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Wednesday, 24 November 1965


Mr CREAN (Melbourne Ports) . - I am sorry to have to inflict myself on the House again so soon. The major Bil! that we are now considering is the Income Tax Assessment Bill, with which are associated the Income Tax (International Agreements) Bill and the Income Tax (NonResident Dividends) Bill. Whereas the Bill with which we have already dealt related to the rates of tax that would be applied to taxable income, the main one now before us determines what shall and shall not be subject to taxation. As has been pointed out on a number of occasions, the principal Act is becoming a very complex document. In his second reading speech the Treasurer (Mr. Harold Holt) said-

Like most taxation measures, it is in some respects unavoidably complex, but I would point out now that much of its volume is explained by the repeal and re-enactment of a number of rather lengthy sections.

One of the reasons why the income tax legislation contains such lengthy sections is that it is being asked to do many things which income tax legislation ought not to be expected to do. It is being asked to cover certain desirable social objectives which do not come properly within the compass of the provisions of income tax legislation.

I would suggest that the time has arrived to make the legislation better codified than it is. The honorable member for Sturt (Mr. Wilson) gave an example of the need for this when he pointed out that, in developing his argument, it was necessary to go from section 121 back to section 23. There is a case for dividing the Act into separate parts to make it easier to handle or for renumbering the sections. Many of the sections have been amended so often that the letters of the alphabet have been used up and we have got down to Roman numerals. The sections containing the superannuation provisions cover some 40- pages. There is surely a case for attempting to put the Act in better form.

With this measure, as with most taxation measures, an explanatory memorandum has been provided. I thank the officers of the Taxation Branch for the time and skill they devote to trying to make the inexplicable almost explicable. I am afraid that they have not succeeded in many ways so far as I am concerned, but that is probably the fault of the reader rather than of the writer. The memorandum outlines the main changes that are proposed. I find no great objection to any of them because it seems to me that they are on the side of trying to protect the revenue. In the systematic battle between those who want to pay as little tax as possible and a Government which wants to get all the revenue it can, there is great scope for contrivances on the part of accountants, lawyers and others. I said earlier tonight that one reason why the legislation has become so complicated arises from the rates of taxes that are currently payable. I do not suggest that those rates are too high; in many respects, some of them are still too low. As I suggested earlier, there is good ground for recasting the whole structure.

I should like to refer honorable members " to a very interesting little book entitled "The Uneasy Case for Progressive Taxation ". It is an American publication. The authors are Walter J. Blum and Harry Calven Junior. On page 18 they have something to say which I think is relevant to the Australian circumstance. It is this -

The price the tax system pays for progression is thus high, lt produces a tax law of almost inpenetrable complexity, lt invites a distorting attention to the tax aspects of any economic transaction, lt affords an excessive stimulus to tax avoidance with perhaps incalculable consequences for taxpayer morale and the general respect for law.

Many of the amendments that this House is asked to consider arise from the fact that the spirit of the law intends one thing but somebody thinks that the letter of the law means something else. Endeavours are then made to drive the proverbial coach and horses through what appears to be a mere crack in the law. Sometimes these endeavours are successful, and it is because of this that progressive amendments to the taxation laws are necessary. These amendments are becoming highly complex.

I would not welcome an undue extension of parliamentary committees, but I think sometimes that a case can be made for setting up committees of a special kind. In quite a few of its recent issues the " Taxpayers Bulletin" - I do not always agree with its point of view although I certainly welcome the information that it contains - has suggested that the Government be urged to establish a statutory committee on taxation review, modelled on the Tariff Board, to advise the Government on all matters relating to taxation. If there were such a committee, I am not sure that it ought to be modelled on the Tariff Board. I think that before any plunge is made in this direction we should consider the matter very carefully. I would commend as an alternative something that is suggested in a booklet which I quoted in this House a month or so ago. It is "The Treasury Under the Tories, 1951-64", written by Mr. Samuel Brittan, a financial journalist in London. In it he is referring to the procedure in the House of Commons. We model our procedures on those of the House of Commons. To a great extent, our financial machinery is similar to that of the House of Commons, although we give different titles to our Bills and our timetable is somewhat different. In England, the fiscal year ends in March or April. Ours ends in June. On page 109 of this booklet we find this passage -

From March onwards a change comes over the Budget Committee. Most economic decisions have usually been taken-

That is the case here with our Budget - and the Finance Bill-

That is a measure similar to the one we are discussing - which gives legal effect to the Budget looms larger. The Inland Revenue may have ideas for blocking tax avoidance or improving administration; or there may be detailed anomalies to remove. At this stage, Treasury knights and economists are out, and tax lawyers are in. The Law Officers and the Parliamentary Counsel arrive on the scene; most of the Treasury men, including the Permanent Secretary and the Economic Adviser, quietly withdraw. The Chancellor, or another Treasury minister, takes the chair.

