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Wednesday, 16 October 1985
Page: 1302


Senator BOLKUS(11.22) —Before the Senate adjourned last night, I had started my contribution on this tax package and had made a number of points in respect to it. The first and fundamental one was that I asserted that this tax package constituted a most comprehensive and significant reform of the Australian tax system, one which had been long overdue and which has brought equity into the system that now operates. In doing so I referred to the consultative process which preceded the tax package, a process that offered to all Australians a say in how tax revenue should be most fairly gathered. Going on from that, I made a number of points about the reduction in the new marginal tax rates and its impact on the average taxpayer in take home pay, and noted that for such people an income tax cut of about $6 a week would take place from September 1986, and more from July 1987. I then proceeded to discuss the corporate tax reform aspect of the tax package and made some comments about the mechanism of transfer pricing, whereby the corporate sector has a way out of shifting profits at the lowest possible tax rate.

I now wish to proceed to another aspect of the tax package, and that is the part dealing with fringe benefits. I believe that the fringe benefits tax is a welcome initiative, and long overdue. For too long in our economic system the majority have been subsidising the social lives of the select few who have guarded fiercely their right to company cars, subsidised school fees, free lunches and low interest loans. The Minister for Finance, Senator Walsh, a couple of days ago mentioned that he thought the Liberal-National Party coalition in this place had put forward this new concept of a free lunch-led economic recovery. It is interesting to see to what extent this free lunch-led recovery has been embraced by Opposition spokespeople. Getting away from the rhetoric and the strident opposition from some aspects of the restaurant trade, we should be noting that the Government decision will bring equity into the system. We have outlawed what constituted outright tax evasion.

Over the years there was an increasing shift of high income earners to perks rather than salary as their preferred form of income. This highlighted the unfairness of the system as it operated. Whereas a company executive could claim a business lunch as a tax deduction, people in the work force with children-and in this respect women were affected more than men-could not claim child care expenses. Inconsistencies such as this highlighted the urgent need for reform. The enormity of the reform is evidenced by the fact that approximately $600m will be returned to tax revenue in 1986-87 as a result of the fringe benefits tax. It is a telling comment on the enormity of the lurks that our friends in the Opposition wish to protect.

Another aspect of the package which has been opposed by some members of the Opposition has been the capital gains tax. In the same way something had to be done about the enormous growth in the practice of converting income into capital gains to avoid tax. This practice has been behind the greatest tax avoidance schemes of the past 15 years. I believe that the cessation of this avenue of avoidance will raise more revenue than will the actual tax itself. The debate on the tax that has ensued since the Government made its announcement has ranged from the slightly unreasonable to the most totally absurd. On the latter end of the range the South Australian Opposition Leader, Mr Olsen, suggested that the introduction of the tax would mean no less than the total destruction of private enterprise in South Australia-inflammatory words, to be expected in a lead-up to a State election. However, when one looks at what the tax will raise in South Australia and makes an assessment based on the tax figures produced by the Government, one finds that South Australia's contribution to revenue from the capital gains tax will amount to only $2.5m after five years-not really the stuff of private sector decimation. Mr Olsen insults the South Australian private sector if he believes that it cannot bear the burden of $500,000 tax per annum.

In this place the Opposition would have us believe that the capital gains tax is a creature bred recently in some socialist Treasury laboratory; obviously something that would not take place under the previous Secretary to the Treasury, John Stone. The truth is, however, that such a tax has existed for at least 10 years, and in many ways this new tax is an adjunct to the existing provisions. As honourable senators opposite well know, section 26AAA of the Income Tax Assessment Act provides that if assets are bought and sold within a 12-month period they are subject to a capital gains tax, at the full marginal tax rate. So the rhetoric that is being put forward in this place, and outside in the community, is misplaced.

There is no justification for freedom from a capital gains tax. In fact, if equity is to be introduced into our system, such a tax is vital. What we have without such a tax is a system whereby income is not taxed equally. All income irrespective of source should be taxed equally, and this measure goes some way towards doing that. It should be noted that capital gains add to an individual's wealth and income and ability to consume and therefore they should be taxed accordingly. In many ways, however, as I mentioned earlier, the capital gains tax could have carried more clout. Most countries with such a tax make absolutely no allowance for the effect of inflation on asset values. The Government's tax will do so. What we are presented with is an extremely moderate tax by world standards. It will exclude the family home; it will apply only if the asset price increases more quickly than inflation; and there is no death duty component aspect to it. The whingers in the Opposition, in business and on the land are really only whingeing at a concept. If they look more closely, they will see that the deal they are getting is more than fair.

