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Thursday, 14 May 1987
Page: 3265

Ms JAKOBSEN(8.35) —I am very pleased to speak on the Taxation Laws Amendment (Company Distributions) Bill, particularly as it relates to imputation.

Mr Tim Fischer —With an early polling day this could be your swan-song.

Ms JAKOBSEN —Oh, the honourable member thinks there will be an early polling day. Does he want an early election?

Mr Beale —If there is one, you are gone, baby.

Ms JAKOBSEN —If I am gone, the honourable member is gone-he does not need to worry about that. We are discussing tonight a most important aspect of the Government's company tax reform package-that is, the removal of the double taxation of dividends through the imputation of taxation already paid by a company on its profits. I recently wrote to a large number of small-business people in my electorate advising them of the proposed imputation legislation, and I am sure that they recognise its potential benefits to them. It has been estimated that imputation of dividends could reduce the tax bill of some small-business people by almost 40 per cent. Small business is probably, and should be, the biggest winner as a result of this reform. It is a reform that small businesses have wanted for 30 years. I can certainly remember when we were in opposition small business lobbying Australian Labor Party members of parliament for exactly this reform. The Liberal Party, despite all its protestations about what it was going to do, did not introduce imputation when it had the opportunity to do so.

As the Treasurer (Mr Keating) has explained on previous occasions, the imputation system will cut the effective tax on profits from a top rate of 78.4c in the dollar to 49c. Therefore, if a company makes a pre-tax profit of $100,000, the total tax payable will be $49,000 compared with the $78,400 which would have previously been payable. Under this legislation, shareholders will not have to pay tax on those dividends where the profits have been taxed already in the hands of the company. Instead, they will get an imputation credit for the tax that has been paid by the company. Where a company has paid tax on the profits at 49 per cent, and an individual shareholder has a marginal rate of less than that, a credit will be available which can be offset against the shareholder's other tax liability on income. However, the tax credit gain can be offset only against current tax liability. It cannot be cashed in and it cannot be carried forward into another tax year. This is because we are interested in reducing double taxation. We are not advocating a policy of no taxation. I think that in some circumstances the Opposition is getting a little confused.

I would like to commend my colleague the honourable member for Jagajaga (Mr Staples) on his contribution to this debate earlier today. I particularly commend his correction of the misrepresentations made by some honourable members opposite. For instance, the honourable member for Corangamite (Mr McArthur)-I am sorry that he is not here; I did not mean to speak about him in his absence-referred to the apparent differential between company tax rates in other countries and the rate in Australia. I noticed that the shadow Minister sitting at the table, the honourable member for Deakin (Mr Beale), also made that reference in his speech earlier.

Mr Beale —I didn't make the speech on this.

Mr DEPUTY SPEAKER (Mr Leo McLeay) —Order!

Ms JAKOBSEN —I am sorry, I heard the honourable member speaking about it. I apologise to the honourable member. If it was not him, it was certainly somebody who sounded like him. Honourable members on that side of the House all sound alike. As the honourable member for Jagajaga quite rightly points out, no such comparison can be made unless actual and average tax rates are being employed. Few, if any, companies are actually paying 49c in the dollar taxation. They are able to access significant and generous allowances, rebates and tax deductions which have the advantage of bringing their rate of tax down. I am not intimating for a moment that that is a bad thing, but it does render the comparison irrelevant. For instance, the top 150 companies in Australia paid 28c in the dollar in 1985-86, whereas the honourable member for Corangamite would have us all believe that every company pays 49c in the dollar. I would like to draw to the attention of the House an article in the Australian Financial Review of Tuesday, 24 March which dealt with dispelling the confusions on imputation. There is a reference in that article to the difficulty that people seem to have on the 49c company rate. Albert Smith writes:

. . . . professional practitioners seem a little confused about what type of companies will be able to pay `franked' tax-free dividends.

The confusion arises from an inability to grasp the main consideration in determining whether a company is able to pay franked dividends:

This is simply that under the rules of imputation, dividends will be deemed by tax authorities to have been paid out of that portion of company profit on which tax has been paid.

The plain and simple fact is that all companies pay 49 per cent tax on their taxable income-

it is the effective rate of tax which causes the problem-

and dividends paid from these taxed profits will be tax-free in the hands of the shareholders.

One commentator last week made the breathtaking discovery that companies charge investment allowances, depreciation, and interest charges against their gross income and claim taxation rebates on dividends received from other public companies.

The implication was that because companies reduce their effective rate of tax by making these quite proper and hardly novel claims against gross income their ability to pay `franked' dividends will be inhibited.

