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Tuesday, 15 October 1985
Page: 1263

Senator RICHARDSON(8.52) —The taxation Bills we are debating tonight cannot be seen in isolation, as merely a single attempt to turn the Australian economy around. The reality is, of course, that they are part of a program upon which the Hawke Government embarked immediately upon assuming office some two-and-a-half years ago. It was not surprising to hear Senator Michael Baume say in conclusion that he and his Party, the Liberal Party of Australia, have some complaints about the way the Hawke Government has gone about tax reform. The Fraser Government, of which he was a member and of which the new Leader of the Opposition, Mr John Howard, was Treasurer, was never able to do anything about tax reform, often because of pressure from the back bench. Perhaps Senator Baume when he was in another place was one of those back benchers. I will give some quotes on the performance of the coalition in those years shortly.

The measures we are debating tonight are simply part of the policies pursued by the Government, directed towards a fairer, more equitable society, and a more efficient economy in which we can create strong economic growth. By any measure the Hawke Government's record over those two-and-a-half years can only be seen as an outstanding success. We have recorded growth rates that are the envy of Western nations all over the world. We have 430,000 more people in jobs, which means 430,000 more Australians paying tax rather than being in the dole queues into which they were forced during the Fraser years. Inflation has been cut. We have turned the economy around and we look confidently to the future. But that was all able to be done because this Government has shown itself to be capable of taking the hard decisions that its predecessor avoided on each and every occasion when confronted with this sort of problem. We have taken a number of hard decisions on taxation reform and this should be seen as the culmination of a number of steps already taken.

Any steps taken in the cause of tax reform were made necessary because of the unprecedented pressure the taxation system found itself under because of its seven years of neglect during the time of the Fraser Government. We had a crisis in our taxation system. That crisis was brought about by the phenomenal growth of tax evasion and avoidance, with the tax minimisation schemes. We have seen a graphic example of what happened in that area in the last two days with the gaoling of two of the most spectacular promoters of those schemes about which those opposite could do nothing in seven years. When one looks at their record on tax avoidance, is it any wonder? Not only were Opposition back benchers putting pressure on Mr Howard to do nothing, but also when anyone tried to take action files could not be found. They were lost deep in the bowels of the Attorney-General's Department somewhere in Western Australia, next to the files containing the numbers of certain ladies of the night.

The system, after all those years of neglect and misery, needed reform; it was no longer equitable, it was no longer efficient or simple. It just did not work any more. Taxation became voluntary for those in the higher income brackets. The latest estimates suggest that only 10 per cent of those in the 60c bracket who ought to be paying tax are now doing so. That is one of the main reasons why that bracket has come down pretty well to the company tax rate.

Senator Michael Baume —Who estimated that?

Senator RICHARDSON —They are Treasury estimates. They came out towards the end of last year or early this year. I note that the Treasurer (Mr Keating) has used them in the House a number of times without being challenged by anyone sitting opposite him. Thousands of Australians were failing to pay their taxes and their just share of the tax burden. The prescribed payments system, which was one of the earliest steps that we took, was a classic example of demonstrating just how when some action is taken we can get those who are rorting the system, those who, if they are not using tax shelters, simply refuse to acknowledge that they exist at all. We can get at them if we decide to do something. Those Australians who could not and did not rearrange their affairs during those seven years had to pay more and more. If one looks at why the Bills are here tonight, it is because of the growth of that tax avoidance and the effect it had on the taxation system. The distortions created meant that the burden was placed upon those who could least afford it. That meant that ordinary decent Australians in the work place, those who could least afford it, those who had to pay their tax every week, pay as you earn taxpayers, were as usual the ones who were hit.