That is much the same situation as we have here. When we are discussing the Budget, the Treasury officers are here. When we are discussing tax matters, we have here the Commissioner of Taxation or members of his staff. The Treasury knights and economists are out and the tax lawyers are in. The passage continues -

There is often no close connection between the detailed points of tax law in the finance bill and the main Budget decisions about income tax, profits tax and all the rest. There is thus a strong case for an annual finance bill confined to the major Budget decisions and a separate tax management bill which the House of Commons might consider in Standing Committee upstairs and which would not have to be an annual event. Such separation would be controversial but it might help to reduce the amount of time taken up by the finance bill on the floor of the House of Commons, which is now the chief item of business from April to July.

I suggest there is a thought in that quotation. After all most of the measures before us in these tax bills are not controversial, They are matters for differences of opinion about their technical application rather than the effect they may have on the revenue. They are becoming increasingly more complicated, and I compliment the income tax officers for trying to make these documents, and therefore the legislation we are passing, understandable, but I still think that many of the measures that we discuss, aud the way in which they are put before us, are not easy for the ordinary layman in this Parliament to contemplate. I would suggest there is a case for a committee of some kind. It should be reasonably small, but representative of the House. It could examine officers from the Taxation Branch and persons from outside the Branch who feel aggrieved by the impact of the law. Many of these amendments need to be made not hastily but tranquilly and they should be submitted to the House with memoranda or reports that members could read more easily than the present document. At least on this occasion we have not had the same haste with this measure as we had with a similar measure last year which aroused much discussion because complicated amendments were laid on the table of the House one Thursday and members were expected to debate them the following Tuesday or Wednesday. Persons outside who were likely to be affected by the proposals had no chance to see them, and it was altogether a most unsatisfactory way of doing business. On this occasion the Treasurer has given us almost a month in which to consider these amendments. I do not think there has been the same discussion about them this time because in many ways they modify what was done hastily last time.

The Treasurer said that this measure repeals and re-enacts a number of rather lengthy sections and corrects some of the provisions that were passed hastily last year. There are one or two matters at which I should like to look. I am fortified in my remarks to some extent by comments in the " Taxpayers' Bulletin ". My remarks relate mainly to the question of superannuation funds. I do not go along the road that the honorable member for Sturt (Mr. Wilson) traversed a few moments ago regarding penalising honest working men by reason of the impost of 10s. in the £1 in certain circumstances. I agree with the Minister that not many companies fall within this particular category. Most of the funds are non-taxable. Perhaps the Minister might look at the statistics contained in the 44th report of the Commissioner of Taxation relating to superannuation funds. They show that 8,627 funds lodge returns with the Taxation Branch. A number of funds reside in the custody of insurance companies, but of the 8,627 funds only 526 are fully taxable, 1,508 partly taxable and 6,593 do not pay any tax at all.


Mr Wilson - There was not any provision for them to pay any tax.


Mr CREAN - No, but all I am suggesting is that some organisations try to get around the law, and in my view the law has a perfect right to defend itself in those circumstances. The ramifications of these funds are becoming so complex that I doubt whether it ought to be left in the hands of the Commissioner of Taxation to adjudicate on them. He has far too many other important duties to perform than to be tied up with determining whether certain of these devices are legitimate or otherwise. In the "Taxpayers' Bulletin" of 16th January 1965 is a paper by a very capable writer on taxation, Mr. McKellar White. At the end of his paper was a panel discussion. One of the people who took part in that discussion was Mr. D. O. Parsons who has some association with a body known as the Association of Superannuation and Provident Funds of Australia. He said that the half million persons contributing to private funds are represented by a certain number of funds. The honorable member for Sturt and I referred to these half million people last night. Mr. Parsons said that the number of private funds in Australia is unknown, but estimates range from 40,000 to 70,000. Something is wrong when we do not know the number of funds. It could be somewhere between 40,000 and 70,000 - either number is large enough - but the margin of difference is too great to be ignored. He said -

Let us say there are 50,000 funds in Australia. Of this 50,000 funds the great majority - .probably 95 per cent, of them - cover funds which have a membership of less than 250 contributors, but the other 5 per cent, of the funds account for at least 90 per cent, of the members of all the funds and 90 per cent, of the assets. For example, the 200-odd funds that are members of the Association of Superannuation and Provident Funds of Australia represent nearly a quarter of a million contributors and approximately £300 million in assets.

