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Monday, 6 December 1976


Mr HURFORD (Adelaide) -These 4 Bills were introduced into this House only last Wednesday afternoon, after my Party's last meeting. I must place on record my objection to such complicated legislation being hurried through this House. If anything, the drafting and introduction to this House should have been given high priority after the Budget announcements, because these income tax Bills arise from the Budget. It is all part of the disarray which we have witnessed over the last few minutes, not only in relation to the Government's economic policies but also in relation to the management of this House. I must admit that the Treasurer (Mr Lynch) gave me advance notice of the subjects of the Bills, but this has been no substitute for studying in great detail the actual wording of the legislation. Furthermore, there has been no time for the community to contact honourable members on both sides of the House with objections to the wording of this legislation.

What I now have to say is subject to those earlier comments. The Opposition may have amendments to move to any one of these 4 pieces of legislation in the Senate or later on after the community has had time to absorb what is in these Bills. Although critical in a positive way of some aspects of the legislation, the Australian Labor Party Opposition is not opposing any one of the 4 Bills. Before referring to the specific measures which the Government has introduced in the Bills before us I intend to comment on aspects of the Government's general performance in the area of taxation. One of the great myths that the Government, aided and abetted by its media supporters, has attempted to sell the Australian people is that it is actually lowering the burden of taxation upon individual taxpayers. Nothing could be further from the truth. We all recall the great fanfare with which tax indexation was introduced in one go. The Treasurer spoke loud and long of the $1 billion which was being put back into the pockets of taxpayers.


Mr DEPUTY SPEAKER -Order! The honourable member will resume his seat. I do not intend to ask the House again to come to order. If honourable members want to carry on conversations they can go outside the chamber to do it. It is not possible to hear completely what the honourable member for Adelaide is saying. He is making some comments on the Bills and I heard him say that they are rather important measures. Even though we are in the closing stages of the session I suggest that honourable members continue to extend to the honourable member the courtesy which should be extended to all members of this House.


Mr HURFORD -Predictably, the Treasurei made very little of the tax rises which he announced at the same time as he talked about tax indexation. However, the man in the street was soon to feel the effect of the Medibank levy and the phasing down of the home interest deductibility scheme. It is incredible that any government which, in its Budget and associated measures, reduces a family s take home pay by $300 could have the gall to claim that its Budget was the first in 3 years not to raise the indirect tax burden. Now that the full impact of tax indexation and the Medibank changes have been felt we can obtain an indication of the tax burdens borne by Australians under the 1975-76 Labor Government tax scales and under the 1976-77 Liberal-National Country Party Government tax scales.

In the edition of the Taxpayer of 30 October the editorial page is headed 'Despite so-called full tax indexation personal taxes are much higher now leaving less spending money than before'. In the body of the journal calculations are given for a taxpayer with a wife and 2 children. After adjustment for higher child endowment, health taxes and inflation we find that in 1976-77 the family that had earned $10,000 for 1975-76 has had its spending power reduced by $5.15 a week. I ask leave to incorporate in Hansard a table setting out the tax comparisons, the source being the Taxpayer of October 1 976.


Mr DEPUTY SPEAKER - Is leave granted? There being no objection, leave is granted.

The table read as follows-

 


Mr HURFORD - Of course, those people who find, in addition to the above, that their housing mortgage interest deductibility is being phased down are in a worse position still. The types of calculations to which I have referred above have been done by numerous groups. All these people reach the same conclusions. The net effect of the taxation measures introduced by this Government has been to raise, not lower, taxation. For example, the authors of the Econometer in the National Times of 2 October conclude as follows: ... by June next year, when inflation has sent wages up and the temporary benefits of tax indexation have been nearly eroded, almost everybody, except low wage people on around $ 1 00 weekly with lots of kiddies, will lose.

