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Wednesday, 11 November 1964

Senator LAUGHT (South Australia) . - I rise to support the Bill and to comment upon certain reservations that I have in my mind about it. I realise that taxation is one of the tremendous problems of government. In its budget each year the Government commits itself to certain heads of expenditure. In the light of the statement that was made to the Senate last night, one head of expenditure that unfortunately will be with us for many years relates to our enlarged defence effort. The Government is increasing annually its expenditure on national development not only through its own organisations but also through the States. Reimbursements to the States are now greater than ever before. The problem facing a government which has a great forward looking urge is to get the necessary revenue so that its objectives may be achieved. Each year a government seeks a predetermined revenue.

This afternoon we are discussing mainly the loopholes in the existing income tax legislation. I am grateful to have in my possession a. copy of the report presented by the Commonwealth Committee on Taxation which was headed by Sir George Ligertwood. This report was placed before the Government in 1961. The Government has not been tardy in implementing those recommendations in the report which it considered to be urgent and which hud application to the vast majority of taxpayers.

At this stage it is appropriate to mention to the Senate some of the recommendations in the Ligertwood report that the Government has already adopted in the form of legislation. I shall mention first the various avenues in which relief has been afforded to the general taxpayer. Deductions may be claimed for the cost of preparing income tax returns and mortgage documents and for other expenditure incurred in earning an income.

Concessional deductions' have been increased. The maximum concessional deduction that may be claimed for dependants remains unaffected unless the separate net income of the dependants exceeds £65. Deductions may be claimed for education expenses, for the cost of employing a housekeeper to care for a taxpayer's invalid wife and so on. Then there are certain deductions that may be claimed in respect of aged persons. Honorable senators will recall the increase from £104 to £208 in the exemption that may be claimed by non-profit companies. The committee also recommended certain deductions for primary producers. Persons who travel overseas are not obliged now to obtain taxation clearances before leaving Australia. The matters that I have mentioned may be small in terms of cost to the revenue, but they are evidence of how assiduous the Government has been in implementing the suggestions contained in the report.

As T have said, the Government has not been completely idle. The matter now before the Senate concerns mainly items of great legal complexity relating to the whole question of tax avoidance. In the introduction to the report the Committee which was charged with the duty of investigating tax avoidance, amongst other things, had this to say -

During the course of our inquiry, our notice was drawn to various parts of the Act which, in conjunction with the general law, have been used by ingenious taxpayers and their advisers for the purpose of avoiding or diminishing their liability for income tax which would otherwise be payable by them.

The Senate should . bear in mind the rather precise words that follow-

Such schemes, although not illegal, arc nevertheless inequitable. The provisions of the Assess ment Act and the rates of tax levied from time to time arc designed to secure to the Treasury a predetermined quantum of Revenue for carrying on the government of the country; and if, by the ingenious use of the provisions of the Act, and of the general law, a significant number of taxpayers are able to diminish their tax liability or avoid it altogether, it follows that the consequential loss of Revenue must be made good by the remaining body of taxpayers who either have not the same knowledge or opportunity of avoiding tax or are unwilling to lend themselves to schemes to thwart the apparent intention of the legislature.

The main clauses of the Bill are directed towards schemes which, although not illegal, are nevertheless inequitable. If certain people or institutions are allowed to get away with these schemes, the remaining body of taxpayers who have not the same knowledge or opportunity to engage in these schemes must pay more so that the services of the country can continue.

This is a matter of very great importance, and 1 join with other honorable senators who have expressed their disappointment that such a limited opportunity has been given for a precise study of the Bill and the accompanying memorandum to enable us to conduct the debate as it should be conducted. I am encouraged that the Treasurer (Mr. Harold Holt) is receptive to a close scrutiny of the matter.

