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Tuesday, 15 October 1985
Page: 1277


Senator BOLKUS(10.18) —I also wish to participate in this debate and in doing so support the tax package brought down by the Australian Government. We have in this tax package a most comprehensive and significant reform of the Australian taxation system. It is the culmination of a consultative process which offered, for the first time in our history, all Australians a say in how tax revenue should be most fairly gathered. It also created an expectation within the community that major taxation reform was imminent. The overwhelming message to come out of this democratic process was that the tax burden had to be distributed far more equitably. Low income and average wage earners would no longer put up with the widespread tax avoidance undertaken by those on higher incomes; nor would they abide being fiscally dragged into higher tax brackets with no avenue for redress.

What was required-what came out of the consultative process as being desirable-was a full scale overhaul of the system so that those in a position to pay met their responsibilities, thus introducing at least some equity into our tax system. At the end of the day we now have a tax package which reverses a firmly entrenched trend, a trend which years of conservative government helped to fortify, which generations of corporate criminality helped to entrench and which years of irresponsibility from the High Court of Australia had protected. If reform had not taken place-we should address ourselves to this point-one million taxpayers would have moved into higher tax brackets and over 140,000 pensioners would have risked losing their welfare rights. More importantly, average wage earners would have continued to subsidise, through the tax system, the social lives and habits of high income earners. People receiving welfare payments would have continued to struggle in the vicious poverty cycle, unable to supplement their welfare incomes for fear of losing them altogether. The measures proposed by the Government, I believe, go some way towards redressing these inequities. Indeed, they go a long way to doing so.

The first point that I wish to concentrate on in particular is the new marginal rates. The enormity of the reform is indicated by the fact that the package will cost over $4.5 billion. What this means for a typical taxpayer is an income tax cut of about $6 a week from September 1986 and more from July 1987. The revised rates will mean a lighter load for honest taxpayers and a much reduced incentive to avoid tax. The old 60c top marginal rate was blamed by many people in the community for discouraging incentive and encouraging people to devise tax avoidance schemes. If such claims are correct, there is in this package a challenge to the high income earners. If they do not respond, of course there is the fall back position; the raising of the company tax rate to the same level as the highest personal tax rate should at least reduce the incentive to avoid tax by forming a company.

Corporate tax reform is the second and one of the most important parts of the package. Reform of the company tax system has been long overdue. There are many ways in which the tax burden has decreased on the corporate sector over the years. In the last 10 years at least the burden of the tax share paid by the corporate sector in Australia has decreased by approximately $2.5 billion. This is money that has to be met by individual taxpayers. Further, as at 30 June 1984 outstanding tax debts to the Australian Taxation Office stood at almost $2 billion. That figure represents the extent of tax avoidance, trust stripping and company stripping which are undertaken mainly by the corporate sector in this country.

The enormity of the problem can be seen in the figures for the financial year 1983-84 in which tax avoidance represented one-quarter of total collectible tax. This means that the Australian economy was in fact robbed of a quarter of its entitled revenue. I have mentioned some ways in which the corporate sector has been able to reduce its tax burden. In terms of the problem of tax reform I think we should address ourselves to one way of avoiding tax that has appeared in the United States of America. A recent investigation of the affairs of major American companies such as General Electric, W. R. Grace and Co., General Dynamics and others has revealed that a firmly entrenched system has prevailed for opting out of the tax system. By its use of the Reagan investment incentives and the loophole ridden corporate tax code that applies in the United States, companies such as General Electric manage in fact not to pay taxes at all.

General Electric managed to claim a negative Federal income tax bill of $283m for the years 1981 to 1983. In fact, at the end of the day, the United States Government actually owed GEC money. This was despite the fact that that company's profit for the period was $6.5 billion. General Dynamics is another example. America's major defence contractor has not paid Federal taxes since 1972, a period during which it has reported a profit of more than $2 billion. The major chemical and oil conglomerate, W. R. Grace and Co., actually made a small profit from the United States tax code in the years 1981 to 1983 despite its accumulated profit for the period of $684m. In that country the taxation procedures and loopholes were used by the corporate sector not only to reduce its income tax but in fact to recover funds from the Treasury.

Fortunately, I believe that the Australian system has rid itself of some of the lurks and loopholes which are still available to United States tax avoiders. But that is not to say that we have eradicated the problem altogether for in fact there seems to be no stopping major corporations from avoiding tax by mechanisms designed to shift profits, usually by the system which is commonly described as transfer pricing. As most honourable senators would know, this system is one under which, by the use of internal manipulative practices, profits are shifted from a high tax country to a low tax country to reduce the overall company tax burden. It enables them, in other words, to maximise world-wide profit and to minimise tax. The consequent result of such procedures is that the economies of countries such as Australia suffer through the loss of tax revenue and, in turn, individual Australian taxpayers have to foot the bill.

The scheme is a simple one and it works in a simple way. As I said, the underlying principle is to shift the profits to a country with a low tax rate. Whether that country be Hong Kong or elsewhere, this system has been and can be used. It is a system that is used not only for reducing taxes and in this respect the sovereignty of countries such as Australia is affected by these mechanisms. The mechanism may be used to siphon funds out of countries that curb remittances, threaten to control prices to minimise high customs duties, to show low profits so as to discourage other companies from entering the market and even to fight off wage demands.

I mentioned earlier that I believe to a certain extent this system has been eradicated in this country. However, I do not believe it has gone altogether. It is in fact difficult to measure the extent to which it is applied here because we have not to date had sufficient examples of its occurrence. In fact, we have not had sufficient investigation as to its occurrence. The National Times of 11 October carried a story about profit shifting arrangements occurring within the aluminium industry in Australia. Such a practice is not unprecedented in this industry. People will remember a similar sort of scam which was used in the 1970s by another aluminium company. According to the most recent report, the Swiss based aluminium company Alusuisse is disputing its $15m tax bill with the Australian Taxation Office for its operations in Australia in 1978 and 1979. The Taxation Office estimated the company's income for the period to be $US100m a year. However, during that period the company exported most of its alumina and bauxite to foreign subsidiaries which paid on a cost plus basis, not on market prices. Profits were therefore minimised and I believe as a consequence the company attempted to reduce its tax burden. The Government and the Taxation Office should be complimented in this instance in that they are seeking through mechanisms which have been introduced over recent years to recover the rightful amount of tax that should have been levied on the company's activities during this period.

As I said, the effect was to cut taxes in this case. The most recent research on the matter has been carried out by Greg Cragh of the transnational corporations research project at Sydney University. He has estimated that as much as $500m may in fact have been removed from Australia between 1972 and 1984 because of this particular scam. This is something which I believe should be further investigated. It is something that I will be pursuing through the avenues that are available to members of parliament. I seek leave to continue my remarks later.

Leave granted; debate adjourned.