I might add that with the inflation now to be expected as a result of this disastrous devaluation what the Econometer authors wrote on 2 October will be made even more true. I am glad that low wage earners with families to support are exempted, but they are the only ones. I deplore the misrepresentation perpetrated on the Australian community to the effect that everyone has benefited from tax changes. This just is not true. These facts speak for themselves. This Government has, as the Treasurer would put it, in the totality of the situation raised and not lowered taxation. It really should not come as a surprise that the Government and its influential supporters should attempt to hoodwink the public into accepting the myth that taxation has been reduced. After all, were not the myths surrounding support for Medibank and wage indexation, promises of 6 to 7 per cent economic growth in the Government's first year and of cutting the deficit without cutting essential public works sold with equal gusto? And to the same extent they have turned out to be sheer myths and totally untrue.

Perhaps the Treasurer and even the Prime Minister (Mr Malcolm Fraser) secretly realise that their Government has increased the tax burden. After all, they both continually refer to the Government's intention to cut taxation. It is difficult to reconcile the Government's call for consumers to go out and spend now with their hints that tax cuts are just around the corner. Surely it is reasonable to expect that the consumer will delay his purchase until he finds out just how much he is to get out of the tax cut. This is just another example of the inconsistency which pervades this Government's thinking. It is creating a climate which can only exacerbate the uncertainty many consumers feel. Perhaps the best advice that can be given to the Treasurer as he roams the country hinting at tax changes comes in the form of the quaint but effective colloquial expression: 'Put up or shut up. '

Any public debate regarding taxation invariably comes around to international comparisons of tax burdens. In recent times many groups, including the Government, have tended to project the impression that by international standards Australians are very highly taxed. This is probably an opportune moment to set the record straight on this matter. In the report of the Asprey taxation review committee an international comparison of total taxes as a proportion of gross national product for the year 1971 is given. In this comparison Australia ranked 16th out of 22 countries of the Organisation for Economic Co-operation and Development, that is, only six of the OECD countries surveyed had lower total taxation levels than did Australia. By 1973 the position had changed little. The publication, Revenue Statistics of OECD Member Countries, revealed that of the 23 countries surveyed only 5 countries had lower overall tax levels than Australia.

Starting from an acceptance of Australia's real position in the international taxation league, there is of course much room for reform in our taxation system. The report of the Asprey committee is a rich source of material on this subject. The Labor Government introduced a very significant reform in the replacement of concessional deductions with the rebate scheme. This went a long way towards restoring a degree of the vertical equity which had been eroded through the use of concessional tax deductions. It is to be hoped that the Government looks long and hard before it even considers bending to interest group pressure to alter the Labor rebate scheme.

Senior members of the Government have hinted a number of times that in Australia income taxes are too high and indirect taxes on goods and services too low. Indeed, by international standards Australia does lean more heavily on income tax for revenue than do most other countries. However, this very fact does not mean that we should blindly change the emphasis of our taxation system. Income taxes rank much higher on the grounds of vertical equity than do taxes on goods and services- indirect taxes. On the other hand, such income taxes do result in high rates being applied at the margin and the consequent high marginal tax rates on high incomes are alleged, by conventional wisdom, to be a disincentive to work effort. I say 'by conventional wisdom' because there is little hard evidence on this subject. Indeed, studies of tax incidence have been sadly neglected on the whole. So far there is as much evidence to show that people work harder to compensate for less take home pay as there is to show that they work less hard if their net benefits are not great enough. In looking at tax reform it is important that we do know the actual impact any tax changes may have on people's incentives to work harder. I repeat my hope that more work will be done on that subject.


Mr Kevin Cairns (LILLEY, QUEENSLAND) - That is a very important point.


Mr HURFORD -As the honourable member for Lilley says, it is a very important point. More evidence needs to be collected so that we build our policies on sound facts, not just on vague beliefs. It is important also that any move towards a wider use of taxes on goods and services recognise that these are in fact consumption taxes which do not discriminate between incomes in their impact. Their wider use must be coupled with moves to lessen the burden on low income earners. Most indirect taxes are regressive in nature but qualifications must be made to the general statement. Indeed, in Treasury Taxation Paper No. 5, published in October 1974 and entitled Commonwealth Taxation of Goods and Services, a number of means of offsetting the regressiveness of indirect taxes are canvassed. These include special modifications to the income tax system and appropriate adjustments to social service payments. As an example, in Sweden the trend to greater reliance on broadly based income taxation has been accompanied by compensatory changes in their income tax and social service structures.

