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Wednesday, 9 October 1985
Page: 907


Senator CHANEY (Leader of the Opposition)(3.22) —The Opposition has brought forward for discussion a matter of public importance, namely, the destructive effects on enterprise and employment of the Government's tax package. I use the expression `tax package' with a bit of reluctance, because I think it glamorises what is in fact the shredded remnants of the Government's preferred approach to tax reform. I will touch on that a little later. It is certainly glamorising what we have before us to talk of it in terms of a package. It is, after all, the remnants of what the Treasurer (Mr Keating) so proudly put forward, most of which was rejected by the Australian Council of Trade Unions and rejected by the National Taxation Summit.

The bringing forward of this tax package has, however, been of great value in one respect, and that is that it has exposed both the prejudices and the ignorance of this Government. Really, nothing has been demonstrated better over the last two Question Times than the depth of prejudice which exists in the Government against certain sections of the community, and the ignorance which exists even among senior Ministers who are in part responsible for this package on some fairly fundamental points which are of vital importance to business in Australia, and small business in particular.

Most of the questions over the last few days have been addressed to Senator Walsh. I suppose most of us were caused some amusement when he accused a journalist of ideological prejudice just a few minutes ago. We have all had to put up with a great deal of the prejudices of Senator Walsh over the years that he has been here. But during Question Time we have heard Senator Walsh refer to those opposed to capital gains tax as the Opposition's rag-bag clientele-a nice description of those very many people in the business community and elsewhere who believe that a capital gains tax is damaging to Australia. He is, of course, simply following the example of his Leader, Senator Button, who went a little further on 17 September when he was being questioned by Senator Archer on the same subject, and referred to a ratbag constituency of people who are opposed to capital gains tax, although he corrected it the next day and said that what he really meant was a grab bag. He said:

. . . but it does not matter . . . It is a sort of ratbag constituency'.

So what we have is a situation where the Government sees those who are opposed to elements of its tax package as a rag bag, or ratbag, or grab bag group of Australians, whereas we would say that they are people who have a very valid point of view and a point of view which should have been heeded by this Government.

Senator Walsh, in the course of the last day or so, has referred to how phoney the business lunch was. He referred to the restaurant industry as a tax shelter, enjoying that status to indulge bludgers at the expense of those who took their lunches to work in brown paper bags. So all of those people who are going to be affected by the ban on business lunches because of the change in the tax status of these things are being referred to by the Minister as bludgers. He referred to lunches for the self-indulgent when he was talking about it yesterday and today-an accusation which again, it seems, is not particularly apt for him to make. After all, we have to put up with his self-indulgence in this chamber rather more than that of any other Minister that we have to deal with. More important than the prejudice which was displayed, particularly by Senator Walsh over the last few days, was the ignorance of basic facts which affect business. I would particularly like to refer to comments that he made in response to a question asked by Senator Messner yesterday. Senator Messner was asking about the question of taxation of the goodwill which is built up by the founder of a business, when that business is sold. Senator Walsh's response to that very properly and carefully worded question was: I do not know how anybody objectively measures what is goodwill'. When he was questioned again by Senator Messner on the same matter because he had not answered satisfactorily he said: There is no formula which can measure goodwill'.

We are talking about circumstances in which businesses are bought and sold. We are talking about the circumstances in which someone who has built up a business has sold that business to somebody else. There is a very simple fact, of which I would have thought even Senator Walsh would be aware, that an important element of the sale of most businesses is that the purchaser comes forward as someone who is prepared to buy the business including an element of it which is described as goodwill, an element which is often given a very substantial pecuniary value. What we are dealing with in the question of taxation on the sale of a business is an ascertained amount of money. We are not dealing with some theoretical textbook definition of what goodwill might be. We do not need to be treated to one of Senator Walsh's childish lectures on basic economics. The simple fact of the matter, which he as Minister for Finance should be aware, is that when businesses are bought and sold an important element of the sale price is very often that unascertainable-except in the minds of the seller and purchaser-value called goodwill. I believe that the ignorance which he has displayed in his response to Senator Messner is at least a partial explanation of the way that the Government has structured these tax changes in a way which will be so damaging to many elements of Australian business.

The ignorance and prejudice which we have put up with in the discussion on these tax proposals would not matter if they had not affected the tax package itself. The vilification and rudeness which we traditionally put up with in this place would not matter if the misunderstandings which underlie what we have been hearing over the last two days had not extended itself into the content of this very important series of tax changes that the Government is putting forward. It has influenced the tax package. It will damage many people and it is a basis on which this tax package should be reconsidered by this Government and many of the changes which are being made withdrawn.