All I am suggesting is that surely we ought to know how many funds there are in Australia. It has been suggested that there ought to be a registrar of superannuation funds where each of those funds should have to file certain documents. I should think it is important to know how many people belong to these funds. I draw attention to some of the observations ' made by the Insurance Commissioner in' his latest report about unsatisfactory features in the control of these funds. In his report for the year ended 31st December 1964 he said -

The forfeiture rate for superannuation business has little significance as the provisions of most superannuation schemes allow payment of a surrender value on the termination of a policy at very early durations. I have previously referred to the substantial volume of surrenders of Superannuation policies and have stated the principal reasons -

He then lists the reasons. The second and third reasons are the significant ones -

(a)   the practice referred to above of paying surrender values irrespective of the duration of the policy.

(b)   the frequent absence of any provision in the rules of one superannuation scheme for the acceptance of life insurance policies issued for the purposes of another superannuation scheme.

In other words he makes the point that a person belonging to a scheme catering for 20 or 30 people who wishes to leave his employer should be able to transfer his equity in the scheme to the scheme operated by another employer. I would direct the attention of those who may be interested to a comment in the " Economist " of 24th July 1965. An article in a special supplement of that issue entitled " Alternatives for Pension Rights " reads -

One possibility is that all vested pensions should be paid over to a central fund-

That is, when a person leaves one employer there should be somebody to whom his rights could be transferred - which itself would undertake to maintain the purchasing power of these pensions by increasing them in line with the cost of living. But merely maintaining the real value of a vested pension will not meet the objective of relating it to ultimate final salary.

The point here is that there are some difficulties with respect to mobility of labour. Some of the virtues that people see in superannuation schemes can also be deleterious in their effect if the longer a person is with a firm the more reluctant he is to change his employment, even though it may be beneficial to himself and to the community that he should change. The final point noted by the Insurance Commissioner is -

(c)   the probability that the rules of some schemes, which include occupations subject to a high rate of labour turnover, may not have sufficient regard for the circumstances of those occupations.

In some industries the labour turnover is relatively high. It may be that the equity of a person who joins those sorts of funds should be protected. Part of the amendment that we have before us deals with benefits foregone or what happens in a fund when a contributor leaves it. Apparently in some funds all that happens is that the contributor is refunded the amount of his contributions. Whatever his contributions may have earned goes to the benefit of other members of the fund. I doubt whether that is an equitable way of meeting the problem. I can agree to some extent with the honorable member for Sturt (Mr. Wilson) that there are some virtues in superannuation schemes, but there can also be disabilities. The more the funds grow in size the more it is necessary to have the kinds of public protections that exist in life insurance generally and in the

Commonwealth Superannuation Board. Surely a fund should not receive a tax concession without some qualifications. What those qualifications should be is not an easy matter for people such as honorable members of this House to determine.

Various matters arise, such as the practice of people trying to pay into the funds on behalf of other people more than they should pay. I read in the Press the other day of some gentleman who was trying to have a payment of £100,000 made to him by a company for services rendered over a number of years. He may have regarded his claim as legitimate but as the matter was reported in the Press I doubt whether anybody else thought it was anything more ;han an attempt at gross extortion. Much the same sort of thing has happened in Great Britain and to some extent, until the law was modified, in Australia. I refer to what were called top hat schemes where people in private companies or one man companies were paying themselves, at the expense of the revenue, inordinate retirement allowances. Half of the allowance was virtually being subsidised by the Commonwealth by reason of the fact that each £1 allowed as a deduction to the company cost the Commonwealth about 8s. 6d. in revenue. Surely this was a case for public intervention. Apparently, at the moment, the only intervention that is possible is by the Commissioner of Taxation. I know that much is made of the discretionary power of the Commissioner but if outside people were to adopt another approach to these things perhaps the discretionary power of the Commissioner would never need to be invoked. The sort of things we are asking the income tax structure to bear these days make it more and more difficult to legislate with finality about some of the matters. I cannot see any alternative than in some instances to have a discretionary power vested in the Commissioner of Taxation. I suggest that because in many respects the compass of what the Commissioner is being asked to do is so great, the discretionary power should be exercised by one of his deputies rather than have the Commissioner individually oversee all cases. All this shows how difficult the process of legislation can become.