Let us look at some of the things that the Liberal and National parties did in government on the question of tax. One cannot just say that tax avoidance began to bloom or blossom under the Fraser Government; it took off like a rocket. It was the only thing the Fraser Government could get going. In June 1975 one could identify for the previous year 25,000 cases of tax evasion. The amount under dispute was $40.9m. By 1982 it had jumped to 49,000 cases and we were looking at $192m. Then we started looking at all the schemes, not just the small minimisation schemes but the big bottom of the harbour rorts and others. Eric Risstrom, who needs no introduction, said that during those seven years alone up to $7 billion was lost and that is why this Government has to take some action. It is not good enough for Senator Michael Baume to say that the Liberal Party has some complaints about the fact that the Hawke Government has taken action, because the action was obviously necessary. In 1978 Bruce Pascoe, President of the Taxation Institute of Australia, said:

During the past year or two tax avoidance became big business in Australia. It became a disease, which, being allowed to go unchecked, reached epidemic proportions.

That is what we have had to face. Professor Russell Mathews said that tax avoidance had operated on such a scale as to make personal income tax a voluntary tax for the rich, non-salary earner. The Costigan Royal Commission on the Activities of the Federated Ship Painters and Dockers Union-an inquiry that was begun by the Fraser Government to embarrass the Labor Party-finished up saying, in its 1982 interim report:

The tax avoidance industry . . . has developed in Australia, particularly over the last five years, at a rate far in excess of any other industry and has brought with it profits comparable only to the heady days of the Victorian gold rush.

That is the legacy that this Government inherited. Concerning bottom of the harbour schemes, as I said, we have seen in the last couple of days two of the biggest promoters of those schemes go to gaol. Six thousand companies-that is the estimate of the Australian Taxation Office-were involved in those schemes. Their schemes were able to earn promoters alone $150m and the amount of tax evaded, at the very minimum, is $2.5 billion to $3 billion, according to the Taxation Office.

The largest fraud case ever brought in the bUnited States for evasion of tax was for a sum of $48m. We have two cases running in Australia, which has a twentieth or a thirtieth the population of the United States, in which over $200m is being chased. The former Commissioner of Taxation, Mr O'Reilly, stated publicly that he had continually implored the Fraser Government to act. In contrast to seven Fraser years, as soon as the Hawke Government came to office, it began to take action. We served notice in the election campaign and in the years before to the tax avoidance industry that it ought to look out, that the days of wine and roses, of milk and honey, were over, that a government was coming to power that would do something to stop the rort. That is precisely what we have done. Those opposite should just ask Brian Maher. He will give them the answer. The new Commissioner of Taxation, Mr Boucher, said in his 1983-84 report, when referring to that period:

At that time the boom in the promotion of tax avoidance and evasion schemes of the kind experienced in the late 70s and the early 80s was a thing of the past.

It took this Government one year to end it all. For seven years the previous Government could end nothing and only allowed for the beginning of a new and an ever-increasing number of schemes. We introduced legislation to reduce tax evasion associated with the cash economy. We were not assisted in that task by those opposite. It is instructive to look back at what happened with the prescribed payments system, because we insisted in that industry on a system whereby it became harder and harder either to pay for goods and services in cash or to be paid for them in cash. What happened? Between 1 September 1983 and 29 June 1984, 56,000 Australians were suddenly discovered. They came out from the woodwork or from holidays in New Zealand or wherever. It was discovered that they existed, that they were entities, that they ought to have been paying tax and had not been paying tax.

Why had the previous Government taken no action against the cash economy in all that time? It is also notorious that time and again the Labor Party has attempted to recoup taxation which should have been paid on capital profits, and it has been blocked in its endeavours. This matter was introduced several times and defeated in the Senate. The Liberal-National record on these matters not only should be explained in terms of what I said about tax avoidance, but also should be looked at in terms of the effect that avoidance had in distorting the system and forcing the burden onto ordinary wage and salary earners.