I said earlier that what the Government was putting forward was not in fact a tax package but the shredded remnants of what it had originally proposed as being required for a better taxation system for Australia. What we have had over the last couple of days are pious claims by Ministers such as Senator Button that what the Government has done is lay down clear directions in respect of taxation policy. It has been very smug in suggesting that elements in the community are supporting the clear directions that it has established. Yet the fact of the matter is that just a few months ago the Government was advocating a totally different direction for tax reform in Australia. It was not advocating this extraordinary grab bag of remnants from Option A. What they were advocating was a totally different approach to the taxation system. Mr Keating made a series of very bold statements about that. What Mr Keating said about the original tax proposals was that if we do not as a nation adopt this proposal then we will not see significant reform in this country in taxation for the balance of this century. A little later he said:

If this sort of proposal does not get up--

I emphasise that that is the option C sort of proposal he is talking about-

one has to decide if there is much point in someone like me worrying about the Australian institutional process and in Australian institutions very much longer.

When it was suggested that he would have to back off the proposals that he put forward and that he would have to provide exemptions to the broad-based consumption tax he was emphasising, he said that he was not cutting off exemptions at the negotiating point, he was killing it stone dead as an issue. He said:

I am still pressing for a broad-based consumption tax.

The result of all this proud talk, of all this chest thumping, and of all this work that was put into it by Mr Keating and other Government Ministers, although most of them hid in the trenches rather than rushing to the front line with their Treasurer, was what was variously described as `Hawke's tax fiasco' in one leading article, as `the big daddy of all back downs' by Michelle Grattan, as a `back down' by Ross Gittins and as `Labor's great tax retreat' in a leading article in the Age.

This debate takes place in the context of a total Government retreat on its preferred position and the putting forward of a so-called package which amounts to no more than a dropping of additional taxes on selected sections of the community where it is thought that the political backlash will be least. If we need any proof that the Government has been left with what the ACTU was prepared to admit, we do not have to go very far. We just have to look at the fact that option C was dropped once it was quite clear that the trade union movement would not support it. We just have to look at the actual impact. We just have to look at what the Government actually produced when it finally brought a package forward.

What we have-and I look now at what the Government published in its booklet entitled `Reform of the Australian Taxation System'-is a series of changes which impact very squarely upon those limited numbers of Australians who provide employment. Rather than face the issue of rearranging the tax system as it affects the great bulk of the Australian people, the Government, in an act of political cowardice, has chosen to impose new and additional taxes upon the employers, the businesses, of Australia because it believes that there will be less electoral backlash and because it knows that it will have the support of the Australian Council of Trade Unions in so doing. That is not rhetoric. That is a matter of simply looking at the figures which the Government itself has published.

When we look at the additional revenue estimates set out in the Treasurer's statement we find that changes are being put forward which will result in revenue changes totalling about $700m in 1986-87. I here cite figures from page 25 of the booklet. We find that, of that $705m net increase in revenue, $630m comes from two impositions on the business community, the employers of Australia. An amount of $320m comes from the changed taxation treatment of non-cash fringe benefits, and the changed taxation treatment of entertainment expenses accounts for another $300m. Quite clearly the additional burdens have been placed squarely upon the employers of Australia. If we look at the projected figures through to 1987-88 we see detailed changes which will provide net additional income of $1,348m and we find that $800m of that comes from those same two categories and several hundred other million dollars which are from different imposts upon the employers of Australia.

What has been made clear to the people of Australia is that this Government has abandoned its original plans for bold reform. This Government has in fact been left with the remnants of its package-the remnants permitted to it by the ACTU and those remnants permitted to it because they fall only on the employers and because it believes it can withstand the political resistance of the employers as against the more widespread political resistance of employees. There is no principle in this proposal. There is no decency or justice in it. It is a simple political trade-off which is not geared for the betterment of the Australian economy or for Australia generally. It is good electoral politics-short term perhaps-but what are the consequences for the people of Australia? What are the consequences of just loading the dice still further against those who have to create additional employment?

Quite clearly what is being done under this tax package will in fact make employment more expensive. We have twin problems being loaded upon employers by this Government. We have the tax package which is going to add effectively to the cost of employing labour, increase taxation on profits of a business and thereby, by reducing profitability, reduce the incentive to invest. Additionally, a capital gains tax is being introduced-and I will address that further-thereby reducing the incentives which exist for people to establish new businesses and to build up new wealth producing assets in this community which will provide employment for other Australians.

