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Thursday, 14 May 1987
Page: 3187


Mr McARTHUR(12.24) —After a long gestation the Treasurer (Mr Keating) has finally presented further tax measures to the Parliament. After considerable public discussion and offers of tax reform in September, 1985, the Treasurer and the Government have done nothing to cut the tax burdens of hard-working Australians. In fact, they have added to the complex tax Act during their period in government. Taxpayers will be paying more tax to the treasury coffers partly on account of inflation and partly because of the camouflaged moves by the Treasurer to extract more taxes from the unsuspecting taxpaying public. The tax Act, prior to 1983, consisted of 1,180 pages. In four short years, the Government has managed to add about another 600 pages of detailed legislation which has been designed to increase taxes and make the taxpayer's life more difficult, not easier. At a time when the Treasurer is claiming that the Government is acting responsibly and with commendable restraint in the area of new taxes the figures indicate just how dramatically the Government is ripping off the taxpayer. The myth that the present Government is a low-taxing government is exploded when the figures of its new and additional taxes are examined. For instance, yesterday in Question Time the Treasurer did not deny that the capital gains tax which was estimated to raise $5m in the first year and $25m in the second year has already raised in the vicinity of $120m to $160m in its first year of operation. The unintended consequences of this vicious, insidious tax are now making their way into every sector of Australian life. Businessmen, investors, and hard-working Australians are unaware of the strange machinations and workings of this new tax. The Government has indexed the gains upward for inflation but has failed to index the losses. Consequently, any losses of a capital nature incurred during the normal course of business are not a true reflection of the correct and accurate position because of the Government's sleight of hand in not indexing losses in a similar fashion to the way that capital profits are indexed.

All Australians need to be aware of the effects of this tax upon a change of ownership. Even now the interpretation of this Act is vague. However, over time, obviously, changes take place and unsuspecting Australians will be lumbered with massive capital gains taxes of 49 per cent. Not only is this the highest rate in the world but the procedures and administration of the tax are very unclear and untested at this moment. The controversial fringe benefits tax is estimated to bring in $575m in a full tax year. The Taxation Office has already admitted that, in the first year, fringe benefits tax receipts are well above target in the first three-quarters. The fundamental flaw in this tax is that, for the first time, a Federal Government has moved away from the basic principle that taxes should be levied upon those who earn the income. The Treasurer has not been game to face the electoral backlash of taxing employers at their correct rate if they enjoy so-called fringe benefits. Whilst the debate about fringe benefits tax has subsided somewhat, let the Parliament be assured that there will be some ferocious arguments between the Commissioner of Taxation and individuals who have attempted to comply with the law but have been unable to understand the legislation and who will be taken to task over fine points of administrative detail. The tax in relation to entertainment expenses is expected to generate $330m which is a tax upon individuals undertaking legitimate income-producing activities. Again, the Government is attempting to extract the last tax dollar from those people in the community with little political clout.

In the area of housing the Government has created its own poverty trap and reduced standards of living by removing the negative gearing part of the investment. Investors have shied away from housing construction and investment on two grounds: Firstly, the taxation aspect; and secondly, the high interest rate that is necessary to sustain an investment in housing accommodation. The obvious result is Australians are now seeking more public housing and rents in metropolitan areas are reaching astronomical rates, causing great hardship to families and individuals seeking normal accommodation. Provisional taxation requirements have assisted the Government in obtaining its money earlier with no great gain to revenue but merely increasing the burden upon individual taxpayers who have to meet their everyday cash requirements, let alone provisional tax commitments, at an earlier date.

I turn to the company tax rates and imputation of dividends, of which the Treasurer has made a political point in claiming that he has reduced tax as far as shareholders are concerned. The Opposition concedes that imputation is a step in the right direction. However, in achieving this objective, the Treasurer has ensured that Government coffers will not suffer. The total cost of the imputation system will be $775m, but will be offset by increasing company tax from 46c to 49c. Therefore the net cost is expected to be $50m in 1987-88 and $300m thereafter. The legislation before the House where dividends are paid from specially franked accounts within the various business structures has led to considerable confusion and anxiety. The accounting profession is having difficulty interpreting the legislation to ensure that there are no over- or underpayments of franked dividends to individuals. The Opposition will not vote against the proposal and agrees that imputation has been the first step to remove double tax on dividends from companies paying profits.

The down side is the move to increase company tax to one of the highest rates in the world.