Despite the Fraser Government's promise to index personal income tax, it could not get around to doing so. Full indexation was never applied, and even the pretence of partial indexation was abandoned after 1980-81. The taxation burden on wage and salary earners continued to grow. In 1975-76, pay as you earn taxpayers contributed 41.7 per cent of total tax revenue and 76.1 per cent of total individual tax revenue. By 1982-83, the percentages had grown to 46.1 and 82 respectively. Once again, we saw the Liberal Party looking after its base of wealth and privilege. The comparative burden for non pay as you earn taxpayers and corporations declined. In 1975-76, in parallel with that increase in the pay as you earn taxpayers burden, non pay as you earn taxpayers contributed 23.9 per cent of total individual taxation. By 1982-83, that figure was down to 18 per cent. If those opposite had stayed in government, that figure would be down even further and once again wage and salary earners would be bearing the burden.

I will cite a couple more figures to illustrate the point. Between 1975-76 and 1982-83 the average weekly earnings grew by 113 per cent. However, during that period, the increase in taxation paid by a single taxpayer on average weekly earnings was 122 per cent. For a taxpayer with a dependent spouse and two children, the increase was 150 per cent. So much for Liberal concerns for the family. Again, let us contrast it with the Hawke Government's response-a response tempered by the need for equity and the need to do something for the poor. The Hawke Government acted immediately to restore equity. In the last Howard Budget-honourable senators should remember him-in 1982-83 compared with the second Keating Budget of 1984-85, pay as you earn taxation as a proportion of total taxation paid reduced from 46 per cent to 42.7 per cent, and as a proportion of total individual taxation from 82 per cent to 73.6 per cent.

Once again, this Government got on with the job. Let us contrast the Government's announcement of the last few days of getting on with tax reform with what happened under the previous Government. An editorial of 13 March 1981 in the Australian Financial Review-part of the Fairfax stable and not well known as a socialist rag-referred to a statement on taxation by Mr Howard. It said:

The statement by the Federal Treasurer, Mr John Howard, on the Government's taxation policy was as bland as it was predictable. The same old arguments were trotted out-taxation reform is desirable but it will not be done and reached the predictable conclusion that the Government can do nothing about the problem.

That went on for seven long years. Again, the Australian of 25 September 1980 stated;

Figures used by the Treasurer, Mr Howard, to claim a rise in the standard of living under the present Government have been criticised by the independent Federal Parliamentary Library Research Service.

Another article from the Australian of 15 November 1979 was headed `Howard retreats over family trusts'. It is instructive to look at this matter particularly in view of Senator Michael Baume's earlier remarks. An article by Des Keegan-who has spent most of his life criticising the Labor Party but had a rare moment this time and criticised our opponents-in the Australian of 15 November 1979 stated:

The Federal Government has weakened its proposed crackdown on family trust income-a move which will cost it $55 million a year-following strong pressure by coalition backbenchers.

The decision amounted to a win particularly for the National Country Party whose members have bitterly opposed the taxing of trusts-

why would they not?-

and a group of Liberal backbenchers, including the former Prime Minister, Sir William McMahon, who have opposed the `inequities' in the policy.

A number of Liberal backbenchers have argued the proposition would endanger the Liberal Party in its own seats because the people affected by the clampdown were likely to be coalition supporters.

That last sentence sums up why in seven years the Liberals could do nothing. The reality was that their base was in the rorts.

Senator Walters —I take a point of order, Mr Deputy President. Following Mr Fraser's crackdown on tax evasion, the present Labor Minister, Mr Dawkins, said that tax evasion was a thing of the past. So I really believe that the honourable senator ought to abide by his Minister's statements.

The DEPUTY PRESIDENT —Order! That is not a point of order.

Senator RICHARDSON —Regarding the tax reform measures before us today-

Senator Peter Baume —A Daniel come to judgment.

