Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Tuesday, 10 November 1964

Senator McKENNA (Tasmania) (Leader of the Opposition) .- On 3rd December 1959, the Government appointed the Committee on Taxation under the chairmanship of Sir George Ligertwood to examine various anomalies in the income tax laws and to make certain recommendations. I refer to the terms of reference set out in the early pages of the report and note that the first function allocated to the Committee was - to examine and inquire into the existing Jaws of the Commonwealth relating to taxation of income . . . and to formulate proposals for remedying those anomalies, inconsistencies, complexities and other defects and for simplifying those laws. . . .

What appeals to me is the injunction that the Committee should recommend proposals to simplify the income tax laws. I think that, in imposing that injunction upon the Committee, the Government set it a perfectly hopeless task. I cannot imagine anything more hopelessly complicated, in any event, than the income tax laws as they are at the moment, without the addition of the provisions of this Bill.

What do income tax laws, and this one in particular, deal with? They are concerned with the infinite variety of transactions between human beings and between companies, in the whole field of commercial law, human relationships and business transactions. I use the term " infinite variety " quite deliberately, because I am prepared to say that no mind or combination of minds could envisage all the circumstances that could arise and provide for the income tax results in relation to any specified number of them. The fact that this Bill runs to some 62 closely printed pages, yet seeks to implement only a few of the recommendations of the Ligertwood Committee, leads me to the conclusion that even the Committee itself would not claim that it had succeeded in simplifying the income tax laws of the Commonwealth. The Committee's own report ran to 185 pages. I make the first point that in asking the Committee to simplify the income tax laws, the Government, from the beginning, set it a most hopeless task. If I might borrow a phrase, I would put it that the income tax law is considerably complicated by the simplifications introduced by this Bill of 62 pages. I am indebted to Viscount Radcliffe for an observation to that effect on laws of another nature. That is my first comment on the task that was set for the Committee.

In another of the terms of reference the Committee was instructed in these terms -

The Committee . . . shall take it to be necessary for the Commonwealth to continue to receive, from the taxation of income, Revenue not less in total than the Revenue that might be expected to be received under the existing laws.

Pursuant to that injunction, the Committee indicated that if its recommendations were adopted in certain matters - namely, with regard to leases, family partnerships, trusts, alienation of income and superannuation funds - it could be expected that additional tax revenue of some £14 million a year would be received. That would be a very significant contribution to the revenue of the country. The Committee pointed out that various strategems or devices within the strict letter of the law were resorted to by partnerships, trusts and certain superannuation funds and that these enabled what one might call the more affluent members of our society to avoid tax to the extent of £14 million a year, casting the burden upon the less affluent members of the community of making up that annual deficit.

The purpose of this Bill is to give general effect to the Committee's recommendations in these matters. The Bill departs from the Committee's recommendations in quite a number of particulars, which have been indicated by the Treasurer in another place and by the Minister for Civil Aviation (Senator Henty) here. The Opposition sees no reason to differ from the Treasurer in the departures that he has made.

I come now to what is a matter of grievous concern to the Opposition. The

Committee's report was in the Government's hands in June 1961 - more than three years ago. It was presented to the Parliament by the Treasurer on 17th August 1961. In paragraph 335 of its report the Committee made this very significant comment -

We think that it is important that our recommendations should not operate retrospectively to the detriment of taxpayers who, in good faith, have entered into arrangements based on the existing law. On the other hand, it is possible that a relatively long period may elapse between the lime the Committee's recommendations are made public and, if enacted by the legislature, the date of their enactment. We do not consider it reasonable that during this period taxpayers should be afforded the opportunity of entering into arrangements in order to avoid the proposed alterations in the law. Consequently, we think that the operative date should be the date on which the Committee's recommendations are made public.

They were made public on 17th August 1961. In putting the report before the Parliament the Treasurer is reported on page 1 83 of " Hansard " in this way -

The Committee has drawn attention to several parts of our income tax law which are being exploited to the serious detriment of the revenue. The areas of avoidance of tax to which the Committee specifically draws attention are -

(a)   Superannuation funds;

(b)   Family partnerships, trusts and alienation of income; and

(c)   Leases.

The Government shares the concern of the Committee that ingenious taxpayers should make use of the existing provisions in a manner not intended by the legislature, thus obtaining advantages at the expense of their fellow taxpayers. The Committee places the annual revenue loss due to these strategems at no less than £14 million.

The Treasurer then pointed out that extensive research and consideration would be required before the recommendations were translated into legislative form, and he went on to say - I invite the Senate to note these words particularly -

I propose, however, that any legislation to be introduced to prevent the abuse of the existing legislation will also date from today.

I repeat that those statements were made on 17th August 1961. Some three years later this Bill is presented to us, the result of much research and consideration. I concede that the subject matter is complex. I agree that it is difficult. I agree that it would take time to prepare legislation, but I say that a delay of three years and three months is totally unforgivable. The evils were pointed out by the Committee, the Government accepted the Committee's report on the spot and thereafter it became primarily a matter of. drafting the measure. During the three years that elapsed those who had been warned of the advent of the legislation have been able to look for new sources. Those who already had committed what the Treasurer called abuses of the income tax law have been permitted to continue their £14 million a year rake-off, to the detriment of the great bulk of thetaxpayers of this country. Taking only the past three years, the revenue loss amounts to £42 million. One might have expected that that sum would have stirred the Government and the Treasurer out of their lethargy and that action would have been taken certainly within the financial year 1961-62. I am quite certain that when the Committee referred to the time that it might take to prepare legislation, it had in mind that the legislation would operate in the financial year which followed the presentation of its report. On all reasonable standards, we might have expected the legislation to have been operative in the income year 1961-62 and subsequent years. But the delay goes beyond three years. In relation to only two matters, the Bill is to be operative from 23rd October 1964, the day after it was introduced into another place. Those two matters are in relation to leases and the alienation of income. That is coveredby clause2 of the Bill. According to clause 45, the Bill will not be operative in respect of the remaining six matters until the year commencing on 1st July 1965.