Senator Wrighthas proposed that the Bill be referred to a Senate select committee for consideration and report, and that the committee present its report to the Senate not later than 31st March 1965. I believe that the Senate could well consider the promise given by the Treasurer (Mr. Harold Holt) in answer to the honorable member for Gippsland (Mr. Nixon) on 30th October when considering the amendment that has been moved by Senator Wright. On 30th October the Treasurer had received in the morning a delegation of gentlemen who were interested in the income tax legislation. They were accountants, lawyers and representatives of taxpayers' organisations. In reply to the honorable member for Gippsland later the Treasurer acknowledged having received many requests for a deferment of the Bill. He promised that in the interval between the passage of the legislation and the meeting of the Parliament next year, further study would be given to the matter by officers of the Taxation Branch and by outside organisations.

I refer to organisations that are really learned societies in matters of taxation. The Treasurer added - lt, in the New Year, it can be demonstrated to the Government that there are particular aspects pf this matter which should be examined, then the Government will be willing to look at them in the light of the representations then made to it.

I regard that as an important promise made by the Treasurer. He said that he and his officers would constantly examine any evidence that the legislation was improperly or ineffectively drawn so that amendments could be brought forward. The right honorable gentleman said this would be done between the present time and the next meeting of the Parliament. Senator Wright has moved for the Bill to be referred to a committee of the Senate. That would mean that the Bill would be shelved possibly until the end of March. The question is whether better legislation would be achieved in that way than by acting in accord with the promise of the Treasurer. That is the crucial question. One must have regard to the intense study of the legislation that has been promised by the Treasurer in association with the zealous work of the taxpayers' associations which might be called the learned societies on taxation. The Treasurer has promised to make available officers of the Treasury so that this continuing study may take place.

Personally, I would prefer to see that course adopted rather than see the Bill shelved and put into the hands of a committee of the Senate. I say that because we have before us the tangible promise of the Treasurer reported at page 2561 of the " Hansard " record of the House of Representatives. In the light of that promise I am prepared to agree to the passage of the legislation as it is today. However, I have some fears about the legislation and I hope that my remarks will be taken into account when the Treasurer and the officers of the Taxation Branch consider this matter.

I do not want to go into the technical aspects of the Bill now but I want to advert generally to the question of discretionary power, lt is the duty of the Parliament to make laws so precisely that officers of the Commonwealth Public Service who have to adminster the laws are not uncertain as to their meaning and are not called upon to exercise a general discretion especially where punishment or favour are involved. If the laws are- not so framed, this is a sign of a lazy Parliament which does not set out in black and white what it means. The Bill purports to confer discretionary powers in favour of the taxpayer but I still think it is wrong to grant these discretionary powers in the quantity or with regard to the gravamen of the measure as set out in the Bill. If such discretion is in the hands of the Commissioner of Taxation, no matter how commendable a person he may be, a great problem arises with the delegation of that power of discretion. Being a human being, the Commissioner would exercise it in a certain way.

Australia has possibly 5,000,000 taxpayers and maybe only a portion of them would have a case to come within the power of discretion of the Commissioner of Taxation, but the practicability of getting a uniform quality of discretionary power in Adelaide, Perth and Brisbane at one point of time is so huge that it would be most difficult to administer these provisions fairly. That is more apparent when one considers that at present, and possibly for many months, there will not be one word in writing to which any legal advisor or accountant will have access so that he can get some idea of the broad principles under which this discretionary power would be used. I think the Government is likely to meet a lot of trouble if, by the autumn session of the Parliament, it does not set down in black and white what it wants concerning many of the discretionary powers which will be granted under the Bill. I urge the Government to put into legislative form guide lines - if I may use that term - as precise as possible to define how these powers of discretion are to used so that relief may be given along definite lines where a final tax as high as 10s. in the £1 in many cases is involved.

I emphasise the complexity of the legislation. My vote in support of it is given on the basis of the promise made by the Treasurer in answer to the honorable member for Gippsland on 30th October. I commend the Government for what it has done before the introduction of this Bill towards the implementation of the Ligertwood report. I think I have adequately expressed my fears about the complexity of the Bill and particularly about the wide discretions that will be given to the Commissioner for Taxation and the difficulty he will experience in delegating those discretions to the Deputy Commissioners in the respective States. 1 reluctantly support the Bill, with the reservations I have just mentioned.

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