Any informed debate on taxation levels will include a recognition of the other side of the coin- the services provided by government expenditure. Lowering taxes is one of the few things a politician can suggest which is guaranteed popular acclaim. However, it must be recognised that there are many goods and services which individuals aspire to possess but which as individuals it is beyond their scope to provide. For example, no matter how much taxation is lowered to allow people supposedly to spend as they choose, the restrictions on any individual or group of individuals being able to provide a better road or any other community facility are such that the task becomes impossible. The Government is the proper medium through which demands such as these may be fulfilled. Taxation plays an important role in their provision. It is a vehicle of collective payment.

Recently the newspaper the Australian ran an interview with the Treasurer in which, among other things, taxation reform was mentioned. In its leader article on the same day that same newspaper eloquently put the case against our present levels of taxes. To put the debate in perspective, however, I should like to quote from a letter to that newspaper from Judy Suttor, the policy officer of the Australian Council of Social Service in Sydney. This letter was prompted by the editorial and read in part:

Adjustments to the personal income tan system which ostensibly gives individuals greater ' independence ' in spending power to meet their own needs do nothing to assist those who are not wage earners and those whose income (be it wages or a pension) is inadequate to enable them to live decently and disguises the fact that important welfare and human services are either not available or become effectively inaccessible to the public who need them.

That is the close of my quotation but I recommend the full contents of that letter to anyone interested in more than the peripheral aspects of .a debate on taxation. I agree that personal income taxes must not be allowed to rise so high that incentive is killed and productivity suffers. But I believe that most Australians have a social conscience. They want to live in a fair society, and understand that a fair amount of progressive taxation is needed to achieve this.

As well as being a source of revenue, taxation in all its forms is an integral part of a government's intruments with which it may influence the level of economic activity. Different taxes have different speeds and extents of influence. For example, indirect tax changes are recognised as having a faster and more substantial impact on activity than an equivalent amount of direct tax changes. Lowering indirect taxes has the added advantage of directly lowering the price level. It is obvious that in this area the Government has failed to use wisely policy options open to it. A lowering of indirect taxes, as suggested by the Labor Opposition, could have led to a reinforcement of the downward trend in the inflation rate included by overseas influences. An obvious fall in the inflation rate in the December quarter, rather than a substantial rise, as we must expect, would have gone a long way towards restoring economic stability. In addition, indirect tax cuts would have stimulated consumer spending, thereby helping to get our economy moving again.

I refer now to the specific measures introduced in the Bills before the House. In all there are 4 Bills. Three of them, the Income Tax Assessment Amendment Bill (No. 3) 1976, the Loan (Income Equalisation Deposits) Bill 1976 and the Loan (Drought Bonds) Amendment Bill 1976, are concerned primarily with giving effect to proposals announced in the Budget. The fourth Bill, the Income Tax (Companies and Superannuation Funds) Bill 1976, declares the rates of tax payable by companies and superannuation funds for the 1976-77 financial year. As explained by the Treasurer the rates of tax set are the same as those established in the 1975-76 Budget for that income year. The Opposition does not oppose the Income Tax (Companies and Superannuation Funds) Bill 1976. It could hardly do anything else as the 1975-76 Budget was a Labor Budget. It was a thoroughly satisfactory Budget and it is a tragedy to know that it was tampered with because the tampering, including the cuts in government spending and all that has happened since the beginning of this year, has given rise to the disastrous effects on consumer confidence in this country which have flowed over to affect the confidence of overseas investors. This has given rise to the terrible consequences of this massive devaluation with all the horrendous policies that go with it, about which we have so far heard only a part.

