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Tuesday, 8 October 1985
Page: 771

Senator MAGUIRE —My question is also to the Minister for Finance and is on the question of taxation. Has the Minister noted the Hansard record of Senate Estimates Committee C of 19 September in which an expert from the Bureau of Agricultural Economics suggested that over the long period rural `land values in real terms are showing virtually no trend'? What are the taxation implications, if any, of this finding?

Senator WALSH —Regarding tax implications, I presume Senator Maguire refers to the capital gains tax and its effect on agriculture. Senator Maguire quoted part of this, but the more comprehensive quotation from Dr Fisher delivered on 19 September to Estimates Committee C is:

Basically, I suspect that over the long period land values in real terms are showing virtually no trend. In other words, we would not expect a strong trend in real land values although, obviously, they are going to go up in nominal terms.

That is what I have been saying for a very long period and what everybody who has had a long and direct association with agriculture, as I have, and has bothered to remember or write down the figures, knows to be true. It follows, therefore, that a gains tax levied on real gains, that is after adjustment for inflation, will on average have no effect whatsoever on the agricultural sector. Given that there are short term fluctuations which vary from the long term trend it is of course possible that somebody who buys land in a period when prices are unduly depressed and subsequently sells the land in a time when prices are above the trend line could achieve some real gain and be liable to taxation on it. My view is that it is reasonable enough that that should be done because that is a fortuitous windfall gain.

There is extensive evidence that in the late 1970s and the early 1980s-this varies somewhat from industry to industry and State to State-there was a significant real appreciation in land prices. One of the reasons for that significant appreciation in real land prices was the expectation of untaxed capital gains. There is also widespread evidence-indeed, I believe decisive evidence-that the reason why a large proportion of farmers are in financial difficulties is that they purchased land at excessively high prices during that period. So to the extent that the absence of a capital gains tax contributed to that necessarily short term increase in real land prices, the absence of a capital gains tax has helped to get those farmers into financial trouble, not the existence of a capital gains tax.