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Monday, 16 September 1985
Page: 560


Senator SIDDONS(3.53) —The Australian Democrats agree with the Government that this debate on capital gains tax would have been much more productive if it had been held after the Government had announced its tax proposals. However, that is not to be. The Opposition has brought on this debate now, so we can hope only that we can send some messages to the Government which may yet be in time to help bring down a capital gains tax package that is fair, equitable, and not disruptive to small business or to the economy at large. I was intrigued by the sudden concern of the Leader of the Opposition (Senator Chaney) for small business. One cannot help but ask where these concerns were when the Liberal Party of Australia held office. I seem to recall hearing a lot about the resources boom, a lot about encouraging multinationals to set up in Australia, and very little about small business when the Opposition was in government. Its sudden concern is touching. We hope that we can talk to the Opposition about this matter so that we can get some policies for small business which will be productive and worth while and which will encourage small business to develop. That is where job creation will occur in this country. It will not occur anywhere else. It will not occur in big business.

During the last election it was very obvious that if there were to be a Labor government there would be a capital gains tax. As Senator Maguire pointed out, it was part of the prices and incomes accord. Anyway what has the Liberal Party done? It has said: `We are opposed to a capital gains tax'. Its attitude is flat-footed. It has no ideas on the matter, only absolute opposition to any sort of capital gains tax. A much more constructive and helpful approach would be for the Liberal Party to join with the Democrats, consider fairly a capital gains tax that would be equitable, and see whether we could not put pressure on the Government to bring in a capital gains tax that did not fall heavily on small business. A capital gains tax is inevitable; it cannot be avoided any longer. So why just stand flat-footed on it?

During the last election the Democrats made it very clear that if there were to be a capital gains tax it would be indexed first for inflation. We enunciated that policy in 1977. Senator Maguire trotted it out this afternoon as an innovative idea of the Australian Labor Party. It is an unusual provision. It is not common for capital gains taxes around the world to be indexed for inflation. We thought up the idea ourselves. We put it into our policy. Our members voted on it and said: `Yes, that is the way a capital gains tax should be introduced'. That measure alone would make sure that there is no great disruption of the economy at large by the introduction of a capital gains tax. We said many years ago that capital losses should be taken into account with capital gains and that one should be deducted from the other. We have always said that the family home should be excluded. We do not believe that the great Australian dream should be taxed. That is also a policy the Democrats have made clear for many years.

During the last election we said that there should be special consideration for the small business and the family farm. We have repeatedly stated that at every opportunity. We said that capital gains should be taxed on realisation and not on notional profits and that under no circumstances should a capital gains tax be retrospective. It is because we concentrated on these critical proposals that the capital gains tax which is to be introduced will not be disruptive to the economy. Most importantly, it will not fall disastrously on small business or the family farm. We make the point-we have always made the point-that a tax on capital gains, properly applied, should create employment. It will do so by discouraging non-productive investments in areas such as land and property trusts. It will encourage the channelling of money into job creation areas, particularly entrepreneurial and wealth-creating schemes by small business.

Some form of capital gains tax-the right sort-is important if the tax burden is to be lifted from the back of the pay-as-you-earn taxpayer and spread evenly across the community. We believe that the two essential factors of production-labour and capital-should bear a fair and equitable burden of tax. One cannot produce things without capital. One certainly cannot produce them without labour. These two factors have to be looked at as essential factors of production and treated on an equal footing. They must be kept in balance. Until the present the burden has fallen on labour, on the pay-as-you-earn taxpayer. So we are very much in favour of a capital gains tax that is applied evenly across the community in line with PAYE tax. A flat rate of tax is not good enough. There is a rumour that the Treasurer (Mr Keating) has gone to water on this matter and that he is going to introduce a flat rate capital gains tax. We have advocated-we still do-that a capital gains tax be looked on in the same way as income and taxed at the same marginal rates. We have always said that. It is the only equitable way in which a capital gains tax can be applied. Unless we apply a capital gains tax at the same marginal rate as ordinary tax we will encourage people to turn their income into capital and thus avoid tax. We leave an opening for tax avoidance.