Considering the damage that has been done to the economy since the strategy of the 1975-76 Labor Budget was destroyed by this Government, it is a matter of deep regret that the company and superannuation fund tax rates are one of the few measures from that Budget still allowed to influence the economy. While on the subject of company taxation, I would counsel the Government to be careful in introducing its stock valuation adjustment scheme. As yet, details of the scheme are only sketchy. I heard one or two questions being asked in the Senate today, even from the Government side, requesting more details of the scheme, but the Government is not giving; it is not telling us more about the scheme. However, it is hoped that when any decision is made, adequate time is allowed for discussion of the Bills involved, time for all interested parties to comment and to have their comments taken into account before legislation is passed. In my opening remarks on these Bills I stated that I hoped that such time would be given for these measures because there is no more complicated legislation than income tax legislation. I do not blame any of the officers concerned at all, whether they are attached to the Parliamentary Counsel or to the Taxation Office. It is a question of priorities to be set by government. In this case the whole country ought to know that there has not been time for people outside this Parliament to absorb the wording of the legislation and to be able to counsel members of Parliament about the changes that are being made and to show just how these changes will affect them.

It would probably be preferable if the Government would, in the case of the legislation relating to the so-called Mathews proposals, actually present the Bills to the House and allow a considerable time to elapse before they are debated, something which I hoped would have happened to these 4 Bills. A series of statements from the Treasurer, as happened with the investment allowance legislation, probably would allow a repeat of the confusion surrounding that particular investment allowance legislation. We want to see the actual Bill, in the case of the Mathews proposals, in plenty of time to avoid the confusion that has arisen in the case of the investment allowance proposals, confusion which may arise out of these 4 Bills before us now.

I turn to the measures contained in Income Tax Assessment Bill (No. 3) 1976. Two of the measures, those dealing with transitional provisions for visiting experts and with mining in Papua New Guinea, are associated with arrangements made under the Labor Government, and are not opposed. There in also a technical drafting change involving a new definition of a resident of Australia. As explained by the Treasurer in his second reading speech: 'The need for this change arises out of the alteration of the Commonwealth Superannuation Fund.' The Opposition accepts the need for this change which is made in clause 3 of the Bill.

Clause 4 of the Bill allows for the exemption from tax of income derived by the Thalidomide Foundation. This represents a welcome change in a Government decision. Previously the Government had decided to make grants to the Foundation rather than to exempt income from taxation. An original grant of $150,000 had been made. Considering the amount of compensation which has been made or is in the process of being made, the grant was clearly inadequate. Under these arrangements the income that each child receives from the foundation will be exempt from taxation. This measure by the Government reflects the attitude of the Labor Party when in government. The Opposition supports the Government in this measure with regard to the taxation of the income of the Foundation. I repeat that I am glad that the Government has belatedly adopted Labor's more generous thinking on this measure of taxation of income for thalidomide victims.

Clauses 6 to 8 and 31 to 36 of this Bill enable the setting up of a scheme of income equalisation deposits. Deposits lodged by primary producers with the Commissioner of Taxation under the income equalisation scheme are to be allowable as tax deductions, while withdrawals of deposits for which deductions have been allowed will be included as assessable income for tax purposes in the taxation years in which those deposits are redeemed. The recommendation for this measure comes from the report of the Industries Assistance Commission titled 'Rural Income Fluctuations- Certain Taxation Measures'. This report was handed down as a result of a reference from the Labor Government. The object of the measure is to reinforce the existing tax averaging system for primary producers. The need for such schemes arises out of the higher tax burdens which people with fluctuating incomes bear under the progressive tax scale. It is felt that people who, over a given number of years, receive equal income should pay equivalent amounts of tax on that income. The Opposition has considered carefully the possibilities for abuse of this scheme and is satisfied that sufficient safeguards exist to minimise such abuse. It also investigated the possibility that the LAC recommendations should be followed more closely, the IAC having recommended that only the investment component, that is the non-tax component of the income equalisation depositsthe IEDs as they will become known- should have interest payable on it and that the rate of interest should be the medium term bond rate.

The rationale for such a recommendation by the IAC was that under the present scheme being instituted by the Government, the effective interest rate received by investors varies with their marginal tax rates. The higher the income, the greater the tax rate saved and, thus, the greater the return. However, the Opposition is convinced that there are considerable administrative difficulties involved in implementing the letter of the IAC report, more equitable though its recommendations might be. Bearing this in mind and also the willingness of primary producers, the lower income primary producers as well as the higher income producers, to accept this scheme, the Opposition supports this legislation. If there are abuses and greater inequities in the implementation of the scheme than are now envisaged, and knowing that the vast number of farmers themselves seek equity and realise that one man's gain is another man's loss, the Opposition shall seek reforms.

