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Tuesday, 15 October 1985
Page: 1236


Senator CHILDS(4.50) —We are discussing the Taxation Laws Amendment Bill (No. 2) 1985 and other income tax Bills. I would like to use this opportunity to refer to the Government's historic taxation statement, the Budget and other taxation matters because, as Treasurer Keating has pointed out, we have the most far-reaching reform of the Australian tax system being undertaken by the Labor Government at present, It is a reform that is desperately needed. Liberal and National Party senators have chosen to ignore the dire situation with which we were faced when we came to power-a situation left by the Fraser Government. I remind you, Mr Deputy President, of some of the things that we faced when we came into government. We faced an unemployment rate of 10.2 per cent and an inflation rate of 11.4 per cent. An increasing number of people were living in poverty. When we came into government the figure had gone up to three million people. We are now left to deal with these massive economic problems. We also had a tremendous crisis in the taxation system. There was widespread disillusionment with the taxation system and the great majority of Australians, the wage and salary earners, were becoming less and less a silent majority because they knew that massive tax avoidance and evasion by self-employed and wealthy people was going on. The growing inequality of the taxation system which occurred under the Fraser-Howard Government has been documented many times.

I remind honourable senators of a few of the salient facts. From 1976 to 1981 wages and salaries increased by 97 per cent. However, personal income tax rose by 150 per cent. In comparison, the income rise for business, dividend and share owners rose by 125 per cent while their tax increase was only 75 per cent. That sums up the way in which the Fraser Government managed to push more and more of the taxation burden on to the backs of Australian wage and salary earners. But it was not simply the self-employed and the non-pay as you earn taxpayers who did well out of the Fraser-Howard regime. Upper income earners did well also. For example, the share of total income tax paid by people on double the average weekly earnings fell from 53 per cent in 1956-57 to a pathetic 16.5 per cent in 1981-82, which was the last year of the Fraser Government. People who earned $40,000 and upwards in today's terms used to contribute more than half the total income tax revenue in 1956. They now pay only one-seventh of that income tax.

The reason for this is that upper income earners have been allowed to find more and more loopholes through which to escape taxation. Those loopholes were largely ignored by the Liberal Government and this caused huge losses to the taxation revenue. Estimates of the cost to revenue of evasion and avoidance range from $3 billion in 1979 to $4 billion in the last year of the Fraser Government. The options open to people to reduce their tax burden were many. For example, there were fringe benefits. People were able to hide income as tax free capital gains. There was the use of concessions and tax havens, as well as outright evasion of income, as shown by the huge loss of revenue caused by non-declaration of income from shares and dividends, and the use of bottom of the harbour type schemes. It is very significant that on page 3 of today's Australian Financial Review the following heading appears: `Jail terms for two seen as ``epitaph'' for the bottom-of-the-harbour era'. The Australian Financial Review reported yesterday's decision in which Brian James Maher, whose company, Commercial Securities Ltd, was probably Australia's biggest tax avoidance promoter in the 1970s, was found guilty of conspiracy to defraud and was sentenced to five years' gaol. Mr Justice Carter of the Queensland Supreme Court said:

The real and ultimate victims were the millions of honest citizens of this country who bore the brunt of the loss (of millions of dollars) to the revenue.

Of course, that case brings to an end a particular sphere of activity by the leading tax avoider of that period of the Fraser Government. Some of the methods used in the avoidance and evasion industry were sanctioned by the former Liberal Government. The methods included hiding income as a capital gain and the use of fringe benefits. This Government is rectifying those schemes. Some of the schemes were ignored by the former Liberal Government to the point where they developed to plague proportions. Some, like the corporate use of tax havens, were too frightening for the Liberal Party to contemplate when it was in government. More and more wage and salary earners were being alienated and increasingly outraged as their taxation burden increased and the inequalities became obvious. The whole concept of a tax system based on the principle of ability to pay had broken down. It was this situation that we set out to rectify. This situation brings about the Bills which are before us today. It is a situation that the Government's tax statement and the current Budget are set to change forever.

We want to rectify this corrupt and unjust system. I commend the Government for having the courage to follow this course against the people who have tremendous wealth and who are screaming at the moment that they might be forced to pay their fair share. The principle involved-it is not a revolutionary principle, but the way these people protest one would think it was-is to broaden the concept of taxable income so that it is not only wage and salary earners who pay tax. This means that capital gains are to be treated as taxable income. Income earned from investment is to be taxed in the same way as income earned from labour; that is, the property developer who sits back and watches his property increase in value will now pay tax as does the labourer who earns his income through grinding hard work. More importantly, what was once a major way of avoiding income tax has now been eliminated by the introduction of a capital gains tax. These are the things that are taking place. This is the legislation that the Government is introducing.

In broadening the concept of income we have also affected the use of fringe benefits as a method of tax avoidance. We have heard the cries of members of the Opposition as they react to their friends who protest about the Australian taxpayer refusing to continue to subsidise their meals-their wining and dining. Of course, this has to be addressed because the studies done on fringe benefits show how unevenly these benefits have been shared. When I talk about fringe benefits I am not talking about gaining small advantages such as subsidised canteen meals and discounted goods; I am talking about the big ticket items. The lurks to which I refer are low or no-interest personal housing loans; luxury housing for which little or no rent is paid; lavish entertainment allowances; fully paid air fares and holiday expenses; fully paid private school fees for children, and so on. These are the big money items that have become part of the life of wealthy people.

The Social Welfare Research Centre at the University of New South Wales has indicated that the total value of lurks and perks grew rapidly over the Fraser-Howard period of government. They equalled about one-fifth of the total wage and salary bill for Australia. The top 10 per cent of income earners received one-third of the total value of these perks. The same study showed that the cost of these lurks and perks in 1980-81 was $5 billion; that is, about half the Government's expenditure on social welfare payments at that time. That is the extent of all those advantages and the distortion that the final years of the Fraser Government gave us. More recently, a survey in the Australian Financial Review last year showed that for executives earning $40,000 a year or more, the fringe benefits component was worth 25 per cent of their salary. Thus, one quarter of their earnings is effectively outside the reach of the tax commissioner. The tax survey showed that 94 per cent of these executives also drove a company car worth in excess of $16,000.

We have recently heard the Opposition, led in this chamber by Senator Chaney, attack the welfare costs of the most poverty stricken group in our community, the single parent family. He and his Party have consistently ignored the massive loss to revenue sustained by the welfare sector because of what I have outlined. They have followed a policy of money for the greedy, not the needy. It now seems quite unacceptable for them to face the fact that things have changed and that we are trying to redistribute to people money that has been denied to the tax system for so long.

What the Australian people need to know is that the morality which the Fraser Government represented in terms of tax avoidance and evasion is now going. There is a new morality in this country where people will pay their fair share. Wage and salary earners no longer have to face the fact that they are the only people genuinely paying, and all sorts of other people who have been able to use legal strategems are now not able to employ them. They must face the fact that in Australia, for the first time, all income will be taxed, with the chance of tax relief for wage and salary earners.

The changes in the Bills which are now before the Senate and the first readings of which are being discussed are part of the process. We can now restore this faith to wage and salary earners. We have tried to share the tax burden. I believe that the Government will be thanked by the Australian people for the contribution it has made to changing the whole system of taxation. As a result of the Budget and the Government's taxation statement, we shall be putting Australia on a new path as far as taxation is concerned.