The Democrats have always opposed the death provision as falling unfairly on the small farm and small business. If rumours can be believed, the Government has eliminated the death provision in its proposed capital gains tax. If that is true, we welcome the Government having seen the light in that area. We believe, however, that it would be a better way for a capital gains tax to apply from the date at which the capital gains tax law is introduced or from the date of acquisition of the asset. If that asset is passed on no capital gains tax should apply but it should apply when the asset is sold. The time of evaluating capital gains should apply from the date of acquisition and the death penalty should have no effect on it at all. In that way, of course, we overcome the problem of family businesses and family farms. We have always said that the family home should be completely exempt from any capital gains tax whatsoever. If we get a more equitable tax system in this country we can do something about marginal rates. We have often pointed out how disastrous a 46 per cent marginal rate is on the average Australian. We have advocated that there should be provision in any capital gains tax for averaging over a period of five years. This applies in the case of people, such as farmers, who have very seriously varying incomes from one year to another but we believe that the five-year averaging provision should apply to all capital gains.

In the time that is left to me I wish to deal with fringe benefits. It has been proposed that the responsibility for taxing fringe benefits should rest with the employer rather than the employee or the individual. In equity we believe that this has no basis whatsoever. It is the employee-the individual-who is enjoying the benefit. Surely he is the one who should accept the responsibility for ensuring that the tax allowance of fringe benefits is shown accurately in his tax return. The argument in support of attaching responsibility for taxing fringe benefits on the employer is that it makes it easier to collect because it focuses on fewer people. Needless to say, that is politically expedient because those who enjoy the benefit will not have to bear the tax burden directly.

Most countries have had to address this problem at some stage or another. The majority of countries have handled it by setting out guidelines to help determine the individual's tax liability. The notable exception to that is New Zealand which, unfortunately, has said that the tax liability for fringe benefits should be placed on the employer. We absolutely oppose that. When taxing fringe benefits the Federal Government could well take some guidance from some of the more enlightened States in this country in handling the problem as it applies to payroll tax. For instance, the Victorian Government has effectively set out guidelines for the treatment of fringe benefit payments in the payroll tax area. Admittedly, payroll tax applies tax to an employer, nevertheless, the principle remains that the tax is based on the payment of wages. The guidelines that the Victorian Government, in particular, has issued in this area make it relatively easy to determine the fringe benefits and the values to be included in the determination of wages for payroll tax purposes. The Victorian Government's guidelines cover, for instance, areas such as low interest loans, luxury cars and entertainment. It would be a comparatively simple matter for the Federal Government to copy virtually what the Victorian Government has done in this area and to lay down guidelines clearly and precisely so that the individual knows what his tax commitment is in the fringe benefit area. Nevertheless, the Government should place the responsibility fairly and squarely on the individual and not on business.

In the last Budget the Government indicated its intention to proceed with a self-assessing basis for taxation. For such a system to be effective the area of fringe benefits must be addressed. If the Government is to adopt a self-assessing basis all individuals must be able to determine clearly what their tax liabilities are. They must be able to determine that in a way that is fair and equitable to all income earners at whatever level of income. Taxing benefits in the hands of the individual would ensure that all people are taxed fairly, whether they be employed by the Government or by the private sector. Originally, the Government wanted to exempt public servants and private sector workers who received fringe benefits as a result of award provisions. It would be difficult to imagine a more unfair way to proceed or a better way in which to inflame discontent in the community. All people must be taxed equally and fairly as far as fringe benefits are concerned. To do otherwise would be totally unacceptable to the Australian Democrats.

In conclusion, it is very important to think carefully, at length and in great detail about equity in taxation in this country. No area has inflamed discontent more in Australia. We challenge the Opposition to join the Democrats in trying to enunciate constructive, worthwhile proposals which will make sure that tax reform falls fairly and evenly on the community, that it is equitable for all concerned and, in particular, that it does not apply unfairly on small business and the wealth-creating areas of this country.