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Wednesday, 20 March 1985
Page: 593

Mr MOUNTFORD(3.41) —The central issue in this debate is the need to speak about genuine taxation reform and how it can be achieved by this Government, and to compare the Opposition's record on tax reform when it held office between 1975 and 1983 with this Government's record. It was interesting to hear the recent speaker, the honourable member for Mayo (Mr Downer), talk about tax reform-about the need for tax reform and how the Opposition favours such reform. Obviously he is a new member. Obviously he was not in this place when the Opposition, which he now forms part of, was in government.

If one is to speak of factions within the parties, one need go no further than to look at the differences of opinion within the coalition parties. Indeed, one has only to compare the speech given last night by the honourable member for Mayo in opposition to the assets test with the statements he made prior to the election when he expressed his belief in the need for an assets test. I do not intend to go too far back on this matter, but I believe that some of the differences should be flushed out. I take honourable members back to an article in the Sydney Morning Herald on Friday, 13 February 1981, about tax reform. It talks about National Party of Australia plans to tax capital gains and indeed its praise for suggestions that capital gains should be taxed. That same article goes on to say that the Queensland National Party's flat rate tax proposal is much more radical. It certainly was much more radical, because it was never proceeded with. In fact, the Liberal Party of Australia, immediately after that was suggested by the National Party, came out and said there was no way that they were going to introduce a flat rate tax.

One can also talk about the introduction of broadly based indirect taxes. Although the Liberal-National Party coalition before the election last year said that it would introduce a broadly based indirect tax, the National Party went on to say that it may not be in the first Budget. One can go on and on. Even the Young Liberals at their convention in January this year voted to support a capital gains tax, a move which directly challenges the Federal Liberal Party. Although there may be differences within the Labor Party, there are certainly as many differences within the coalition parties.

In any debate on tax reform it is necessary to go to the central issue and ask why we need such reform, why it is necessary to so reform the taxation system after only 40 years of uniform taxation by the Commonwealth. The answers to these questions lie in the record of the former coalition Government, which failed so miserably to implement and maintain a fair taxation system. When in government honourable members now sitting opposite adopted a laissez faire approach to taxation reform by failing to maintain a fair mix of taxation to income through indexation of the tax scales and by their inability or unwillingness to crack down on the tax avoidance industry. Their whole approach to taxation was not to do anything until community pressure built up. Then a great flurry of promises were made and it was publicised far and wide that the coalition Government was set to reform the system. This happened so often over the years that the taxation system resembled a boiling kettle, where steam was let off every now and again when public protest pressure built up, but where no attempt was made to turn down the heat.

The previous Government's taxation measures never got to the issue of reform, but rather were designed solely for political expediency. On many occasions the previous Government made promises on tax reform and either did not keep them or brought down other measures which had the effect of nullifying benefits previously given. I instance the 1977 Budget, which was brought down only months before an election was called. The coalition Government offered tax cuts, maintained some indexation and offered a range of goodies. Those supposedly responsible economic managers estimated that the cost of such measures would lead to a Budget deficit of only $1.4 billion. Three months later they called an election and won. Almost immediately afterwards it became apparent that the Budget had blown out, with the Budget deficit heading towards $2.5 billion. The coalition Government had given the electorate the goods before the election but had wrongly calculated the cost.

In the 1978 Budget it took back its tax concessions, backed down on its promise of full indexation, introduced the oil levy and dismantled Medibank. Excise taxes were increased and there were further increases in sales taxes and other indirect taxes. In the 1977 Budget the Treasurer announced that a new tax scale would be introduced on 1 February 1978. The seven marginal tax brackets were replaced by only three tax brackets, with the tax-free threshold being increased to $3,750, but with the existing general rebate of $676, which went to all taxpayers, being abolished. What the new tax scales did, of course, was to make the taxation system more regressive to those on lower and middle incomes. In July 1978 the then Government applied its so-called half indexation to the new tax scales. The 10.9 per cent consumer price index increase was discounted by 3.3 per cent. The remaining indexation factor of 7.6 per cent was then halved and the tax brackets were raised by 3.8 per cent. The net effect really was therefore closer to a one-third indexation.

A few months later the tax system was changed again as a completely separate policy measure. From 1 November 1978 the Government changed the marginal tax rates applying within each of the tax brackets by adding a temporary tax surcharge of 2.57c to each of the marginal rates. In November 1979 it dropped the temporary surcharge but failed to index the tax scales for the 1979-80 financial year to make allowance for the 7.9 per cent average increase in the CPI. In 1980, an election year, partial indexation was restored by increasing the tax brackets by 3.8 per cent, which hardly accounted for a CPI increase of over 9 per cent. On 29 April 1981 the Government announced the proposed abolition of tax indexation. Treasurer Howard stated that the government viewed discretionary adjustments to taxation scales and allowances as preferable to tax indexation. The tax scales were subsequently indexed for the last time on 1 July 1981. The unadjusted CPI increase was 9.9 per cent and this was discounted to 7.6 per cent. Half indexation was then applied, with the tax scales and rebates being increased by 3.8 per cent.

In summary, for the six financial years 1976 to 1982 full indexation was applied only twice, and then the CPI increases were discounted for the effects of indirect taxes. That meant in effect that the tax scales were never fully indexed for inflation. In three of the remaining years half indexation was applied and in 1979 there was no indexation at all. For a single person with no dependants, tax indexation over those six financial years amounted to only 46 per cent of the CPI increases. The overall effects of these changes has been to place a greater taxation burden on lower and middle income earners. The coalition parties, now thankfully in opposition, made a sorry mess of the taxation system when in government. They are in no position to criticise the Government on its efforts.

On the closure of tax avoidance loopholes, the former Government's record is even more futile. On the whole, the Opposition's record in relation to the problem of tax avoidance has been abysmal. The Opposition, when in government, was unresponsive to the needs of our society when there was a national call by all Australians to tax equity and in particular a call to squash the thriving tax avoidance industry. Any attempts the Opposition made to confront tax avoidance were taken only when it seemed politically expedient to do so. As a result, the Opposition's approach to tax avoidance was totally piecemeal and lacked cohesion, design and real purpose. The Opposition has been virtually impotent in its attempt to deal with tax avoidance. One can only question the reasons for the Opposition's delay. The way in which the Opposition dealt with the loopholes illuminated in the Curran case is a classic example. The relevant loophole was never acknowledged by the High Court of Australia. Legislation seeking to plug the loophole was not introduced until 1978, some four years later. The Opposition has been reluctant, to say the least, to use the arsenal of government to battle tax avoidance. The Government, in its short period of office, has done a great job to plug tax loopholes.

Madam DEPUTY SPEAKER (Mrs Child) —Order! The honourable member's time has expired. The discussion is concluded.