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Wednesday, 9 October 1985
Page: 918


Senator MAGUIRE(4.33) —I rise to speak on this taxation debate which has been proposed by Senator Chaney on behalf of the Opposition. I believe that the very matter itself is a sign of the sheer desperation within the Opposition on this tax issue, which, over the last fortnight, has slipped away from it. I refer honourable senators to a front page article which appeared in the Australian Financial Review last Friday following a major article by Mr Gregory Hywood the day before. The headline on the article was `Honeymoon over: Libs in trouble'. The article goes on to point out that less than a month after changing leaders, the Liberal Party is in dire straits. The article says:

The John Howard honeymoon has come to an abrupt end.

The Australian Financial Review, which probably has been the most expert paper in analysing the tax package, goes on to say in its page one article:

. . . the coalition is still struggling to come to terms with the key issues upon which the next election will ride-wages policy and taxation.

That is very much the perspective in which this discussion should be viewed today. The Australian Financial Review went on to say:

The first signs that the Howard honeymoon was at an end came a fortnight ago when Mr Howard and his shadow executive were unable to develop an effective strategy of opposition to Labor's tax package.

That was the front page article of the Australian Financial Review last Friday and it gives perspective to this debate today. This belated taxation policy discussion shows that the Opposition is trying desperately to make taxation an issue three weeks too late.

Let us have a look at the tax package in perspective. First of all, it has been made abundantly clear that this package of measures is to redistribute the tax burden, not to increase overall tax. We have said month after month that the tax package simply redistributes the burden without increasing taxation levels within the community. One of the Prime Minister's nine taxation principles which were laid down last year was that there would be taxation reform, not taxation increases. Also, this package of measures which was brought down on 19 September is consistent with the Government's trilogy commitment that taxation revenue collected from the community will not rise as a proportion of Australia's gross domestic product. Again, we have a yardstick by which to measure this package. In fact, there is no overall rise in taxation levels in the community, there is simply a redistribution of taxation burdens. Having established that, how can we say that there will be an overall reduction in employment levels? If the tax burden is being held in relation to gross domestic product and if there is to be no increase in taxation levels but basically a reform of taxation, I cannot see how, taking a global view of the Australian economy, there could be a reduction in employment levels as has been claimed by Opposition members this afternoon. That is a proposition that they will find very hard to establish in the overall community. The fact is that for a number of taxpayers in the Australian community there will be very significant taxation reductions as a result of the package. There will be very large reductions in the income tax burdens of a number of high income earners and therefore there will be higher disposable incomes in the pockets of those taxpayers. That means they will have more ability to spend on the products of the Australian economy. We will find that in what the economists call `income elastic industries' there will be very high levels of expenditure by the individuals who receive tax cuts. There will be higher levels of expenditure in Australia's consumer durables industries and in the travel industry, just to name two areas which are highly responsive to changes in incomes. Those changes in incomes are changes after taxation. Therefore, overall I believe that it will be very difficult indeed for the Opposition to establish any argument that there will be net job losses in the Australian economy. Possibly there will be losses in specific sectors of the economy, and I am sure that all honourable senators will be concerned about that, but taking the global view of Australia's economy, there will be no job losses.

This particular tax package was strongly endorsed at the July taxation summit. That is something the Opposition will not admit, but elements of this package were very strongly endorsed at that summit. The summit was a very representative body; it represented many sections of the Australian community. At the summit it was made very, very clear that the Australian community wanted a crackdown on tax avoidance and evasion, particularly tax avoidance through the avenue of fringe benefits. There has been a large escalation in the payment of such benefits in recent years and the tax summit made it very clear that the Australian people wanted a capital gains tax introduced. Now we find that the sectional interests of the community, represented by honourable senators opposite, are screaming their heads off about such items as those that were endorsed by the wider community at the national taxation summit. Those who try to sustain the argument that there will be massive disruption and dislocation are really out of touch with the views of the general community. The community knows the abuses that were going on under the previous tax regime. The community knows all about the free lunch regime that occurred under previous tax arrangements. It knew about the escalation of fringe benefits and the various sums of money that were paid by employers on behalf of their employees. The general community was well aware of those abuses and it has very little sympathy for those who try to champion the cause of sectional interests. There is no doubt in my mind that that is the reason why sections of the media almost immediately dropped their hysteria about the tax package when it was announced, because they realised that they were completely out of touch with the community.