I do not wish to say much more. We support most of the proposals in this Bill.

Some of my colleagues wish to raise matters relating to particular items in the structure of taxation at the moment. Some, for instance, wish to refer to the zone allowance. But by and large we support the measures because they seem to be designed to rectify injustices that we think exist and to correct anomalies. Also, they close some of the loopholes that have been found. In an article on 27th February 1965, which was not long after the amendments to the legislation last year, the "Taxpayers' Bulletin " under the heading " Trafficking in Loss Companies " stated -

Strangely enough, these amendments have given a spurt to trafficking in loss companies as will be seen by heavy advertising in the financial pages of the daily press. It seems that, providing losses can be absorbed before June 30, 1965, the amendments give an imprint of respectability to this type of activity.

I doubt whether the law intended to give an imprint of respectability to this type of activity. The people who gave this type of activity any possibility of success were the clever lawyers to whom certain people went for advice. Some doubts were raised as to the effective commencing date of the amendments in relation to the acquisition of a loss company and the following question was submitted to Queen's Counsel -

If a loss company is now acquired (under procedures that would have been effective under the old law) will that company be assessed for the income year ending June 30, 1965, as if the present amendments had not been made?

Counsel replied -

I answer this question - " yes ". The reason why this is so is that Clause 45 (1) (so far as material) provides that ' The amendments made by sections - twelve to eighteen (inclusive) apply to assessments in respect of income of the year of incomes that commences on the first day of July, One thousand nine hundred and sixty-five, and in respect of income of all subsequent years of income*. This, thought it could perhaps have been more clearly expressed, effectively precludes the application of the amendments to any year prior to the year of income commencing 1st July 1965.

All that that conveys to me is that often in this House we really do not know what we are doing. That is a very serious statement to have to make in a parliament. As far as I can see, we will not know what we are doing until we alter the way in which we deal with these tax bills. I can see that a question such as, for instance, what the rate of tax ought to be is a matter of policy, but the sort of matters I am referring to are not matters on which we really disagree. We want to do a certain thing, we think we are doing it, and then we find that in fact it has not been done because the law has not been carefully drawn or because someone outside is cleverer than we thought he was. On none of these bases is the position satisfactory. I suggest that the Treasurer (Mr. Harold Holt) give serious consideration to this suggestion. As I say, I do not endorse it precisely in the form in which it has been made. As to the sort of body there ought to be, how it should be constituted or the kind of work that should be assigned to it, I would not presume at the moment to comment. We can all agree that an existing state of affairs is unsatisfactory but we might not always agree as to what the solution ought to be. At least this suggestion is worthy of consideration.

I have these memorandums before me. As I have already said two or three times this evening, I do my best to comprehend them and I get assistance by going to such sources as Gunn or Butterworth or other such volumes, but even then I do not find the task easy. Of course, taxation bills are not the only bills that we in this Parliament have to consider during a session but there are times in the year when we are not as busy as we are at other times and when a committee could perhaps meet for several days at a time. We could then indicate in broad outline what we thought we wanted to do. We could consider the sort of representations that the honorable member for Sturt (Mr. Wilson) has made this evening about superannuation funds. I think he and I might get on better sitting at a round table with somebody between us than by trying to argue the matter across this chamber - although I must say I thought this evening that for once he was going to vote with me. However, he did not afford me the pleasure of seeing him do so. I do not agree with him in his interpretation; I may be wrong or he may be wrong. However, both of us would be better enlightened if we had access sometimes to some other kind of machinery for considering a measure of this kind.


Mr Cleaver - Does the honorable member think a standing review committee would help?


Mr CREAN - The Treasurer (Mr. Harold Holt) put a question of that kind to me a few weeks ago and I said I would not like to be precise. 1 would like to see some scheme formulated, or some informal discussion held about it. I think the present machinery is unsatisfactory. In a Parliament various members have to specialise, and we sometimes do not worry very much about measures that are not in our particular fields. But I doubt that the people who are interested in the intricacies of this legislation can really be very satisfied with the way things are done. I said here probably 12 months ago, during a debate on a similar matter, that I had to confess 1 just did not know what certain of the sections of the legislation meant. 1 am sure that if I did not know I was in good company, although I concede that there may have been someone who did know. These Bills are not quite as complicated as the one we were considering then. I think that what is being done now is a recognition that we all made mistakes on the last occasion. At least some of them are being corrected on this occasion.







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