Senator RICHARDSON —The Government will come to judgment in late 1987 or early 1988 and will romp back to the treasury bench. We have no doubts about that. It is because of measures such as these being enacted that that will happen. I will return to the Bills rather than be bothered by tiresome interjections. These measures announced tonight, or partly announced tonight in this debate are, of course, designed to be revenue neutral. They will not be a grab-bag of new taxes whereby the Government can take more money. They are simply an attempt to make sure that whatever we get we can give back to people in the form of social security. But we have to look at some of the reasons why the Government has to act, quite apart from the mere rhetoric of attacking the Liberal Party's maladministration over all of that period. Almost half the work force now is paying 46c in the dollar or more in personal taxation, and a million more people will be added to that list during this term of the Hawke Government-a million more. If we do not act finally to do something about those rates we will really finish up with a problem. In 1956-57-going back to the years when I was a mere babe-one had to earn eight times average weekly earnings-

Senator Ryan —You are just a boy now.

Senator RICHARDSON —I agree. At the tender age of 36 there is still something to learn. One had to earn eight times average weekly earnings before one got into the top tax bracket. Today the figure is 1 3/4 times average weekly earnings and going down. The top bracket, which may once have been the province of managing directors, Prime Ministers and procedural specialists, has now been opened up to too many people, even back benchers like me. Ten years ago pay as you earn taxpayers contributed 44 per cent of total government revenue. The figure is now up to 54 per cent. Ten years ago they accounted for 77 per cent of all income from taxation. That figure is up to 83 per cent and it is going higher. That is why these measures are necessary. If we kid ourselves that we still have a progressive tax system, we are not doing the nation a service. We can no longer avoid the need for change. The system was breaking down. Paul Keating and the Hawke Government are finally trying to do something about it.

I mentioned earlier that the 60c bracket had become entirely optional for those who could afford to get into the rorts, to pay the Brian Mahers and their cohorts and colleagues enough to make sure that they did not have to do what ordinary Australians had to do. After seven years with nothing being done we did something, and finally we are now starting to see the fruits of all of that labour. Last year alone 400,000 Australians with modest incomes moved into the 46c bracket-400,000 in one year. We cannot sit back and let such things happen. It will always be easy to oppose any change, especially a change as broad and as bold as this one. But if we allow ourselves, as did those opposite for all those years, to be talked into the view that it is just too hard, that people will complain, we will finish up doing nothing. This Government is not prepared to see itself regarded as a government that was afraid to act. This Government has the courage of its convictions and it also has its policies.

Let us look at just what is happening with these new tax changes. There is finally a capital gains tax-something that obviously causes some political pain for a government that introduces it. But the reality is that we have to do something in Australia to ensure that we get some more productive investment. We cannot have all of the money going into Gold Coast home units. We cannot have all of the money racing around Australia for the quick profit, the fast buck. What we are about is trying to make sure that investment in Australia is redirected into enterprises that can create employment, enterprises that can secure a future for all of our children, not merely for the children of those who happen to possess the big bucks now.

In the area of fringe benefits, we have a real attack on the shelters that have built up year after year, particularly during those notorious seven years to which I have referred. Again, it is not easy to go ahead with a package that attacks fringe benefits because, although fringe benefits may have started at the top of the scale, they have extended down the scale over the years. There will be difficulties with the trade unions, with the ordinary workers, over fringe benefits. We cannot kid ourselves that fringe benefits these days are only for the rich.

Senator Walters —Why didn't you tax the workers and not the employers?

Senator RICHARDSON —I note that yesterday my Leader used the word `banal'. I have never been convinced that his pronunciation is the correct one. I will still opt for the pronunciation ba'nal and that is the only adjective that I can come up with to describe the interjection.

We are also moving towards finally doing something about an identity card, hopefully again, to stop some of the rorts. I cannot understand why the Liberal Party Opposition, which claimed when it was in government that it was against rorts in respect of unemployment benefits in particular, could never act on these. If we are to get a fairer society, we have to move to stop the rort merchants. One of the most obvious and easiest ways to do it is to ensure that a person coming up for a job in a club on a Saturday night is employed under his own name and that a person applying for social security benefits is doing so under his own name. In the end there is really only one way in which we can do it, and the Australia Card provides us with the answer. I do not regard it as particularly innovative in that sense; the need for it has been obvious for a long time. But it took the Hawke Government coming to power to see any moves made in that direction.

