to ensure that we provide opportunities and support for those in difficulties, whilst improving our standard of living and our national wealth.

A different route is required to achieve budget balance and surplus. Rather than slashing expenditure, the aim of balancing the budget can be achieved—in part—by closing tax loopholes and by eliminating other measures which reduce revenue without serving worthwhile social or industry development goals. We need to bear in mind that Australia can cope with additional taxes, as it is one of the lowest taxing countries in the OECD. Against that background, several of the measures in the bill are laudable, and the Democrats will not impede their signing into law.

However, the bill, as submitted into the House of Representatives, was sloppy in many respects. The government conceded this in developing its 83 amendments, which have now been incorporated into the revised bill. But problems remain, and while we will be moving amendments to address some of these, we consider it the responsibility of the government—not our own—to fix most of the glitches.

I have to say, too, that the government has been its own enemy with regard to this bill. It is the government which determines its legislative program and the government had strongly stated that it intended to deal with the bill last year and, then, well prior to Easter. On this basis the Australian Democrats agreed to the rapid consideration of this bill by the Senate Economics Legislation Committee, and to an early reporting date. Mr Chairman, you were intimately involved in this matter and you suffered some stress as a result.

In the event, the bill has not been considered until now. The rushed reporting date meant that the committee had totally inadequate time to deal with a number of very complex, detailed and important tax issues. We had the farcical situation of witnesses before the committee hearing being unable to discuss the bill confidently, since they had not had time to assess whether the government's 83 amendments to the bill had met their concerns. The other consequence of misleading the Senate and senators as to the timing of bringing on of the bill is to make us less inclined to believe the government again, and that is regrettable.

The Australian Democrats again place on record our objection to the government's practice of squeezing the legitimate deliberations of committees to meet unrealistic projections for Senate consideration of government legislation. It is not the government's practice with regard to every bill, but in a number of bills recently it has been the case, and it is to be deeply regretted.

I now want to deal with the substantial elements of the bill. One of the major elements is superannuation and the choice that exists within superannuation. I will leave that area to my colleague, Senator Allison, who will speak separately on that matter.

Turning to the remainder of the bill, I will address, firstly, the payment of reportable payment systems, known as RPSs; prescribed payment systems, known as PPSs; and pay-as-you-earn deductions, known as PAYEs. In general, we have no problem with the schedule, which allows for the more efficient payment of these deductions, reducing considerably the expenses of the Australian Taxation Office.

We do, however, question whether it is reasonable to make it effectively compulsory for large remitters to do so electronically rather than by otherwise valid forms of payment. It is clear that the Taxation Office has an interest in encouraging remitters to do so electronically. However, a penalty of $500 each time for not using electronic means can come to an annual penalty of $26,000.

The Australian Democrats will consider whether the Australian Taxation Office should be obliged not to apply the $500 penalty without consideration of individual circumstances and to discuss with individual remitters their particular situations and their abilities to remit cheaply in this way. We also suggest that the government—or the next government—re-assess this measure after a year of operation and consider whether there should be any amendment.

In terms of the franking of dividends and other distributions, considerable concern was raised in the Senate hearings about these provisions. A principal criticism is that the test for catching an action is that gaining a franking credit benefit is `an other than incidental' rather than `a dominant' purpose. Several witnesses expressed concern that this would catch franking arrangements which are otherwise legitimate in their intent and operation. Witnesses also criticised the lack of a definition of `dividend streaming' and its retrospectivity.

The Australian Democrats consider there may be problems with the drafting of this schedule. However, within the limitations of the committee considerations, we had inadequate time to explore the provisions and to refine improvements. In any case, we consider that it is the responsibility of the government with its extensive executive resources to ensure that the drafting of a bill is satisfactory. This schedule is one which could be flagged for reconsideration when there is the inevitable rewrite of taxation law next year following the election. Having said this, the Australian Democrats support the intention of this schedule to minimise taxation loss in this area and will not oppose its passage through the Senate. Distributions from private companies are dealt with in schedule 9. What a mess that has been. Again, there were major drafting problems with this schedule. While it is essential that a democratic state have community watchdogs out there who help us by alerting us to the dangers of any particular legislation, we should not need to rely on them as much as we were forced to here. Fortunately, those watchdogs did growl loudly. It also suggests that the Australian Taxation Office or the Treasury—or both—may need to review their consultation processes and listen more carefully to the concerns raised by special groups in the industry before submitting legislation.

To the government's credit, though, they did change their own legislation with a truckload of amendments and they did respond to well expressed community concern. And we thank them for that. In large measure, concerns with the schedule seem to have been addressed as a consequence but, in the Senate committee, witnesses indicated that there some outstanding technical problems. Again, we consider that it is for the government to address these problems rather than for non-government parties to be devoting their limited resources to trying to do so. The schedule is nonetheless very important in clawing back an estimated $110 million over three years in what the Treasurer (Mr Costello) likes to refer to as tax rorts.

