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Thursday, 14 May 1987
Page: 3276


Mr ROBERT BROWN(9.38) —We are considering five items of taxation legislation. As a result of an agreement between the Government and the Opposition, our speaking time has been restricted to about 10 minutes. I am not complaining about that. I just suggest that, in terms of the amount of time that is available to us, there is probably some limitation on the extent to which we are able to pursue the concerns we might have about this legislation or the ways in which the legislation might interrelate. The honourable member for Dawson (Mr Braithwaite), among some of his observations, referred to taxes increasing from 46c in the dollar to 49c in the dollar. He was referring to the corporate taxation rate. However, the point that has been made by the Government, the Treasurer (Mr Keating) and Government spokesmen in connection with these taxation provisions is that what we need to do is to examine all those provisions as a total package.

It is absurd for anyone to suggest that the critical element of all of these taxation provisions is an increase in the corporate tax rate from 46c to 49c in the dollar when what we have done both last year and from 1 July this year is to haul back the marginal rates of personal income tax in Australia to an extent which has never occurred before and which has never been possible before. No government in the history of this Commonwealth has taken the sort of taxation initiatives that the Hawke Government has taken. A typical example of that is that the top marginal personal tax rate has been hauled back from 60c in the dollar to 49c in the dollar. Who was at the helm when the 60c top marginal rate applied? Of course, it was none other than the National Party-to which the honourable member for Dawson belongs-and the Liberal Party. They presided over Australia when the most draconian level of marginal tax rates on personal income tax payers that could possibly be imagined was imposed.

There are five items of taxation legislation before us but most speakers have concentrated their attention on the question of imputation. I will now explain, for those listening, what imputation means. The previous system of taxing company profits was referred to as the classical system. A company would pay tax on its pre-tax profit at the company tax rate, which was 46c in every dollar; out of every $100 profit that the company made $46 went to the Government, if the remaining company profits were distributed, $54 went to the shareholders as dividends. Out of that $54 that the shareholders received from the post-tax profits of the company they were required to pay an additional tax at their own marginal tax rate. What this meant was that in the case of a person paying a marginal tax rate of 60c in the dollar, after the profits had been taxed at the company level and then at that person's marginal level the final tax on those profits was about $78 out of every $100. Yet anyone else earning the same income in some other way paid only $60 out of $100. That situation has persisted in Australia for decades, ever since the Commonwealth was established. During that period the conservative parties have dominated the Parliament-parties that purport to represent the private interest base in Australia-and they have allowed that situation to persist.

In the history of this Commonwealth there has never been a more concerted approach to taxation reform than is taking place now. It is designed to make it possible for everyone to play on a flat field. We are trying to take out the holes, humps, rorts and benefits to make sure that the whole taxation system is equitable, efficient and simple, while also achieving the general objective that taxation seeks to achieve of providing levels of revenue for governments necessary so that they can pursue the objectives the community sets for them. For anyone to suggest, as the honourable member for Dawson appeared to do, that this package implied some sort of taxation increase is nothing short of incredible. The imputation system of dividends will cost the Government $300m in a full year. How tax rates can be said to increase while at the same time $300m is handed back to the shareholders of Australia completely escapes me.

The imputation system means that in future after companies have paid what will be, after 1 July, their tax of 49 cents in every dollar that will then transfer, as a credit, to the shareholders when they receive their dividends. Let us assume that after 1 July a shareholder has the right to $100 of pre-tax company profits. The company will first pay out of that $100 $49 in company tax, leaving $51 to go to the shareholder. If a shareholder's total taxable income is in excess of $35,000 after 1 July he will pay a top marginal tax rate of 49c in the dollar. This means that he will have a liability of $49 in every $100 for the dividends he receives, but will receive a credit for the $49 which has already been paid by the company. The result is that that taxpayer in future will not pay any further personal income tax on those dividends.

On the other hand, take the example of a person whose total taxable income is less than $35,000. That person will get the credit transferred to him or her of $49 out of every $100 that the company has already paid. That shareholder, the individual taxpayer, will be able to use that as a credit against his other tax liability. If that person has a tax liability of, say, $25 in every $100, he will get a credit for $49 in every $100 of dividends to which he would have been entitled and he will be able to offset his other tax commitments as a result of that credit.

It has been mentioned that this type of imputation system is the purest of any in the world. For example, Germany, which has an imputation system of this kind, also has a higher top marginal personal tax rate. No country in the world has introduced a system as pure as the one before us. Many advantages have been mentioned. In the past, debt capital has had a very special attraction for the financing of corporate operations in Australia for this reason: When a company pays interest, it is able to use that interest as a cost claim against the tax which it would otherwise have paid. On the other hand, when it pays dividends, first of all it pays a company tax rate on the dividend and then the shareholder, who receives the dividend, also pays an additional personal tax. Enormous benefits will accrue to Australian corporate structures as a result of this.

Some people have asked: `Why should we be handing back $300m in tax credits to shareholders?' The fundamental reason for that is this: That $300m will go back to people who have been meeting their tax commitments under the most appropriate tax structures that existed. As a result of the total tax package, this Government is providing total taxation benefits to the Australian people in the benefits that came in last year together with the benefits that will come in on 1 July this year equal to $4,500m. Never before has there been a reduction in tax liability to that extent. The Government will be bringing back into revenue-this is against the $4,500m in tax concessions-about $1,500m. To a very large extent that $1,500m will be brought back as a result of ensuring that a lot of the rorts that existed within the system before will be eliminated.

Capital gains in future will be taxed. Just as my constituents pay tax on their pay as you earn income, their wages and their salaries, so in future people who get their earnings as a result of capital gains will pay tax on them. Of course, the people on the Opposition benches scream about that. But we are going to tax capital gains in future. We have eliminated negative gearing; we have ensured that fringe benefits will be taxed; we have taken out the entertainment rorts; and we have made sure that people who wanted to claim benefits in their taxation will be required to substantiate their claims. So while all those things were legal in the past, we believe that they were not appropriate. We are ripping them out of the system and, as a result, we are going to pick up $1,500m which will go towards the financing of the $4,500m worth of tax concessions. The other way in which we will finance those tax concessions is by reducing expenditure at the Commonwealth level. That was the announcement which the Treasurer made last night in the May economic statement which has met with the approbation and applause of the whole nation. The Australian people know that the corrections which have been put into place, not only in the taxation system but in the operation-and the equity of the operations-of the Commonwealth Government at the Commonwealth level, are changes which they could never possibly have anticipated and could never possibly have expected from the Opposition parties. The Opposition parties when in government never provided it; we have provided it. They would never have done so.