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Tuesday, 5 November 1985
Page: 1536

Senator MESSNER(4.08) —I move:

That, in the opinion of the Senate, the following is a matter of urgency:

The need of the Hawke Labor Government to abandon its proposed capital gains tax because of the destructive effects on incentive.

Let me say at the outset on this debate, which has been long in coming, that the Liberal Party of Australia and the National Party of Australia stand for the abolition of any capital gains tax introduced by the Australian Labor Party. Not only will we oppose and vote against the legislation when it is finally brought before this chamber but also, upon re-election to government, we will repeal it. That is an unequivocal commitment on the part of the Liberal and National parties in respect of the Labor Government's capital gains tax. One could ask: Why have the Liberal and National parties taken such a strong position in opposition to this tax? The key word in the letter that has just been read to the Senate by the Deputy President is `incentive'. The Labor Party stands in opposition to incentive. It is not prepared to commit itself to encourage ordinary Australians to build up assets and wealth, to create jobs by doing so and so continue the development of wealth and the economic development of this country. The Government's commitment is the reverse. It is committed to stopping development, discouraging investment and ensuring that jobs are not created by Australians putting money into their own country to ensure that these things go forward.

It is probably appropriate on a day such as the first Tuesday in November, which has some great connotations for many Australians, to remind ourselves of some words of Alan Jones, who is the most successful rugby union coach in Australia's history. Regarding incentive he said that in Australia, in the pursuit of excellence, we clearly have problems in understanding what it is that creates that get up and go that gets jobs created and gets the country moving. The reason is obvious when we look at the Melbourne Cup. Twenty-six or 27 of the best horses in Australia race in one race and we make sure that the one that has the best chance of winning is weighed down with lead. That is the kind of approach adopted by this Government. It wants to weigh down the best opportunities with lead so that people cannot get up, so that they are weighed down with a capital gains tax and so that incentive is destroyed. I think that many of the points which Alan Jones has made many times on radio and in other places bear repeating. The one which I quoted is a key point as far as the attitude of the Liberal and National parties regarding the Government's horrendous capital gains tax is concerned.

Let us look at some of the reasons, both long term and short term, why this Government is trying to destroy incentive and how it is achieving this through the introduction of a capital gains tax. We are reminded constantly of the need to be more competitive overseas so that we can create jobs by being able to sell our goods on world markets, in order to promote opportunities overseas and, of course, to bring new products to bear from Australian developments through Australian industries. Yet, when we set out to do this, we find that the clappers will be put on such a proposal by ensuring that if people do build up their businesses and build up new technologies which they can sell either in Australia or overseas, they will be taxed at the maximum marginal rate of income tax. We know this because the Government will not make any allowance for inflation as the tax will be applied to goodwill, whether it applies to corporate goodwill development through technological development or to a corner store. The corner store buys goods to put on its shelves to sell to its customers and it creates jobs, in just the same way as larger companies invest in machinery, trading stock and raw materials in order to generate new products. The analogy for development lies in the very simple concept that starting with nothing and building it up to something will be taxed by this Government's capital gains tax because it will not take into account any indexation from zero, applying indexation only to those assets which already have values. The first major development that we would see encouraged by other things that the Government might have in mind will be destroyed by that very simple proposition.

We should be encouraging more people in this country to work for themselves. We should be seeking opportunities whereby they can develop their own businesses so that they can go out and find their way in the world, thereby establishing more security for their families and improving their living standards which, under this Government, they are feeling are slipping away. The only way in which they can ensure that their living standards are maintained and can be developed is by becoming independent financially, by paying off their debts, which is becoming increasingly more difficult because of higher interest rates-the highest real interest rates in this country's history are being perpetrated by deliberate government policy-and in that way ensuring that they become totally independent of government. It is a basic ethic of this country that we should encourage people to be self-reliant, to build up capital in their own names, so that they can retire in some degree of comfort and so that they can ensure that they will not be a burden upon the social security system. Yet this Government, which is confused in its normal contradictory fashion, is quite keen, by the introduction of a capital gains tax, to make people even more dependent upon the social security system, by ensuring that their assets are taxed very heavily, thereby reducing incentive for people to build up those things in their own names.

