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Friday, 4 May 1984
Page: 1588

Senator WALSH (Minister for Resources and Energy)(10.32) —As I am due to speak anyway, I would like to make a couple of comments on this matter . I think that Senator Tate has raised a very important question. I have taken note of the points that you, Mr Acting Deputy President, and other speakers have made. But whatever legal obfuscation may be able to excuse or justify, I think it is an indisputable fact that the introduction of a Bill such as the Income Tax Assessment Amendment Bill (No. 2) 1984 into the Senate breaches the spirit of the Constitution.

Senator Mason —What do you mean by that?

Senator WALSH —Let me go on to explain. I am aware of the distinction which has been drawn in the past between the principle of taxing assessable income and those guideline or laws which define assessable income. Nevertheless, the practical effect of Senator Jack Evans's Bill, without any doubt whatsoever, will be to make certain people liable to taxation to which they were not previously liable because the provisions actually levying the income are already in place. I make a couple of other comments. Senator Jack Evans quoted Odgers. Odgers said that it was not 'deemed by the Senate'. Frankly, it does not matter what Odgers says, or what the Senate deems. The final responsibility for determining matters like this rests with the High Court of Australia. I understand that some time ago, in 1959, a case which has some relevance to this question was put before the Court, but I believe that it is a matter which ought to be clarified. It does not matter what Odgers, or what Parliamentary Counsel or what the Senate as a whole says. This question ought to be determined in the Court and nowhere else. Without doubt, leaving aside legal escape clauses and rationalisations, the introduction of a Bill such as this into the Senate unequivocally breaches the spirit of the Constitution because it imposes a tax on some taxpayers which did not previously exist. It makes them liable to pay tax on receipts previously exempt from taxation which would now be included. That is not an argument against the Bill itself. I am dealing with the point of whether the Bill ought to have been introduced in the Senate.

I must say that Senator Evans's comment that if Senator Tate's point of order were upheld it would erode the whole basis for the imposition of retrospection taxation falls to the ground. I think that has missed the point because Senator Tate's comments have nothing to do with the justification or otherwise of whether tax should be imposed retrospectively, but with the question of whether a Bill, the practical effect of which is to impose tax on people, ought to originate in the Senate. Senator Tate passed no judgment at all in his point of order on whether it was correct either in law or morally that such legislation should be enacted by the Parliament. Indeed, on many occasions Senator Tate's view on that latter question has been made very clear in the Senate. That is the same view which the Australian Labor Party has. It is the same view that Labor has stated unequivocally in Opposition; that is, where schemes are devised which are blatantly contrived to avoid taxation the Parliament does have the moral right, and indeed the moral obligation, to pass laws to see that the people who devise and benefit from such schemes are not allowed to rob their fellow taxpayers, which is ultimately what their actions boil down to.

This much can be said in favour of Senator Jack Evans's Bill: At least from 7 December 1983-and I make the point for the record that that also has retrospective application-the tax liability with respect to the cherry picker schemes will be quite clear. It has been argued on previous occasions by a number of people in the Opposition that there is a possibility-they probably put it stronger than possibility-that existing law could be used to deal with people who manage and benefit from cherry picker schemes. It is not the view of the Government that the existing law could have been used effectively in that way.

Hence the Government decided to legislate. In a moment I will give the reasons why the Government decided to make that legislation applicable from July 1977. The virtue of Senator Jack Evans's Bill is that from 7 December 1983 it puts the matter beyond doubt. However, the Government is very strongly of the view that it is the Government's Bill which ought to be passed. But if the Government's Bill is referred to a committee, which I understand is likely to happen today, the Government will not oppose Senator Evans's Bill. I want to make one comment on his final point in his second reading speech. He stated:

The choice for Government members is clear. Will they continue to play politics in order to arouse public anger at what governments have allowed tax avoiders to do in the past, or will they support this Bill which will prevent further abuses of this type in the future? Are they serious about tax avoidance or are they using tax avoidance to play politics?

I think that is a completely unwarranted comment and I say so for this reason: The ingenuity of what is euphemistically called the tax avoidance industry has been quite remarkable over many years. It is not just a question of picking up people who have defrauded fellow taxpayers of at least $1m, as the Kelly brothers did. This was documented in the Kelly v. Raymor case. It is a question of deterring all future tax avoiders. It is the Government's belief, asserted unequivocally in opposition and in government, that once the threat of the imposition of retrospective taxation or amendment to the law to impose the tax which ought to have been paid when blatant schemes have been contrived to avoid tax is seen to be credible, the entire tax avoidance industry will collapse. It is for that reason that the Government's Bill, rather than Senator Jack Evans's Bill, ought to be supported. Mr Deputy President, I think that technically I may have the right to reply again in this debate because I am now addressing Senator Jack Evans's Bill rather than the Government's Bill.

The DEPUTY PRESIDENT —You are correct but you will have to confine your remarks exclusively to Senator Evans's Bill if you wish to have a right of reply on the other Bill.

Senator WALSH —It is a cognate debate and it is my intention now to speak on both the Bills rather than reply at the end of the cognate debate on behalf of the Government to the Government's Bill as I would otherwise have done. It seems to me, all things considered, that it would be better for me to enter the debate on both Bills at this stage.

I listened to Senator Dame Margaret Guilfoyle, who spoke at some length about the information which Mr Howard had previously tabled in the House of Representatives as a rationale, an excuse or a justification for the failure of the previous Government to take action against the cherry picker schemes. The substance of that as I understood it-I trust I have understood it correctly-is that at that stage at least it was the then Government's belief that the law as it applied to the Part IVA amendments, which were made, I think, in late 1981, was adequate to deal with the cherry picker schemes. If that remains the belief of the Opposition-it is not clear to me whether that is the belief of the Opposition-what it is saying is that there is no need for the Government's Bill and there is no need for Senator Evans's Bill either because the existing law can be effectively used against cherry picker scheme operators. I would welcome clarification from the Opposition as to whether that is its view.

