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Thursday, 22 November 1973
Page: 3744

Mr MARTIN (Banks) - The Deputy Leader of the Opposition (Mr Lynch) spoke of the deleterious effects which could flow from the stringent application of the provisions of the amending legislation in regard to Australian-owned companies trading on Norfolk Island. I think I know the companies to which he referred. For my part - I do not speak on behalf of the Treasurer (Mr Crean) on this - I have no geat sympathy for those Australian companies to which I think the honourable gentleman was referring. I instance the fact that those self-same companies have already set themselves up in a tax haven in the New Hebrides in an endeavour to protect themselves, and while they adopt those attitudes I feel they can expect to receive very little sympathetic treatment from the Government. As was stated by the Treasurer in his second reading speech on 30 August 1973, when he introduced the Income Tax Assessment Bill (No. 4) of 1973:

The Bill has a simple purpose. It is designed to put an end to the use of Norfolk Island and, to a more limited extent, of Papua New Guinea for tax haven purposes.

The Treasurer, in his speech, gave a definition of that he considered to be a tax haven, and Norfolk Island certainly comes within that definition. The original intention of the legislature to grant tax-free status to residents of Norfolk Island was not in itself a bad thing.

But as with all good things there are always people who will prostitute the good things in life for their own personal gain. This happened in regard to the tax free status of Norfolk Island. If my memory serves me correctly, it was in about 1966 that a shrewd Sydney solicitor conceived the idea of ultilising Norfolk Island as a tax haven. He even went there to set up the tax free companies. Of course this tax avoidance scheme did not benefit the ordinary wage plug. He had no chance of avoiding his tax liability. Tax was taken out of his wages before he got his hands on them. The tax avoidance was being done for the benefit of that section of the community which could afford to pay its correct tax - the wealthy taxpayer and the medium and large companies. There is only one word to describe that section of the community which practises these tax dodges - unscrupulous. The same word applies to their advisers, both solictors and accountants.

It is interesting to note that in the courses of study and in examinations set for both solicitors and accountants is a subject called ethics'. How can any self-respecting solicitor or accountant reconcile his conscience with the unethical practice of encouraging clients to rob the government? I once heard it said by a member of the clergy that in Ireland it is not a sin to rob the government. That may have been so in Ireland when that country was under the control of a foreign invader. But I suggest this is not the position in Australia. It is the obligation of every decent Australian to contribute equitably towards the cost of running the country in accordance with his capacity to pay. Those who do not are a barnacle on the ship of state. Those who used Norfolk Island as a tax haven were barnacles. I could use a stronger word but it would be classified as unparliamentary.

This legislation removes the barnacles which were hanging on the ship of state. My only regret is the lateness of the introduction of the legislation which will have effect in relation to income derived after 19 July 1972. When I was elected to this Parliament in 1969 after 34 years service in the Taxation Office I commenced to hammer the then Liberal-Country Party Government on its lack of legislative action to prevent taxation avoidance schemes. The Norfolk Island tax haven was part of those schemes. A succession of LiberalCountry Party Treasurers had this matter brought to their attention. The right honourable member for Lowe (Mr McMahon) in my view was evasive. The attitude of the honourable member for Wentworth (Mr Bury) when Treasurer was almost an encouragement to these tax evaders. On 8 March 1970 I addressed a question to the then LiberalCountry Party Treasurer, the honourable member for Wentworth, as follows:

My question is addressed to the Treasurer. Is it a fact that many income tax avoidance schemes are being carried out particularly by large and wealthy companies and their shareholders? Is it a fact also that I drew the attention of the Treasurer to some of these income tax avoidance schemes in a speech in this House on 18 March 1970? Will the Treasurer take urgent action to bring down amending legislation to prevent this legalised tax avoidance and share the tax burden in a more equitable manner than is the case now?

In reply the then Treasurer said, in part:

It is open under the law for any citizen to operate the laws as he can best to his advantage.