In this internationally competitive environment in which Australia is desperately seeking international investment the movement upward of company tax rates is a retrograde step and one which the future Howard government will redress. The 49c in the dollar tax rate for companies compares very unfavourably with company tax rates in the United Kingdom of 35c in the dollar, and in United States of America of 34c in the dollar. At a time when mobility of companies at the international level is no longer a great problem Australia will be at a considerable disadvantage with this discrepancy between company tax rates. There is every chance that corporations such as Elders IXL Ltd could move their operations off-shore and deprive the Australian economy of their wealth creating capacities purely because of the punitive tax rates imposed by this Government. Whilst big companies have a reduced political capacity to influence votes, they are the basis for creating jobs, profits, and the wealth in Australia. If, because of the policies of this high taxing Government companies are forced to leave Australia or close down, it will be a sad day for Australia.

Inflation works hand in hand with the Federal Treasurer and the Commissioner of Taxation to generate further revenue for the Federal Government. Because of the way the tax structure is organised in Australia, persons on pay as you earn arrangements who achieve increases in salaries find themselves paying more tax. This subtle, almost imperceivable process goes on year by year, so the Federal Government takes a larger chunk of the taxpayer's funds without any legislative requirement and no real awareness on the part of the taxpaying community. This stark reality is clearly demonstrated in the 1986-87 Budget Papers where the Treasurer estimated that income tax would grow by 12.2 per cent in the 1986-87 Budget, whereas inflation was predicted to run at 8 per cent. From these figures the Parliament can observe that the Government is achieving considerable revenue increases well outside legitimate inflation indexed increases. Of course, the Medicare levy is a further form of tax under another name. Within this tax framework hard-working Australians are becoming increasingly frustrated by their heavy tax burden as they move into a higher tax bracket. The effect of this movement is clearly stated in an article in the `National Australia Bank Monthly Summary' of November 1985, as follows:

In the early 1950s you needed to earn 15 times average weekly earnings to reach the top tax scale, but 20 years later it had fallen to five times earnings. Today it is only around one-and-a-half times earnings as inflation pushes more and more people into high income tax brackets.

What really is most frustrating to those Australians who work overtime or achieve a higher rate of pay during any particular working week is their marginal rate of tax. Whilst I concede that the overall tax position for a full financial year is not as bad as they perceive it on a week by week or hour by hour basis, working Australians fully understand the disincentive effect of high tax rates. For instance, a truck driver travelling on the interstate runs between Melbourne, Sydney and Brisbane, who undertakes long hours of arduous and difficult work with heavy responsibility, becomes angry and frustrated when the extra money earned on these trips is confiscated by the Tax Commissioner, often at the rate of 46c in the dollar. Because of these insidious effects on the tax system, there is a superficial appeal for the flat tax rate argument, as in that case a taxpayer knows exactly where he or she stands during the income earning process. It is well known that one's final tax bill will not be reduced by a flat rate tax of 25c in the dollar unless a person is earning more than $27,000. However, the principle of a flatter rate of tax is correct in that the moving of taxpayers into higher tax brackets would be removed for all time. I am sure that the current debate on tax and the frustration felt by all Australians will, over time, bring about a change in the tax structure.

However, the essence of this big spending Labor Government is that the total expenditure of the State governments, local government and the Federal Government is 43.6 per cent of gross domestic product. Put in another way, this means that governments in Australia are now directing, allocating, and deciding what individual Australians will do with their own wealth. We now have the strange situation of politicians, bureaucrats and public servants all making decisions on how individual Australians should utilise 43 per cent of all goods and services generated in Australia. In this great tax debate, the insidious problem that has crept over the total Australian political landscape is this fundamental problem that nearly half of Australia's wealth is being redirected by political forces. At the bottom of the pile is the hardworking taxpayer, trying to make ends meet with very little redress to capital gains tax, fringe benefits tax, substantiation requirements and contending with increasing rates of income tax, the Medicare levy, land tax, council rates, excise duties, company taxes and licence charges-and just about any other tax that one can dream up.

This Parliament needs a champion of the individual taxpayer, not simply the advocates of minority group causes, such as those evident in relation to the education protest outside Parliament House at the moment. The reverse will take place only when the taxpayers of Australia can speak of their anguish and frustration with one clear voice. The present Australian taxation system is punitive; it creates a lack of incentive to work; it ensures that the rich get richer and the poor get poorer, and that vested interests continue to develop in their unhindered way. Australians are joining the tax revolution, crying out for less government expenditure and more personal liberty to spend their own money in their own way.