This is a misunderstanding . . .

It is worth reiterating: for imputation purposes, dividends are deemed to come from the tax-paid portion of income.

This is shown in the formula for establishing a qualifying dividend account from which `franked' dividends must be paid.

Mr Smith goes on to explain that. He continues:

As long as the total dividend pay-out does not exceed the qualifying dividend account, the dividends may be totally `franked'.

It is possible for people on low fixed incomes, such as superannuitants and pensioners, whom I have heard discussed in the House tonight, to benefit by putting their money into a very secure-I stress that-form of stock exchange investment on which a dividend would be paid by the company and which dividend would be deemed to have been taxed at 49c in the dollar. If their marginal income tax rate is less than 49c in the dollar, which in most instances it would be, they would make a certain amount of money because they could get the money imputed and credited against their other taxable income. It is important to emphasise that people who wish to pursue some sort of tax advantage through the imputation system ought not be encouraged to invest on the stock exchange in just any sort of company. People who have low, fixed incomes ought not to risk their money on the stock exchange. They ought to put it into very secure investments and, preferably, get some sort of advice before they do so.

Mr Beale —What kind of advice?

Ms JAKOBSEN —Perhaps they should go to some sort of stockbroker, Julian. I am not quite sure.

Mr Steele Hall —This is all a bit chummy.

Ms JAKOBSEN —It is a bit chummy, is it not? Excuse me, Mr Deputy Speaker. I wonder whether the honourable member for Corangamite has discussed his views on taxation with the Leader of the Liberal Party (Mr Howard). I wonder whether he knows what his Party's policy is on taxation because, if he does know, he is the only one who does. Even after the speech tonight by the Leader of the Liberal Party in response to the May economic statement we still do not know what the Liberal Party's taxation policy is. We certainly do not know what the National Party's taxation policy is, although we have a fair idea that Sir Joh Bjelke-Petersen might have something to do with determining it. Earlier in this debate the honourable member for Curtin criticised Government members for having the temerity to ask the opposition parties to release their tax policies and economic options. In his endeavours to discredit those members on this side who have sought that information he said that the Labor Party did not have a tax policy at the 1983 election.

Mr Beale —Quite right.

Ms JAKOBSEN —I remind the honourable member for Curtin (Mr Rocher), and also the honourable member for Deakin as he insists on interrupting me, and the people of Australia that at that time taxation was not on the political agenda in quite the same way as it is today. When confronted with this Government's excellent record on taxation and tax reform, it is essential that the Opposition parties disclose their own policies on taxation or fail the credibility test that will be set them by the electorate. They are irresponsible not to do so and that is how they will be judged by business and by the electorate at large. I am very confident of that and I think most honourable members on this side of the House would be also. I was also intrigued yesterday to hear the honourable member for Mackellar (Mr Carlton) in his speech on the Supply Bills refer to the rules of `handbag economics'. He was quoting Mrs Thatcher as his example, which bordered on sexism. He stressed the importance of balancing the budget, as one would with one's household expenditure.

While I do not necessarily agree that the handbag or household budget analogy can be simplistically transferred to the national economy, I would point out to the honourable member for Mackellar that this Government has made the Australian population aware for the first time that our nation has been living beyond its means. By the same token, the honourable member for Mackellar and the Leader of the Liberal Party stand condemned by their own handbag Budget rationale. It was their economic incompetence and ill-advised squandering of our country's resources, both human and physical, which contributed to the difficulties our Government had to overcome on attaining office.

I remind the honourable member for Mackellar of the legacy of a $9.6 billion deficit which his Party left the incoming Labor Government when it vacated the Treasury bench. This Government has struggled under that legacy for four years and has done more to decrease Australia's dependence on debt financing that it was ever able to dream of, let alone achieve.

Many of the difficulties which we are now working our way through as a government were brought about by the inefficiencies and economic vandalism of previous governments-especially the Howard-Fraser team, which left Australia struggling under such an enormous deficit. We have reduced that deficit in every single Budget since attaining office. The May economic statement released by the Treasurer last night continues that course by cutting the deficit by a further $4 billion. The honourable member for Mackellar and many of his friends and colleagues opposite understand nothing about economics. That is patently obvious from his speech. However, no one on the other side seems to know that. Maybe the Leader of the Liberal Party, the honourable member for Bennelong, has a sneaking suspicion, but he is not game to say so because nobody listens to him any more. I commend the Treasurer for introducing these taxation Bills this evening, especially the imputation portion, and I commend the Bills to the House.