In proposing this matter, Senator Chaney used the words `enterprise' and `employment'. I do not believe the taxation package will hurt enterprise in this country at all. For example-and I am sure that Senator Cooney, who will follow me from this side of the House, will point this out-the top marginal income tax rate will be reduced from 60c in the dollar to 49c in the dollar. Similarly the middle rate of 46c in the dollar will be reduced to 40c in the dollar. Small business owners-and I must say that the Opposition suddenly seems to have discovered small business-will be among the major beneficiaries of that change. They will be paying tax at the rate of 49c in the dollar instead of the present 60c. Year in year out Liberal Party senators come into the chamber and advocate the introduction of incentive in the Australian economy. I believe that the incentive to work is the one about which they go on. However, we have not heard very much positive comment about the possible impact of the lower marginal tax rates. I presume that by talking about incentives the Liberal Party means encouraging people to show enterprise and flair, yet they have been very silent on this measure. Certainly, as a result of the changed tax arrangements under the present Government, from the time that those arrangements are introduced no one will have to pay more than half his extra income in the form of income tax. I should say also that the capital gains tax which has been introduced allows capital losses to be offset against gains. Surely that will not harm investment and enterprise because if losses can be offset against gains that will reduce the risk of investment. I think it is very important to bear those factors in mind.

Essentially we are removing taxation subsidies for particular activities. We are removing the burden on the honest, ordinary taxpayers who have been called upon for years to subsidise the activities of other members of the community. We are eliminating important taxation shelters; activities in the community which have been set up by individuals to shelter their principal incomes from taxation. I refer to such devices as hobby farms and rented accommodation, which have been classic tax avoidance avenues and tax shelters taken advantage of by a number of taxpayers to protect their principal incomes from tax liabilities. They are now gone, out the window, and good riddance to them. As a result of those measures I believe investment in the Australian economy and the price of assets will reflect more their true value rather than their inflated value as a tax shelter. It is very important in evaluating investment in our community that true returns are reflected rather than returns influenced by their value as taxation devices.

With the introduction of the capital gains tax it is important to note that Australia has at last arrived in the twentieth century. Until the introduction of this tax the Netherlands and Australia were the only two developed countries which did not have a tax on capital gains. All the countries with which we normally compare ourselves have had a capital gains tax for many years. The business sector and the remainder of the community have all worked under that tax regime overseas. It is very important to note that the capital gains tax to be introduced by this Government will collect only $25m a year, which is not a particularly large sum of money in relation to the overall Budget of the Federal Government. To put it into perspective, $25m might purchase only one helicopter for one of our guided missile frigates.

The important thing is that the capital gains tax will stop people using the device of conversion of income, which is taxable, into gains which have been tax free. It is a totally prospective tax. It does not tax existing assets, and the family home is completely exempt. As I have indicated, capital losses are offset against gains and, most importantly, the tax is levied on a realisation basis. That means that it is levied only when the asset is sold; therefore those selling assets will have the liquidity with which to pay the tax and they will not be caught short.

I was interested in the comments made by Senator Brownhill and in his special pleadings for the rural sector. I remind honourable senators that Senator Brownhill was a member of Senate Estimates Committee C, before which expert witnesses from the Bureau of Agricultural Economics appeared. As a result of my questioning of those witnesses about the determinants of rural land values in Australia it became very clear that the BAE had formed the view that over a long period rural land values do not rise faster than the rate of inflation in the community. In other words, over the longer period, perhaps 15 or 20 years, there is no real increase in rural land values. The capital gains tax, which is to be introduced by the Government, allows those selling an asset to deduct the increase in value of the asset due to inflation before the taxable gain is arrived at. Therefore if rural land does not appreciate faster than the rate of inflation, minimal taxation will be incurred by the rural sector.

A survey appeared in the Naracoorte Herald in South Australia on 30 September in an article written by an expert-not from the Bureau of Agricultural Economics in Canberra but from the South Australian Department of Agriculture. That survey made it clear that from 1975 to 1984 the value of farm land in South Australia escalated at an average annual rate of 11.7 per cent. The consumer price index over the same period rose by 10.9 per cent. So at the very most there was a real rise of a mere 0.8 per cent per annum in rural land values, which suggests that a very minor taxation liability could be incurred as a result of the capital gains tax. In the Murray Lands region in my State the average annual rise in land prices over that period was a mere 5.5 per cent. As I indicated, the consumer price index rose by 10.9 per cent, so in that large agricultural region of my State those selling farm properties would not incur any capital gains tax at all.

Senator Chaney today talked about the need to stimulate enterprise in Australia. But what about the enterprise shown by lower income Australians? They were conveniently ignored by him. That very large group of Australians face high effective marginal tax rates because they depend on pensions and social security benefits which are not only taxable but which are also subject to income tests. They pay effective marginal tax rates often in excess of 100 per cent. Overseas research shows that that group is a most responsive group to changes in work incentives.


The DEPUTY PRESIDENT —Order! The honourable senator's time has expired.