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Thursday, 14 May 1987
Page: 3252

Mr PUNCH —(Barton) (5.42)-I rise tonight to support the Taxation Laws Amendment (Company Distributions) Bill, the Income Tax (Franking Deficit) Bill, the Income Rates Amendment Bill, the Taxation Laws Amendment Bill (No. 2), and the Bank Account Debits Tax Amendment Bill. In particular, I support the imputation objective. To the people of my electorate, especially small income retirees and small business people, this legislation is a boon. On re-election in 1984, the Hawke Government took on the massive task of correcting the Australian taxation system. This task involved three basic objectives: To broaden the tax base, to smash social security fraud and tax evasion, and to introduce a system of full imputation for company tax. The first of these objectives has been achieved through the introduction of measures such as the fringe benefits tax, the capital gains tax, the abolition of deductions for entertainment expenses, and the removal of negative gearing. The widening of the tax base has allowed the Hawke Government to provide the largest personal income tax cuts on record, costing at least $4.5 billion in 1987-88.

The second of these objectives, the smashing of social security fraud and taxation evasion, is largely an ongoing commitment, evidenced by a number of new initiatives last night in the May economic statement and by the Govern- ment's continued support for the Australia Card proposal.

The last of the Government's tax reform objectives, a full imputation system for company tax, is a reform that is now some 35 years overdue. It must never be forgotten that this measure, before the House tonight, is being introduced not by the political parties opposite which have in the past claimed to represent the free enterprise spirit, but by the Australian Labor Party which those opposite would seek to convince the small business community is the enemy of business. It must be remembered that the conservatives had 30 years in government to establish such a system. The Hawke-Keating combination has done so in its fourth year in government. The winners are companies, incorporated small businesses, small investors and retired investors seeking added income. But the biggest winner of all is the economy and all of us who have a stake in its future.

The new imputation system of company tax replaces the classic company tax system. No longer will dividend income in the hands of individual shareholders be taxed twice. The cost of this major and exciting tax reform will be $300m in a full year. The key benefit of this Government's business tax reform package is that it will promote efficiency in resources allocation by ensuring that, in future, investment decisions are made on the basis of economic fundamentals rather than on the basis of some short term advantage. Additionally the new company tax system will provide more incentive for entrepreneurs to develop and market new ideas. Both of these are vital for this country's economic future, a future where Australia must export more and import less. Australia's imputation system is widely regarded by overseas commentators and domestic experts alike to be the most pure in the world. For example, I quote the following excerpt from the internationally renowned magazine the Economist of 7 March 1987:

The whingers would do better instead to rejoice at another change brought in by Australia's `socialist' government, one that will, in the words of Bain and Company's Dr Don Stammer, do more to make Australians into mini-capitalists than anything since the introduction of the quarter-acre suburban plot. That change is the new system of dividend taxation. It is designed to end the double taxation that occurs when the taxman takes his bite first from company income and then from shareholder's income.

Under the new system, due to come into force on July 1st, the tax paid by the company will be imputed to the shareholder as a credit and this, combined with the dividend, will then be taxed at the shareholder's marginal rate. For an individual paying the top marginal rate this will mean, in effect, a tax-free dividend; for anyone paying less than the top rate, (so long as he is a domestic investor), it will mean a credit to set against any other tax.

This is the purest imputation system in the world. If applied to Britain, it would probably do more to promote small shareholdings than the flotation of British Telecom and British Gas put together.

It is fair to comment, however, that the substantial benefits of imputation are still not understood in this country. In addition to other benefits, imputation will lead to the diversification of investment portfolios held by both large and small investors, particularly retired persons earning income additional to their pension in areas of Sydney such as my electorate. Traditionally, retirement advisers have until now steered people clear of the share market. Imputation has changed all that. Why? Because imputation will mean that there will usually be no tax to pay on dividend income. In fact, with the imputation credits that go with the dividends, it could mean a cut in the tax on the income of people on low incomes, such as the pensioners I referred to.

Let us take the case of a pensioner who earns $530 in dividends and $1,130 from his other investments on top of his $5,540 a year pension, giving him a total income of $7,200. Before imputation, such a pensioner would have paid a total of $385.93 in tax, which would include a tax bill on his dividend of $127.20. After imputation, no tax will be paid at all. The new imputation system will mean that the pensioner in this case will pay not tax on his dividend income. The imputation credit will also allow tax on other income to be reduced by $253.73. This tax cut is equivalent to lifting the maximum pensioner rebate from $250 a year to $504 a year. In that vein I seek leave, Mr Deputy Speaker, to incorporate in Hansard a table, sourced from the Department of the Treasury.

Leave granted.

The table read as follows-










Other Investment Income...



Dividend Income-

Cash ...






Taxable Income ...



Tax payable-

Gross Tax ...



Pen. Rebate...



Imput. Credit ...



Net Tax...



After-tax Income...



Mr PUNCH —I thank you, Mr Deputy Speaker, and the Opposition. Imputation has, in effect, revolutionised the retirement planning industry, restoring equities to a position they have not enjoyed for nearly 50 years. This new deal for retirees comes on top of the Hawke Government's already good record for the retired, including a real increase in the age pension of 5.9 per cent over the time the Hawke Government has been in office. The imputation system will also assist small businesses by providing them with their largest tax cut ever. Those small businesses, many of which are in my electorate, should bear in mind that the rhetoric offered by the New Right-policy by cliche by the Opposition-pales into insignificance when compared with this major tax reform by this Labor Government.

The introduction of the imputation system, the capital gains tax, and the alignment of the company tax rate and the top personal marginal tax rate at 49 per cent will, in combination, remove many of the distortions caused by the present company taxation system. For instance, under the present system shareholders in private companies have an incentive to retain income in the company in order to minimise their total tax bill. Special provisions, known as Division 7, have been designed to limit this activity by penalising high rates of retention. In fact, imputation effectively abolishes company tax for closely held private companies. The proposed changes remove this opportunity for tax minimisation and will allow private company retention policies to be decided on economic grounds. Division 7 will, therefore, be abolished, representing a significant simplification of the system. That can be seen as nothing other than a major bonanza for small business people.

There is, of course, another benefit to the economy as a whole, and that is in the area of takeovers, which has been much discussed this year and last. The double taxation of dividends has encouraged companies to withhold earnings from dividend distribution for eventual distribution as untaxed capital. Such companies make high priority takeover targets; that is common sense. The imputation system, therefore, will discourage the creating of such targets for a takeover frenzy by ending one of the causes-the double taxation of dividends. As I said earlier, the magnitude of this reform cannot be overstated. It is perhaps the greatest single thing that any Federal government can do to provide incentive in the small and medium size business community as well as to restore properly thought out growth to major Australian public companies.

That leads me to say, on the basis of common sense-and it has to be said-that Labor is not, as those opposite would suggest, the enemy of private enterprise. Rather, Labor sees the role of government as making private enterprise function fairly and properly, much in the same vein as the Roosevelt New Deal in the United States in the 1930s. The Labor Government is not obsessed with policy by cliche, like those opposite; nor is it obsessed with an ideological obsession in one form or another. It is simply about making the system work so that we here in Australia can bring forward new companies in the business of import replacement and new export development industries. I conclude by noting once again the quote from Don Stammer that this legislation will `do more to make Australians into mini-capitalists than anything since the introduction of the quarter-acre suburban plot'.

Debate (on motion by Mr Downer) adjourned.

Mr DEPUTY SPEAKER (Mr Millar) —Order! I understand that it would suit the convenience of the House for the sitting to be suspended for dinner earlier than usual.

Sitting suspended from 5.55 to 7.30 p.m.