Clauses 9, 10 and 35 of the Income Tax Assessment Bill (No. 3) 1976 refer to changes in taxation arrangements for private companies. The retention allowance in respect of trading or business income available to private companies for undistributed income tax purposes is to be increased from 50 per cent to 60 per cent, the increase first applying in respect of the 1975-76 financial year. Broadly speaking, private companies, as defined for taxation purposes, are subjected to additional tax at a 50 per cent rate to the extent that those companies do not make a sufficient distribution to shareholders in the relevant year out of after-tax income, as reduced by specific retention allowances. This move should give a measure of relief to private companies who play an important role as employers in the economy. As it is designed to help small businesses, unlike many of the Government's other business incentives, the Opposition supports this change to the tax laws. I make the observation, however, that any improvement in the cash flow position that private companies may gain from this move will assuredly be eroded by increases in interest rates and inflation which will stem from the Government's recent devaluation decision.

As I have pointed out on another occasion, the draconian monetary and fiscal policies which inevitably must follow and are following the massive devaluation hit the medium and smaller businessmen as well as the wage and salary earners rather than those who can, of course, borrow at blue chip rates and particularly those who can borrow overseas. At the same time as the Government has moved to increase the retention allowance it is withdrawing excess distribution provisions. Previously if a private company distributed dividends greater than the stipulated amount the excesses were allowed to be carried forward to later years to reduce the amount which must be distributed in those later years in order to avoid undistributed profits tax at a 50 per cent penalty rate. This concession is being removed. The Opposition was concerned that any benefit that companies may receive from the increase in the retention allowance would be offset by this aspect of the measure. It has also been brought to our attention that insufficient time has been allowed for companies to adjust their affairs to fit in with the legislation.

The Australian Labor Party does not like legislation which has a retrospective element in it as this legislation could have. However, on balance we have accepted the argument that the previous system was open to wide abuse and despite elaborate legal measures such avoidance could not be countered. Also it appears that very few genuine cases will be disadvantaged by this move. As the retention allowance is being raised it is an opportune moment to take this action. We trust that all those who have access distributions in their companies arising from genuine transactions and not from tax avoidance schemes will be able to use their excess distribution by the end of next April and thus not lose the benefits.

The remaining measures in the Bill concern aid given through taxation concessions to the mining industry. Two of these measures, firstly the allowance for more rapid write-off of development expenditure of petroleum mining companies and for those expenditures and exploration expenditures to be deductible against income from any source and, secondly, for mineral transport facilities to be deductible over either 10 or 20 years and to include certain port expenses, are not being opposed by the Opposition. Our appropriate caucus committee has examined these measures in depth and has accepted the need for them. Special risk factors involved in petroleum mining exploration and the need for development of our natural resources are sufficient grounds for the Opposition not to oppose these concessions. Although the Opposition is not opposing the other measures relating to mining operations, namely the allowance for more rapid write-off of development expenditures of general mining companies, we do raise some doubts. The Government has decided that deductions which currently are allowable over the estimated life of mine or field will for new expenditures be allowable on reducing balances by reference to a maximum life of 5 years instead of the present 25 years. This will have the effect of increasing the minimal annual rate of deduction from 4 per cent to 20 per cent. The Industries Assistance Commission recommendation on this issue was that the depreciation should be over the life of the mine or the asset or 1 5 years whichever is the least. It implied a straight line method of depreciation which is also the method recommended for the tax system in general by the Asprey report. The Opposition feels that the Government measures are excessively generous. However we do see the need for the existing concessions to be altered in the miners' favour. I close by saying that these mining measures will be covered by the shadow Minister for national resources.


Mr DEPUTY SPEAKER -Order! The honourable member's time has expired.

Debate (on motion by Mr Viner) adjourned.







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