As most people realise, we still have a very large unemployment problem in this country. The number of unemployed people is still in the order of 550,000-plus. Yet this Government is eschewing every chance and opportunity that it has to encourage people to get stuck into it to create jobs. As I mentioned, the small businessman, by putting stock on his shelves, by buying plant, shop fittings or whatever, is giving people an opportunity to buy his goods, thus creating jobs for other Australians. The Minister for Finance (Senator Walsh), who is at the table, is fully aware of the multiplier effect of such things. In his position he should be encouraging rather than discouraging investment which is job creating.

I think it is probably wise to acknowledge, even though I am not given to Latin derivations, that the word `incentive' comes from the Latin word which means `setting the tune'; in other words, giving the general overall impression that this Government is interested in encouraging people to do their own thing. Yet this Government has set its face, by the introduction of a capital gains tax, totally in the opposite direction. By the introduction of the capital gains tax it will destroy jobs rather than create them.

Why is it necessary to abandon the current capital gains tax? That is the major thrust of the urgency motion that is before the Senate at present. There is absolutely no doubt that there is vast confusion in the community, especially in the business community, about the impact of the capital gains tax. There is doubt everywhere. This is having its effect, indirectly, through the falling dollar and the United States of America exchange rate. Consequently we can see developing a strike of capital across the country that no doubt will accelerate as time goes by and as people come to understand more and more the problems with this capital gains tax. The overseas situation is quite clear. It is having a big impact upon activity within this country. It is true to observe that not only the Government but also private companies are borrowing overseas because they are being encouraged by very high interest rates set by the Government in order to attract foreign capital into the country. The reason for that is to offset the very large deficit that is occurring on our overseas account each year and in the last financial year reached $10.3 billion.

If we need to rely more and more on that kind of capital inflow from overseas, the introduction of a capital gains tax, which decreases the opportunities and the encouragement for people to invest in equity as opposed to debt, will put us in a position of being more and more reliant upon creating more debt; and that means higher and higher interest rates. It is plainly amazing to us on this side of the chamber that the Government does not perceive that its actions in introducing a capital gains tax at this time will only exacerbate the very real and difficult problems that arise from the present overseas situation.

Senator Walsh —How?

Senator MESSNER —I have just explained it to the Senate. The problem quite simply is that we will create a change in the way in which companies borrow overseas and in that way create more and more dependence upon debt. If we are putting forward the case that this tax should be abandoned now so as to clear the worries and concerns in the community, so that the business community can get on and develop job opportunities in this country, we have to ask ourselves: Who supports the introduction of a capital gains tax? If the gallup polls are any guide-they appear to be a great guide to the Prime Minister (Mr Hawke)-63 per cent of Australians are opposed to a capital gains tax. Presumably the other 37 per cent, which must include most of the Australian Democrats in this country, because apparently the Democrats support a capital gains tax, as does this Government, means that there is a very great minority of people who support the introduction of this tax.

Where is the pressure from within the community? It is clear that the community does not want a capital gains tax, that Australians want to see the opportunities before them so that they can go forward and develop their own industries and businesses and create jobs for other Australians. That is basically what this whole matter is about. The Government is flying in the face of the Australian people by introducing a measure which is not wanted and which is not perceived as being valuable. That is the reason why a capital gains tax will be a major disincentive to Australian investment and Australian job creation. It simply flies in the face of what Australians perceive to be good for the country and good for improving the standard of living of individual Australians.

Senator Cook —By how much?