Another important aspect of that tax package that I wholeheartedly applaud is the way the Government has handled the whole question of poverty traps. We have moved very decisively to alleviate the plight of those caught in poverty traps. It has been one of the greatest inequities in our system that pensioners, welfare beneficiares and low income earners face extremely high marginal tax rates when they try to earn just a little more for themselves and their families. This problem has been exacerbated over recent years when other benefits and entitlements such as, say, supplementary rental allowance, have also become income-tested. We then had a situation when many people on social security benefits found that they were paying an even higher tax rate than high income earners, many of whom were able to afford their tax obligations. This aspect of the tax package is aimed directly at those in greatest need; pensioners with children and those obliged to pay rent are met by this initiative. It will mean that pensioner couples will be able to earn $70 a week before their pension is reduced and pensioners with children will be able to earn an extra $12 per week per child.


Senator Walters —On a point of order: This is a second reading speech on taxation. The honourable senator is dealing with social welfare benefits, which I do not see have anything to do with the taxation Bills at all.


Senator Button — Senator Walters was clearly not listening to what Senator Bolkus was saying. There is no point of order. Senator Bolkus was talking about the way the tax package deals with poverty traps. I think the honourable senator ought to pay attention.


The DEPUTY PRESIDENT —I do not uphold the point of order.


Senator Messner —Mr Deputy President, on the point of order-


The DEPUTY PRESIDENT —No, I have ruled on the point of order. There is no point of order.


Senator BOLKUS —On the advice of Senator Foreman last week, the honourable senator should catch the next train to Tasmania.


The DEPUTY PRESIDENT —Order! Senator Bolkus, there will be no discussion on this matter.


Senator BOLKUS —The point I want to make is that we are dealing with a tax package which deals favourably with those caught in the poverty trap in the past. I think it is an important initiative and one that should be welcomed, not only by this side of the Parliament, but also by those on the other side, including Senator Walters, despite the fact that she seems to have a continual obsession with the rich doctors in this country.

An aspect of the tax package which has been debated very strongly in the community and one which I believe will still be debated is the ID card proposal. What I want to say on this matter is not new. In the past I have said more than enough about the ID card proposal. However, I do wish to make some comments about the initiative of the Government and the way we should tread and proceed on this matter. It is quite clear that there are possible gains to tax revenue under an ID system. I think it is also clear that there will be costs. There is of course the inevitable cost to civil liberties which has to be weighed in the context of the whole debate.


The DEPUTY PRESIDENT —Order! In view of the point of order taken earlier by Senator Walters, the honourable senator is straying from the purpose of these Bills. We are not discussing the tax package as a whole, they will come into the Senate later. The Bills before us should be the subject of the honourable senator's speech.


Senator BOLKUS —We are discussing the tax package, and this is one aspect of it.


The DEPUTY PRESIDENT —Order! The Bills before us are listed on the Notice Paper. They are not the ones which are presumed to be introduced in due course on the tax package.


Senator BOLKUS —In that case I will jump over the aspect of ID cards, no matter how interested the Opposition may have been in what I wanted to say about it. Having gone for over 20 minutes, I will now come to my conclusion. At the end of the debate, at the end of the consultative process, we have, I believe, a re- orientation in the direction of our tax system. We have had in the past a system which has been protected by the irresponsibility of conservative governments, fortified by the criminality of the corporate sector and protected for too long by an irresponsible High Court.

The reforms in this package are as substantial as they are essential. I mention the enormity of the tax cut of $4.5 billion to wage earners. The fact that they have been received so well in the community indicates to me how necessary they were. I believe that the tax package has addressed the urgent need to reduce marginal tax rates, to put a stop to the growing tax avoidance industry and, in so doing, to restore fairness to the taxation system. Economic growth is generated and encouraged by some of the measures and greater rewards for initiative are provided by the removal of distorted tax shelters. I believe that the introduction of a reasonable capital gains tax will help move capital from non-productive areas to more productive employment encouraging ones.

I congratulate the Government for its courage in embarking upon such an ambitious program and, furthermore, congratulate it for actually doing something about tax, an area which has been neglected for too long by conservative governments in this country.