Far from curing this leakage of taxation and doing justice to the honest taxpayers - those who comply with the spirit as well as the letter of the law - there will be an escape of four years in relation to the majority of the matters comprised within this legislation. If the escape or leakage is only £14 million a year - I have no doubt that in view of this warning it has been growing annually for the past three years - the total loss of revenue as a result of this Government's delay is some £56 million. That calls for the clearest explanation by the Government. Let us concede how difficult it is to think out all these things. The Government has not attempted to put before us legislation that will cover every conceivable act. It proceeded on broad principles to spread its net pretty widely in relation to the delinquents - if I may properly call them that - in these eight categories and then provided escape clauses for people who might be regarded as being in the innocent class while offending the broad principles of the Bill. lt is a shocking thing and a reproach to the Government that it should have failed to introduce this important piece of legislation until now. What adequate explanation have we had from the Government? I invite the Minister for Defence to address himself to this point with some particularity because the Opposition will have a good deal to say on this subject not only here but also elsewhere.

In the meantime, to make up revenue, the Government has embarked on new taxes in the current Budget. We have had taxes on tobacco and an increase in income tax on individuals. The Government has resorted to a new form of taxation by increased charges on telephone rentals and telephone installations. By and large, it has cast its net pretty widely over all the less affluent people in the community. A great many of these charges would not have been necessary had the Government bestirred itself in this matter which is so vital to the protection of the national revenue. The solemn promise and the notice served on the people by the Treasurer on 17th August 1961 have been completely ignored. I concede that at this late stage it would be impracticable to go back and reopen all the assessments of the past three years. But this law should have been enforced down the last three years and on every day of those years. No injustice would have been done had the measure been put through in 1961 and 1962 after the Treasurer's own statement that it would operate from that date. Who could have complained if that had been done in that year or in the subsequent years? The Government stands convicted before the people of dereliction of its plain duty in allowing some £50 . million and maybe more to slip through its fingers because of the delay.

While the Treasurer has taken three years to bring in this complicated measure, he presented it to the Parliament on 22nd October right in the end of session rush.

This piece of legislation is one of about 40 measures to which we have had to address our minds in about a fortnight. The Treasurer asks that this measure be put through in less than three weeks. That is not merely wrong. It is outrageously wrong. In these circumstances, it is completely impossible to give proper consideration to the measure.

I have read the Bill and the explanatory memorandum of 116 pages. I think - but I am not sure - that. I understand what I have read. I do not know - as I should know - that I understand everything about it. Only prolonged study would enable one to grasp all the implications of the provisions of the Bill. What one would need to know to do justice to this Bill would be the provisions of the principal taxation acts which in 1963 ran to more than 400 pages; one would also have to know the Ligertwood report which covers 185 pages. This Bill which requires the most intense study contains 62 pages and there is an explanatory memorandum of 116 pages. So there are nearly 800 pages of matter on this most complicated subject which we are expected to digest. As representatives of the people, we are expected to address our minds to that mass of material in a period of less than three weeks when simultaneously we are concerned with some 40 other measures.

When you think of the complexity of accounts and company matters, commercial law, human relationships, company transactions and interlocking considerations you can see that the whole matter is truly one of great complexity. The Opposition lodges an emphatic protest at being called upon to deal with the Bill in these circumstances. This above all Bills would be an appropriate measure for a select committee of this Senate to consider. Such a committee could sit quietly over a period of months and study the Bill and its implications from a legal viewpoint, a human viewpoint and in relation to revenue. All these aspects really need consideration.

The Opposition will not oppose this Bill. It supports the purpose to which it is addressed. We hope - but do not know - that it will achieve its purpose which is to plug effectively the avenues open to tax avoiders. With us, it is a matter of hope rather than an act of faith that we support the Bill. We can only hope that it will be effective and will achieve its purpose. I have no doubt that, as new trends develop in the community and patterns of conduct begin to emerge, we will have these things identified and they will be dealt with from time to time in further legislation. It is too much to hope that every gap has been closed by this measure.

I take the opportunity to express appreciation of the work of the Ligertwood Committee and its staff.I have the greatest sympathy with" the Parliamentary Draftsman and his staff in the task they had to undertake. I am grateful indeed for the explanatory memorandum which the Commissioner of Taxation invariably presents with a Bill of this kind. I am happy on this occasion as on others to compliment him on that presentation. It is of enormous help to us in understanding the technical provisions of the Bill. When the memorandum was attacked recently by a writer in a prominent journal, I was happy that the answer was that there was one word wrong and that it had been detected and corrected before the memorandum had progressed very far. I think the Commissioner can take great credit to himself and to his officers from the fact that the memorandum has come through unscathed. I repeat what I have said on many occasions: I wish that every department that presented a Bill to the Parliament would follow the splendid example set by the Taxation Branch. It is impossible to visualise in advance and provide for every situation that may arise. Ingenious minds - business, accounting and legal minds - all of whom have specialised in this particular field and are directed at leisure to particular problems will still find ways of avoiding taxation. Because of the factors I have mentioned, the Bill has been drafted in an unusual way.

I ask for leave to continue my remarks at a later stage.

Leave granted; debate adjourned.

Suggest corrections