There is one important area we do want to address, and that is in relation to employee share ownership schemes. The Democrats, as the Senate knows—and many senators agree with us on this—are great supporters of employee share ownership schemes and would like to see as many employees as possible participating in the enterprises which they work for. The coalition's 1996 pre-election policy on employee share ownership plans emphasised the importance of such plans improving national savings. The coalition promised to widen the taxation incentives for employee share ownership plans. We will be moving to ensure that such plans are indeed not caught up by this schedule and continue to be given preferential treatment.

Finally, I will speak to the last schedule of this bill, which relates to the savings rebate. We recognise that this was a key feature of the 1997 budget. The Australian Democrats support measures to increase Australian private savings as a means of reducing overseas borrowing requirements, as a means of financing Australian business development, and as a means of advancing Australia's national wealth. To this end, the rapid growth of Australian superannuation funds to $326 billion is extremely pleasing—and we believe that the Labor government that preceded the present government should take credit for much of that effort. I should say though that the Democrats would discourage the investment of too much of those funds overseas, because that does not necessarily benefit Australia as much as it otherwise could.

The current amount invested overseas is $52 billion—or some 16 per cent. I recognise it is a moot point as to how much is how much, but it is an area on which we are alert to dangers. Unfortunately, we believe that the savings rebate will not achieve that aim of increasing savings. Let us be honest. Since last year's budget the measure has not had a happy stay in the anteroom of the parliamentary doctor. We had the Prime Minister (Mr Howard) renouncing his personal claim to the rebate pretty well immediately—which was not exactly a clever way to say that he thought it was a good idea—before it became clear that the rebate would be provided automatically by the Australian Taxation Office. That also indicated that it was a fruitless gesture. But, worse, we had Treasury revealing that the rebate would actually reduce net national savings.

Senator Sherry —`A big risk', in Mr Evans's words.

Senator MURRAY —Yes. It is that which is the fatal problem with this schedule. The reason that it reduces net savings is that it will not adequately change individual investor behaviour. High income earners will be rewarded for doing what they are already doing. The wealthy do not need encouragement to save. Regrettably, low income workers will be limited in their ability to take advantage of the measure because their incomes are already committed to the day-to-day expenditures which keep a roof over their heads and food on the table. If you want the lower income members of our society to save, you need to progress policies which actually advance their standard of living, advance their income, and allow them to become more productive members of the community. But it is those who are better off in society that we must look to at present for savings.

With three to four per cent for cash interest rates, the taxpayer needs to have $75,000 to $100,000 in bank savings to earn the top rebate. The rebate in this case is capped at too high a level, in our view. The reward for superannuation is more easily achieved, as only $3,000 is required to achieve the same maximum benefit of $450.

This bill moves the rebate part of the way in the right direction. It should be targeted towards medium-term and long-term savings. One of the most important initiatives governments have taken over the last decade is to address the issues of lengthening life expectancies, consequent longer periods spent in retirement, and the projected increase in the ratio of those who are retired to those still in the work force. We have had to find ways to support people in providing for themselves in their retirement so they can retain a decent lifestyle when it will be impossible for the state to provide adequate pensions from year to year revenue. Both the preceding government and this government have been alert to that problem.

With this in mind, the Australian Council of Social Service, known as ACOSS, suggested four principles for making the rebate more effective and equitable. Firstly, the rebate should be restricted to long-term financial savings such as those through superannuation and financial institution accounts maintained for at least five years. Secondly, the rebate should be linked to contributions and deposits rather than interest so as to make savings of smaller amounts worthwhile. Thirdly, the rebate should be added to the account rather than paid to the taxpayer directly. Fourthly, the rebate should extend to compulsory superannuation so that low and middle income wage earners can significantly benefit or, at the very least, be restricted to longer term financial savings other than superannuation and to be strictly income tested.

The Australian Democrats, before the 1996 election, said that the savings rebate should be targeted towards longer term savings and be means tested. The coalition has changed its own pre-election views on the savings initiative. Specifically, it has changed from a concessional tax rate to a rebate. But, more importantly, the coalition government has removed the income threshold at the same time as scrapping the superannuation employer contributions. The income threshold is vital if we are to achieve equity in the taxation system, for this is a very expensive measure, and it is a very expensive measure which will result—to repeat what I said earlier—in a net reduction in savings.

Last year's budget projected losses in revenue of $350 million, then of $1.4 billion and a massive $2 billion over the next three financial years—totalling nearly $4 billion. It makes little sense to be enacting this measure so shortly before an election for which the central issue, the government tells us, will be taxation reform. Two billion dollars per year of rebates is a significant mass in the overall scheme of taxation revenues. Certainly, such an ad hoc measure would be reshaped within a sensible, comprehensive overhaul of the Australian taxation system.

The Australian Democrats, therefore, suggest that this close to an election the measure should be delayed until savings measures have been comprehensively debated within the broader context of producing an equitable, effective tax system which advances national wealth. I suspect the government might prefer to do this as well, and I would be surprised if their tax reform committee is not looking at this very issue. Nevertheless, if the government does proceed with this measure so as to keep its commitments from before the election and the last budget, we will move an amendment. Consistent with the government's 1996 pre-election commitment, we will move to phase out the rebate between $35,000 and $39,000.