Senator Macklin said quite erroneously that the Government had provided no justification for the backdating provision in the Government's Bill; that is, to make what is the same amendment as Senator Evans's amendment applicable from 1977 instead of 1983. That is quite false. The Government has provided justification for that. Firstly, there is a significant amount of revenue, estimated to be of the order of $15m and possibly quite higher and secondly, the principle, the principle I stress, of whether the people who perpetrated the notorious Kelly v. Raymor case fraud-some people quibble about whether the fraud was against fellow taxpayers or their employees-should be able to retain the $1m or so which they picked up as a result of their fraudulent activities. The Government says: 'No, they should not be allowed to retain that $1m effectively stolen from other taxpayers', or for those who prefer it from the employees of the company. The Government's view is that it was stolen from fellow taxpayers but even to those who believe it was stolen from the employees of the company the moral judgment ought to be the same.

The Kelly brothers should not be allowed to retain the $1m-plus which they fraudulently obtained from some source or other. The Government's view on the Kelly brothers case-there are probably others but the Kelly v. Raymor case is one case which is known because it came into court, for completely different reasons-is that people such as the Kelly brothers should not be able to retain the money that they obtained in that way. Those who will not support the Government's Bill clearly take the view that the Kelly brothers ought to be able to retain that money, as should other people who acted in circumstances similar to the way in which the Kelly brothers acted. Additionally, if the Senate passes the Government's Bill a very clear warning will have been given to all potential tax avoiders: People who blatantly contrive schemes to deprive the public of tax revenue will not get away with any blatant contrived scheme in the future.

Senator Macklin also claimed-I must say I found Senator Macklin's speech a little confusing; if I have not got it correctly it is due to misunderstanding and not to any intention to misrepresent him-that the Commissioner of Taxation, under the existing law, could review and reassess tax liability of both the funds and the companies which claimed deductions from corporate income over the entire period the funds were in operation. He claimed that the Commissioner had the power retrospectively to reassess-although 'retrospective' and 'reassessment ' are, I suppose, tautologous-the tax liability of those companies over the entire period that the schemes were in operation, both for company tax deduction and for exemption by the funds for income earned by investment within the funds. Legally, I think that that is at least arguable, but let us assume that that is legally correct and that it would be possible for the Commissioner to do this. One obvious objection is that it would be extraordinarily complicated and would occupy human and other resources within the Taxation Office which could and probably should be better applied to other activities. Secondly, and equally importantly, there is knowledge that at least in some cases the companies would have no assets to pay the liabilities which the Commissioner reassessed, and therefore the money would be irrecoverable unless the Commissioner were to attempt to recover the money from the beneficiaries of the defunct companies, which quite clearly the present law does not allow the Commissioner to do.

Senator Macklin also asserted that the cherry picker-type scheme had been uncovered by the previous Labor Government. I have no knowledge of it being correct and I do not think that there is anything on the public record or in private records which supports that. I suspect that Sentor Macklin did not mean to say that. As far as I am aware, the previous Labor Government detected no cherry picker schemes. Indeed, the first occasion upon which these schemes were detected by anyone was in about 1977. Senator Macklin also claimed that the Government's action in introducing this Bill was in conflict with the policies which we had stated prior to the electon. That is completely wrong. We stated prior to the election, and the Minister for Finance, Mr Dawkins, stated again on , I think, 30 March last year, what the Government's attitude is towards blatant and contrived tax avoidance schemes, and that is that the beneficiaries of such schemes should be forced to disgorge the benefits that they had improperly gained.

I do not think that there is much point in going over all the arguments relevant to this scheme or to the principle of retrospectivity. They were extensively canvassed the last time this Bill was debated in the Senate. Before closing, however, I want to give notice of a procedural intention on the part of the Government. I understand that an agreement was reached between all the Whips this morning to have a cognate debate on these two Bills, and that at the end of that debate the second reading vote on the Government Bill would be taken. I understand that although no amendment has been circulated, an amendment will be moved to refer the Government Bill to a committee. If that amendment were carried, Senator Jack Evans's Bill would then come on for a second reading vote and the Government would support it. I am informed that that is the agreement which was reached. Intentionally or otherwise, the motion that Senator Chipp-

Senator Chipp —I am sorry; we genuinely did not know of such agreement.

Senator WALSH —All right; I will accept that. Perhaps there was a misunderstanding. But that is the Government Whip's advice to me. As a result of Senator Chipp's procedural motion moved earlier today-

Senator Chipp —Which you knew about; we told you about that. We gave you notice that I was going to do that.

Senator WALSH —The only notice that I received was a request for a cognate debate. The Government had no objection to that.

Senator Chipp —No. We gave you notice that I was going to do that.

Senator WALSH —I am not trying to apportion blame or whatever. Clearly, there was some confusion. As a result of Senator Chipp's procedural motion moved earlier today, the second reading vote on the Australian Democrats' Bill will be taken prior to that on the Government Bill. At an appropriate stage the Government Whip will move that the second reading vote on the Government Bill be taken first. Apart from a principle, which the Senate is not necessarily obliged to accept-that where there are two very similar measures, the Government measure ought to be the one that is voted first-logically it follows that the Government Bill should be put to the vote first, because if the Government Bill should be carried, Senator Jack Evans's Bill clearly becomes redundant. So the logical sequence for taking the vote is that the Government Bill comes first, the Democrats' Bill comes second, if it is still relevant after the vote on the Government Bill has been taken. At the appropriate stage, which will probably be at the end of the second reading debate, the Government Whip will be moving accordingly.