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Thursday, 14 May 1987
Page: 3200

Mr SIMMONS(1.40) —The introduction of the dividend imputation system as from 1 July will complete another and most historic step in the Government's drive to refurbish the Australian economy. As the Treasurer (Mr Keating) indicated in his second reading speech to the House, the Taxation Laws Amendment (Company Distributions) Bill will give effect to the most significant business taxation reform in this country in the post-war years. It will do that by amending the income tax law to introduce, with effect from 1 July 1987, the full imputation system. Under this system, as most honourable members would be aware, dividends paid by Australian companies will be relieved of tax in the hands of resident individual shareholders by a rebate to the extent to which tax has been paid at the corporate level. It will be, as I have said, one of the final reforms in a package of changes that have been implemented by this Government over the last couple years in an attempt to restore fairness and equity to the taxation system and to enhance Australia's longer term economic growth prospects.

It is interesting to look at the amendment that has been moved on behalf of the Liberal Party by the honourable member for MacKellar (Mr Carlton). That amendment indicates that while the Liberal Party is certainly not going to deny the Bill a second reading, it raises a number of objections to the imputation legislation. Amongst other things, it condemns the Government for raising the company tax rate from 46 per cent to 49 per cent at a time when, it says, company tax rates around the world are being lowered. That rather glib statement is made from time to time. Often we hear cited in this House examples of varying tax rates around the world. Honourable members may recall that recently, when the United States of America changed a number of its business taxation laws, we saw eliminated a tremendous number of business concessions and deductions that had been built into the system from time to time.

I notice that in this chamber National Party members, in particular, are fond of suggesting that in the United States there is somehow or other a much better capital gains tax than we have in this country. Also the myth is spread by, amongst other people, Senator Messner, that this Government's capital gains tax is the highest and most difficult of its kind in the world. That sounds impressive, but once again it is one of those glib statements that, when examined as to truth, do not stand up. The real situation is revealed as something quite different. Australia's capital gains tax will be levied at a maximum rate of 49 per cent, but only the real gain-that which is left after the effects of inflation have been deducted-will be taxed. Most other developed countries tax both real and inflationary gains, so in most cases their capital gains taxes are much more severe than is Australia's. The Reagan administration's reform of the United States tax system has produced a tougher capital gains tax. Americans will now pay tax on 100 per cent of total gain, including inflationary gain, at a maximum rate of 33 per cent. So I think we should examine very seriously some of the objections that are made from time to time by people in this House who speak glibly in the hope that everyone will accept what they say on the basis that they speak for the Opposition in a particular field.

During the debate, Mr Deputy Speaker, reference has been made to a number of other changes that have been made by this Government in the general area of taxation reform. We certainly see it as reform. Objections have also been raised by many speakers in regard to the fringe benefits tax, substantiation changes and the assets test. The usual litany of complaints offered by them from time to time in this chamber has been heard, but if I may refer to a couple of those points in the context of my remarks, I would refer first, as an example of the real tax changes that have been made by the Government, to a change that affects many individual taxpayers, the cuts in personal income taxes.

The Leader of the Opposition (Mr Howard) has complained of the level of personal income tax under this Government, yet he was the Treasurer in the Fraser Government that put into effect a maximum tax rate of 60 per cent. The Government has been able to get that rate down to 49 per cent through a package of tax reform and the restoration of fairness and equity in the system. Yet the honourable member's colleagues of the New Right, the people that we heard so much about this morning during this debate-the John Elliotts and Andrew Hays of this world-want to go further and lower those rates to a considerably greater degree. That is all very nice, but it ignores the reality of the need to be able to fund such proposals. I had the Parliamentary Library conduct some research in order to find out exactly what the levels of personal income taxation were in certain areas of Australia. I notice that in my own electorate of Calare in 1984-85 the 42,545 taxpayers paid an average tax of $3,881, which represented an average tax rate of 23 per cent. Yet the spokespeople for the New Right go around the countryside in the jets with gold seat belt buckles, or the expensive jets paid for by the taxpayers of Queensland, and suggest that somehow or other if we have a 25 per cent flat rate of taxation we are all going to be so much better off.