Senator Peter Baume —How about civil liberties in that area?

Senator RICHARDSON —Speaking of the pot calling the kettle black, when the day comes that a Liberal-National party opposition can lecture the Australian Labor Party about civil liberties I will let honourable senators know but I will be old-I was going to say `old and grey' but I had better not say that-before we ever get to that stage.

I now turn to the quarantining of farm losses, something that has had some criticism, again from the real constituency of those opposite, over the last few days. Again, the reality is that if we do not face up to stopping that sort of rort we will face up to nothing. This Government looked at the matter for a long time, knowing that inevitably there would be some criticism and that Qantas pilots and whoever else would be in Canberra complaining. But in the end we have to work out whether we are running a government for them alone or for the rest of Australia, for most Australians. I am proud to say that the Hawke Government took the decision that we would have expected it to; it took the decisions to do something to make the system fairer and to stop yet another rort.

Insofar as the film industry is concerned, it has been blatantly obvious for years that a massive tax rort has developed in the financing of Australian films, and something finally had to be done about it. Again, that is not something that simply happened last week or last month but something that has been happening over a long period. Whilst Senator Walters smiles, she smiled for those seven years while nothing happened.

Senator Walters —I hadn't said anything that time.

Senator RICHARDSON —There is a first for everything. If I can achieve for the Senate keeping Senator Walters silent I will really have done a public service; I will have earned my money. The Government is looking, as I said earlier, at a tax reform exercise, not at a tax raising exercise. Every single dollar raised by these measures will be returned to taxpayers. It will be returned to taxpayers in the form of social security benefits, by reform of the income tax scales and the company tax regime-we know about the full imputation of dividends-and by our attack on poverty traps.

I spoke yesterday about that attack on poverty traps, but it is worth mentioning in the few minutes available to me what the Government has done in that respect. By making sure that for single pensioners the amount of income allowed to be earned before there is a reduction in pension has been increased from $30 to $40 for couples from $50 to $70, we are making sure that pensioners get some more relief. By increasing the weekly income a pensioner can earn without the reduction of pension to $6 for each child, we have done the same thing. The Government made sure that 350,000 pensioners got an immediate benefit of $15 and up to 700,000 pensioners will be getting a benefit of a minimum of $5. So the Government was aware that these poverty traps were affecting those who could least afford it and it has taken some action.

I turn to the reactions to the tax package of some of the leading commentators in the newpapers around Australia to see what some independent observers have said about the things which we are debating tonight. The editorial in the Sydney Morning Herald of 20 September 1985 headed `Tax: the cart arrives' gives us some insight into why honourable senators opposite whinge and whine about the tax package. It states:

Of course business and high income-earners will scream about the tax on fringe benefits.

. . . .

They will also get the benefits of a major reform to company tax which will effectively make dividends tax free in the hands of shareholders.

. . . .

On balance, business has done well . . . Its claim that the tax on fringe benefits is a ruinous tax on employment is quite hypocritical. It knows that the use of fringe benefits is a major and rapidly growing means of tax evasion.

Honourable senators could not say that I am quoting sources that normally favour the Labor Party. The editorial in the Canberra Times on Friday, 20 September 1985 stated:

The Hawke Government, in the long-awaited taxation reform package announced yesterday, has made bold and substantial changes to the Australian taxation system.

The editorial in the Age of 20 September 1985-it was a big day for editorials-in speaking of the far-reaching reform of the Australian tax system, stated:

It is, for the most part, rational, brave and necessary.

They are the sorts of comments that one would not expect to read in the Age or the Herald. But they are the sorts of comments that the Government received. It received them because it had the courage of its convictions and the courage to act; the courage which was singularly lacking in the Government in which John Howard was Treasurer, but the courage which will always be found in any government led by Bob Hawke, with Paul Keating as Treasurer.