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Friday, 15 June 1984
Page: 3124

Senator WALSH (Minister for Resources and Energy)(12.18) —The longest speech in this debate on the Loan (Income Equalisation Deposits) Amendment Bill was that of Senator Crichton-Browne. His speech was notable for three features: Firstly, for an extensive list of alleged agricultural statistics which had little if any relevance to this Bill; secondly, for its anti-Labor prejudice; and thirdly, for its profound ignorance on the subject of primary producers' taxation under the past system and the Government's proposed new system.

Senator Crichton-Browne made a strong point about the effects of fluctuations in primary producers' incomes. It is well documented that primary producers' incomes do fluctuate. He then condemned this Government for changing the previous system. This is the point at which his profound ignorance was most profoundly displayed. I think even Senator Dame Margaret Guilfoyle acknowledged that the previous system ensured that taxpayers who made income equalisation deposits in years of high income ultimately paid more tax than they would have paid if they had not made IEDs. Conversely, those who made deposits in years of very low income and withdrawals in years of high income paid less tax than they would have done in the absence of IED transactions.

In other words, the previous system which Senator Crichton-Browne is defending provided a distinct tax incentive to use IEDs to destabilise income, not to stabilise it. I suggest that if he is going to contribute to these debates in future he should spend more time learning the fundamentals of the subject matter of the Bill instead of collecting reams of statistics of little if any relevance . Senator Crichton-Browne also mentioned that it was very necessary to maintain small country towns. I can understand why he wants to maximise the number of small country towns because they had a habit, when he was running the Liberal Party in Western Australia, of producing dud Liberal Party branches from which he collected all the credentials for Liberal Party conferences and thereby had the numbers.

Senator Crichton-Browne —On a point of order, Mr Acting Deputy President, that is a reflection upon me. It is not the truth. It is another diabolical untruth that seems to be becoming a way of life with Senator Walsh. I ask him to withdraw it.

The ACTING DEPUTY PRESIDENT (Senator Elstob) —Senator Walsh, it is advisable at this late stage to keep to the Bill.

Senator WALSH —I defer to your request, Mr Acting Deputy President, and withdraw . Senator Dame Margaret Guilfoyle acknowledged-she being better informed on the actual subject matter of this Bill than her colleague, Senator Crichton-Browne- that the interaction of the old income equalisation deposits and the tax averaging system provided scope for abuse. That potential has been removed by other changes made by the Government. The proposal which the Opposition has put up by way of a second reading amendment does not address the second area in which there is potential for abuse of any income equalisation deposits system linked to the taxation system and independent of taxation averaging. It may be possible to devise a system which does not have that linkage, but the past system certainly had that linkage and I have not had put before me any system which removes it.

The second potential for abuse is that, by careful timing of deposits and withdrawals, it is possible effectively to defer the payment of taxation for anything up to two years. That has certainly been an innate flaw in the previous and any proposed system of income equalisation deposits that I have seen which is linked to the taxation system.

The other effect of the Opposition's amendment, to which Senator Macklin has drawn attention, is that it would effectively defeat the Bill. It will be opposed by the Government for that reason and also for other reasons. I address the Senate's attention to the terms of the second reading amendment. It proposes that the interest paid on deposits be paid only on the investment component of the deposits, the investment component being determined by the total deposit less the amount of tax which would have been payable at the producer's average income. I will say more about that later. It then goes on to provide for a rate of interest of 9.5 per cent per annum on the investment component. It is clear that nobody will make a deposit with an interest rate of 9.5 per cent, unless there are other reasons for making such a deposit, since the bond rate is some 5 points or thereabouts above 9.5 per cent. In other words, acceptance of the Opposition's amendment would still leave scope to manipulate the timing of income equalisation deposits and withdrawals to defer taxation liabilities for anything up to two years, but would not provide an attractive investment from the primary producer's point of view because the interest rate is limited to 9.5 per cent. It is unacceptable on those grounds.

There are further defects in that it opens up the potential-although this may not be entirely clear from the amendment and perhaps is open to some doubt-to affect, again by the careful timing of deposits and withdrawals, not only the time at which tax payments must be made but also the ultimate tax liability. It also has a potential, admittedly limited, to return a higher effective rate of interest to higher income farmers than to farmers in general. So for all of those reasons the Opposition's amendment to the motion for the second reading is not acceptable to the Government and will be opposed.

Senator Dame Margaret Guilfoyle said in her speech that since the Government had changed the system on 1 September the amount in deposits had declined from $ 160m to $3m. That is not correct and should be clarified in this way: It is correct that some $3m in round figures has been deposited under the provisions which have applied since 1 September. Since 1 September there has been no provision for deposits made under the previous arrangements. The balance under the previous arrangements, I think did stand at about $160m on 1 September and that has declined to about $132m. So if it is worth making a comparison at all, the correct figures to use for the comparison are $160m to around $135m. Of course, a number of other factors are involved apart from changes to the scheme itself.

Since the Australian Democrats have indicated that they will be supporting the Opposition's amendment to the motion for the second reading, the Bill effectively will be killed. So I think I should put on the record a couple of comments about the Democrats' proposals and also about the effects of deferring the Bill or, as Senator Macklin put it, 'leaving the scheme in place'. I am not sure what scheme he has in mind. The previous scheme was terminated by regulations issued by the Treasurer (Mr Keating) as from 1 September last year. The present scheme is operating but the Government has received advice from the Attorney-General's Department that it would be highly desirable to get legislative backing for the present scheme as soon as possible. It is regrettable that the Opposition and the Democrats combined have indicated their intention to take a course of action which will make legislative backing for the scheme impossible at least until the Budget session. I do not believe that the Government will accept in the Budget session either, the sorts of schemes that the Opposition has proposed, for the reasons I have already outlined.

I make a couple of other brief comments on the Democrats' amendment No. 68, which has been circulated and about which I asked Senator Macklin by way of a point of order when he was speaking. The amendment seems to have been put in as a sop to small businesses, and is inadequately defined, as are other amendments that the Democrats have put forward. But more importantly, it is technically inadequate when taken in conjunction with the other amendments to which Senator Macklin has referred because amendment No. 68 opens up the IEDs for participation by small businesses. But when that is taken in conjunction with the linking of the IED scheme with the tax averaging provisions, the unresolved question is that the tax averaging provisions make no allowance for small businesses, only for primary producers. So that amendment would have to be rejected on purely technical grounds.

There are also technical inadequacies in the definition that the Democrats have given of marginal income.

Senator Jack Evans —Amend it then.

Senator WALSH —We will not amend it because the Government's view is that the entire scheme if linked with the taxation system provides the potential for abuse by the careful timing of deposits and withdrawals in a way that defers tax liability. That is particularly likely to happen when the rate of interest paid on the investment component, leaving aside the technical doubts about the adequacy with which that component has been defined, is, under either the Opposition's proposition or the Democrats' proposition, below the long term bond rate. Neither of the schemes proposed by the Democrats and the Opposition-and they are very similar-provides an incentive for investment but they will provide an incentive for manipulation of the timing of deposits and withdrawals. I regret that the Democrats and the Opposition have again chosen to embark on a course of action which is ill-considered-I think that it is probably fair to say that it is ill-considered rather than innately malevolent-in a way that has made it more difficult for any scheme to continue.

Amendment agreed to.

Original question, as amended, resolved in the affirmative.