Certainly a lot of people would be better off under that system. Perhaps the most obvious beneficiary of 25 per cent flat rate taxation would be, in fact, the Queensland Premier who, given his combined incomes, would be likely to receive a taxation reduction of about $30,000 a year. Why would he not support taxation at a level of 25 per cent. But the reality is that about 70 or 80 per cent of Australian taxpayers pay considerably less than an average rate of 25 per cent. I was pleased to see, from some of the remarks that emanated recently from Liberal Party caucus meetings, that even some of those who attended questioned very seriously the taxation concepts that are being pushed forward around the countryside by the Queensland Premier. Quite clearly those concepts are nonsensical and would certainly work to the disadvantage of a large number of Australian taxpayers.

On the question of fringe benefits taxation and the changes that are incorporated in this package of Bills, there has again been the usual criticism. Yet who are the major beneficiaries of fringe benefits taxation? They are not really the vast majority of individual taxpayers, who do pay their fair share of tax under the PAYE system. They are the sorts of people that the New Right is appealing to with some of its policies. Why should taxpayers generally subsidise the free lunches, free education fees, free cars and all of the other benefits that have been in force for so many years, simply as a means of reducing taxation? They embarked upon those measures because beyond a level of $35,000 in personal income there was a great deal of incentive to get into all sorts of fringe benefits areas in order to reduce the incidence of tax. The fact that the Government has reduced the maximum taxation rate for individuals and companies to a common level of 49 per cent is certainly going to lessen the incidence of that kind of thing. People have a clear choice. The Opposition complains that it is wrong for the employer to have to pay the tax on behalf of the employees who receive the fringe benefits. Quite obviously they do not have to pay it if they do not provide those sorts of fringe benefits. They can cash the benefits out and pay tax just as do most other average taxpayers in this country.

If I can return to some of the other elements of business taxation reform that are part of this important package, the important point that needs to be stressed is that this series of changes should be seen in the context of a number of other significant changes that have been made by the Government to macroeconomic policy. We have tried to create an environment for business to become much more dynamic and outward looking. In this context I congratulate the Treasurer upon his very responsible May economic statement of last night, one which in my view fairly distributes the burden of economic recovery but at the same time targets for assistance those who are most in need. It will create confidence in the financial markets, it will encourage investment and it will, most importantly, set the conditions for an easing of interest rates, a matter about which in the course of my contact with constituents and other groups that I have been associated with as a member of the country task force of the Prime Minister (Mr Hawke), people have quite rightly expressed concern. But as the Prime Minister has also indicated in this chamber on many occasions, no government has a vested interest in keeping interest rates at an inappropriately high level. There is a reason for them and most thinking people know it. I believe that the climate is right for a downward trend in interest rates. We have seen that fact emerge in recent months.

As far as business is concerned, the Government has also done something about the restoration of the traditional levels of wages and profit share levels, which have been eroded because of a combination of a number of factors, including an overvalued exchange rate and high tariff walls that represented an attempt by the Liberal Party and the National Party when last in government to compensate for the fact that they did not have any real incomes policy. We have embarked progressively on a program of reducing protection levels but have done this in a very sensitive way. The recent changes in protection levels for the textile, clothing and footwear industries provide a most significant example in that regard.

Some of the other specific measures that have been adopted by the Government to enhance business activity and growth paint a very significant picture of achievement. The Liberal Party uses glib catchcries, such as incentivation but this Government has not merely talked about providing incentive. It has actually done something about it-and no more so than in regard to the taxation system. Other measures, of course, complement that reform. I have mentioned the restructuring of the textiles, clothing and footwear industries. We have also changed significantly the structure of the steel industry, the motor care industry and the heavy engineering industry. There have been major reforms in the financial system through deregulation and the opening up of Australia to international competition because for many years we have adopted the approach that somehow or other if we stick a fence along the boundaries of Australia everything will be right; if we have a problem we just grow a bit more wheat or dig another hole in the ground and export a bit of coal. We have seen in recent years that the world does not necessarily owe Australia a favour, that we have to get out there and be internationally competitive. We need to see some of these changes in business taxation as part of that total process.

The imputation system will, in my view, give people a much wider choice of investments for retirement. It will cut the bias that currently exists amongst companies in favour of debt rather than equity. It will certainly cut the level of tax-driven take-over activity that we have seen in recent years and give a very big tax break to small business. That should not be forgotten in the context of this legislation because small business in particular will be a substantial beneficiary of this package of legislation and will welcome it greatly. This is not just talk about taxation reform. This is genuine taxation reform.