Senator MESSNER —Senator Cook interjects. He is about to tell us what the Prime Minister said in his famous Opera House speech in March 1983 before an election. I recall his famous words when the Liberal Party was challenging him on the basis of his threat to introduce a capital gains tax. He said `Let me say it in words of one syllable' or words to that effect `so that even the Opposition will be able to understand: We will not introduce any capital gains tax'. We know why. It is because the gallup polls show us that 63 per cent of the people oppose a capital gains tax. The Prime Minister threw this away at the time as electoral bait. That is all he had in mind. He did not mind how many lies he told. The fact is that he was elected on the basis of not introducing a capital gains tax. Of course that goes into the same category as the lump sum superannuation tax and the assets test, which he also promised he would not introduce but which, of course, he has. This Government will have to face the lash of the people at the next election on that issue because we will be campaigning on the abolition of the capital gains tax.

The other point about this matter which is most significant is that this tax is totally illogical when one takes into account what the Government has done in other areas of taxation. I have mentioned the lump sum superannuation tax and the assets test. I have also mentioned the actions of the Government to abolish for tax purposes the negative gearing principles. That affects property development right across Australia by small business people. It is interesting to note that the Government apparently will allow large business people off the hook but not small individuals who might be seeking to do their own thing. Oh no, the Government must hit them in the neck in the same way as it has introduced a capital gains tax which will hit the little corner store in such a way that the Government will get its goodwill in one lump upon the selling of the business rather than allowing it to be spread over the 20 or 30 years that it perhaps took to build up that goodwill. This Government is seeking to destroy that incentive as well.

One might say that speculative gains are very much an item that ought to be caught by a capital gains tax. The fact is that they are caught by the present income tax legislation. This Government, by introducing section 25A of the Income Tax Assessment Act, legislated to ensure that that was so. It wiped out the old section 26A, the application of which was doubtful. Consequently, speculative gains will be caught by this legislation. The Government now says: `If there are any problems with that legislation and there are things that will slip through the net, they can always be brought to the Parliament and amendment of that legislation can be sought. What is the problem with that?' In order to crack that nut the Government must bring out its sledgehammer and bash everybody to pieces with an all-encompassing capital gains tax.

Another point I would like to make-it is absolutely critical-is that this tax will make the rich richer and the poor poorer. The situation is that assets that were in existence on 19 September will not be taxed at all but those which are accumulated after 19 September will be taxed. The little people who try to acquire assets after 19 September are the ones who will be hit by this tax later down the track, whereas all of those who now have millions of dollars tied up in assets will not suffer that tax.

The point, of course, is simple. This Government is absolutely confused about its objectives. It already has in place taxes which can take account of speculative gains and it already has in place taxes which can take account of windfall profits in other ways, but it seeks to justify the introduction of such a destructive tax as this by that kind of confused argument. The Treasurer, Mr Keating, is constantly referring to accounting for speculative gains as being the purpose of this legislation but, of course, it is not. This legislation will hit productive assets; it will hit the people who want to build up businesses and create jobs. The lack of roll-over facilities will hit small businesses in the neck. They will be wiped out if they want to buy new plant because of the tax they will have to pay on the trade-in price of those assets. That figure will not be indexed and it will be made subject to tax. Any discounted shares going to employees under share bonus schemes-something which is very close, I would imagine, to the heart of the Democrats and Senator Siddons-will be taxed under a capital gains tax. Because people will invest in their only remaining tax shelter-that is, their own homes-the price of homes will rise. As a result young people seeking to buy homes in the future will find the price inflated and they will not be able to acquire their own home.

These kinds of anomalies and problems which remain to be resolved surely go to the core of the legislation because they demonstrate that this Government has no idea of what it is on about in the first place and, secondly, that it is ideologically driven to ensure that incentive is destroyed in this country. That is basically what the Government is on about. It wants everybody to be brought down to the same level and there is no encouragement for people to improve their standard of living. At the moment people are feeling the pinch. They want to make sure that they have opportunities to be independent but this Government is ensuring that they do not have those opportunities, that they are forced into a mould by virtue of this capital gains tax. There can be no clearer example of the intentions of this Government than the introduction of a capital gains tax and that is why the Liberal and National parties oppose the legislation, why we will vote against it and why we will repeal it when we are re-elected to government.