What was that if not encouragement to tax evaders to go ahead with these nefarious schemes? The honourable member for Wentworth did not last long as Treasurer and was succeeded by the present Leader of the Opposition, the right honourable B. M. Snedden. The pressure continued by myself and other honourable members of this Parliament - notably the honourable member for Chifley (Mr Armitage) - for some form of taxation justice and for a crackdown on tax evaders. On 19 July 1972 the then Treasurer - now Leader of the Opposition - finally surrendered. He announced to this House that Parliament would be asked to approve legislation designed to put a stop to Norfolk Island and other Territories being used as tax havens for the avoidance of income tax. But the then Liberal-Country Party Government would not introduce the necessary legislation. It was necessary for a change of government to occur before the legislation was finally introduced into this Parliament - and not before time.

I congratulate the Treasurer for introducing this legislation. But one point concerns me. What is to be done about those companies which derived income in Norfolk Island prior to .19 July 1(972, which is the operative date for this legislation? Are they to escape? My suggestion to the Treasurer is that he should initiate action within the Taxation Office to see that investigatory action is taken against all those tax avoiding companies which were set up on Norfolk Island. I suggest that this is capable of being done and that millions of dollars of avoided tax could be collected and used for the benefit of all Australians. There is an old saying that as soon as one plugs one leak another one starts. This is probably true. Tax avoidance has been likened to a game of cards - you win some, you lose some. But it is a game in which the Commissioner of Taxation holds all the aces. He is entrusted with very wide powers and this Government has shown by its actions that it is quite prepared to strengthen the hand of the Commissioner of Taxation where there is any legal doubt.

I commend the action of the Treasurer in his attitude towards other tax havens, notably the New Hebrides. In a statement on 25 October 1973 he said in part that one of the steps being taken to combat tax havens was the screening by the Taxation Office of exchange control applications for transactions between Australia and the New Hebrides. He said that the establishment of tax havens in close proximity to Australia, such as the New Hebrides, was a potentially dangerous development which posed a serious threat to Australian taxation revenues. He mentioned that legislation had recently been introduced to put an end to the use of Norfolk Island as a tax haven. He said that tax havens outside Australia's territorial jurisdiction, however, presented greater problems which, overseas experience suggested, called for measures to supplement income tax legislation. He also said that in the absence of action to prevent the successful use of tax havens by Australian taxpayers, the activities of such people, and those who advised them, resulted in a heavier tax burden on their fellow citizens.

He continued that whatever steps were necessary - whether by amendment of the taxation law or otherwise - would be taken to protect the interests of the general body of Australian citizens, to whom the use of these devices was abhorrent. He also said that in doing so every endeavour would be made to match the skill and ingenuity of those who were trying to evade or avoid the payment of tax, or those who were assisting them. He also said:

In particular, Australia views the emergence of the Kew Hebrides as a tax haven with extreme concern and will take all necessary measures to prevent resort by Australian taxpayers to the facilities offered by the Condominium for evasion or avoidance of taxation; In the light of recent experience, one measure now being taken is to ensure that exchange control approval is not given to transactions between companies and persons in Australia and the New Hebrides unless the Reserve Bank sights evidence that the Commissioner of Taxation does not object to the proposed transaction. Before the Commissioner gives such a declaration the applicant will have to satisfy him that the transactions will not in any way involve or assist or be associated with avoidance or evasion of Australian tax, whether by the applicant or anybody else.

I commend the action of the Treasurer and his attitude towards these other tax havens, notably the New Hebrides. This action, I might add, is in marked contrast to the attitude of the previous Liberal-Country Party Government and shows that the 'hands off' attitude towards tax evaders is at an end. If the wealthy section of the community paid its correct tax this could lead to a lowering of taxation for that section of the community which can ill afford its present heavy tax liability. This tax measure has my full support and I am certain that the whole community, other than those who are caught by it.

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