Allied with the effect of this tax package, it needs to be remembered that at exactly the same time the Government is entering into the accord mark II and under that accord is setting itself to require Australian employers to accept other additional costs, in particular-as a trade-off against the productivity round-additional superannuation costs which again will make the employment of labour more difficult by making it far more expensive. Already the cost of employing labour is inflated by over 40 per cent above the direct costs of wages. The compounding effects of increasing workers' compensation liability and all the other burdens such as payroll tax and so on that are borne by employers are now being added to by this Government and the on-cost problem, which is acknowledged by Senator Button to be a serious problem in increasing our competitiveness in the world, is being worsened and increased.

We have had a great deal of publicity in this country over recent days about the closure of yet another sector of Australian manufacturing. We have heard speeches in this place about the extent to which the Government should be granting further cash benefits to manufacturing industry, or sectors of it, to enable it to survive. We had a great deal of publicity which surrounded the impending closure of Rank Industries Australia Pty Ltd. But the issue which arises because of these difficulties faced by Australian industry is the issue of competitiveness. What chance do we have of having more competitive circumstances for Australian industry when the tax system and the wages and labour system are being changed in a way which makes employment of Australians even more expensive than it has been in the past? I believe that there are simple reasons why Senator Button says that he has some support in the community for the tax package that has been brought forward. That relates really to the proposition that the Government has targeted its tax imposts on the employers of Australia and thereby has sought to mask the political negatives which will otherwise apply.

I turn to some of the particulars of the tax package as they will affect business. It has been sought to minimise the impact of a capital gains tax on the basis that it will apply only to future capital gains and that it is being imposed therefore on a relatively small number of transactions in the near future. In fact that aspect of the tax has led it to be described by Robert Gottliebsen in the Business Review Weekly as one of the worst ever produced because it is a tax which discriminates between those who have already generated their wealth and those who have not yet made it. Put more simply, that means that in making decisions about investment there will from now on be this additional complication that some transactions will be caught by a capital gains tax and others will not. That will lead to distortions in the Australian economy. It will mean that there will be an incentive for investors to hold on to existing assets and a disincentive to obtain new capital assets. It will lock in investment funds, and risk-taking in new investments will be discouraged-and this at a time when the Government's own growth forecasts for the economy rely on strong private sector investment recovery.

I have already referred to Senator Walsh's apparent ignorance of the importance of goodwill as a factor in the incentive of the man who sets out to establish a new business and to make it a successful business which will be marketable and will provide him with security in his old age. Really the deficiencies of the package go beyond that. What Senator Walsh is doing in this tax package is in fact imposing a capital gains tax on non-speculative gains, the gains which are made by people who work hard to build up an asset, and yet his Government cheerfully leaves speculative gains untouched in many circumstances. If Senator Walsh were so determined to be economically logical, if he were so determined to get some fairness into the system, why does he choose to tax the assets built up by hard work over a long period as against singling out the assets of speculators for which he has such an abhorrence? Indeed, would it not be fairer to pick up the recipients of lottery winnings rather than those who have laboured long for their reward?

There is also a sham in the proposed relief of double taxation of dividends. Of course, we welcome that proposal, but the capital gains tax will tax gains on share sales without taking into account the tax already paid on retained earnings. What the Government will be giving with one hand-namely, very welcome relief from the double taxation of dividends-it will take away with the other in cases where instead of dividends being paid after paying company tax profits have been retained in a business to build up its assets. That is a perfectly common and proper business practice. If a business is well run, well managed, and successful, the result will be an increase in the value of its shares. That means that when the shares are ultimately sold they will be subjected to capital gains tax at the marginal tax rate and what would have been tax exempt had it been paid as dividends will now attract taxation because it was retained and built into a capital asset. Distortions still remain in tax treatment as between companies and different forms of savings. Company profits, for instance, will still be taxed more heavily than will superannuation funds. I ask: Where is the efficiency and equity in that?

I have very little time left, but I know that Senator Messner will deal with many of the other particulars. The Opposition thoroughly objects to the unprincipled approach which has been taken to fringe benefits tax. That will be a major contributor to estimates that are currently being made that companies will now face increased taxes of between 17 and 18 per cent. It is utterly unprincipled for the Government to say that when employees receive benefits in kind it will be the employers who will bear the tax. A perusal of the White Paper makes it clear that this is simply a matter of administrative convenience. There is no tax justice. It is a further disincentive to investment. It is a further nail in the coffin of those who wish to start up a business and enterprise in Australia and create more employment. We object to this tax package. We think it is unfair to those who will do the essential job that requires to be done in Australia in 1985-to create more jobs for the Australian people.