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Tuesday, 5 November 1985
Page: 1539

Senator WALSH (Minister for Finance4.29) —Humbug and hypocrisy are, of course, not unknown in politics but rarely have humbug and hypocrisy been practised to the extent they have here this afternoon. Senator Messner raised a matter of urgency deploring a capital gains tax. The same Senator Messner, on 19 September, signed a minute on behalf of the coalition's tax committee which stated, among other things:

There is considerable concern amongst Liberal Senators that the Coalition may oppose the capital gains tax and defeat the Government.

Senator Cook —Who was that?

Senator WALSH —That is an Opposition tax committee minute which was signed by Senator Messner on 19 September. The same Senator Messner has just raised a matter of urgency stating that a capital gains tax would destroy the economy. On 19 September he stated:

There is considerable concern amongst Liberal Senators that the Coalition may oppose the capital gains tax and defeat the Government. This would provide an issue from which a double dissolution may ensue. This is perceived to benefit the Democrats. Some--

and he is talking about some Liberal senators-

will vote to support capital gains tax if the Bill appears to be in danger.

`Some Liberal senators', said Senator Messner six weeks ago, `will support and vote for the capital gains tax if the Bill appears to be in danger'. There are inconsistencies within parties but rarely-and certainly not within my memory-can I recall one individual politician so blatantly contradicting himself and so blatantly repudiating what he himself had written only six weeks before as Senator Messner has repudiated this afternoon what he wrote and signed six weeks ago. On the tax package in general in the same minute he said:

Either way we may lose Coalition Senators in the vote, at least on the capital gains tax.

He also said-and this is plumbing the depths of cynicism:

. . . it is important to present a face of consistency and responsibility.

As long as the face of consistency and responsibility is presented, Senator Messner has no other problems. The reality of consistency and responsibility is, of course, not there. Knowing full well, and having put on the written record, that some Liberal Party senators would vote for the Bill if they thought it was in danger, the Opposition has resorted to the subterfuge of moving an urgency motion for which all Liberal senators can line up and vote, knowing that there is not the slightest risk that the Bill to which the urgency motion is directed will be defeated, so that the appearance of unity, like the appearance of consistency and responsibility, can be maintained.

I caution Senator Messner, though, just in case he ever delivers an effective speech on this issue-something which he has conspicuously failed to do this afternoon-and manages to convince some of the Australian Democrats that they should join him in his assessment of the Bill. Of course, if any of the Democrats decide to change their minds on the issue, having been persuaded by the sort of brilliant advocacy that we have yet to see from Senator Messner, he would then be back in the position where some of the Liberal senators would vote for the Bill, would break ranks with the Party just as he forecast six weeks ago they would do.

It is, of course, known by a number of Liberals-the better class Liberals, I would call them-that a capital gains tax is essential. Foremost among those is Senator Hill, who in his maiden speech in the Senate on 9 September 1981-and a very good speech it was too-said:

Thus those whose wealth is increased by capital gains rather than by income do not share in the taxation burden. No other highly developed country has our almost complete absence from some form of taxation of capital gains. . .

In the same speech Senator Hill continued:

Options abound within the more moderate package. We cannot forever remain the only highly developed nation without some form of capital or equivalent taxation at the Federal level.

He also said in the same speech:

. . . it is plausible to argue that the taxation system has become a major instrument for redistributing incomes and wealth in favour of the rich.

He was right. It could have been plausibly argued at that time that that was the case. Indeed, to some extent possibly it still could. It is at that condition which the Government's taxation package, an integral part of which is the capital gains tax, is directed. The plain fact is that a capital gains tax at the personal rate is essential if we are to close off the conversion of income into capital which has been at the heart of most tax avoidance schemes. The Government's proposed Bill removes incentives all right; it absolutely removes the incentive to avoid tax through converting income into capital. The Liberal Party knows that and that is the reason why the Liberal Party is opposed to it. It is opposed to it because the Liberal Party is and always has been the party which protects tax dodgers largely, of course, because there are so many tax dodgers in it. Foremost among that group--

Senator Jessop —I take a point of order. I take exception to that typical comment put forward by Senator Walsh. I ask him to retract it. He suggests that there are tax evaders on this side of the Senate, that we support tax evaders. That is quite wrong. It is quite unethical and unprincipled for him to say that. I suggest that he should withdraw.

The ACTING DEPUTY PRESIDENT (Senator Haines) —There was an inference. I ask the Minister to withdraw.

Senator WALSH —If it was so interpreted, Madam Acting Deputy President, I certainly withdraw. For the record, though, I point out that I did not at any stage say that there were tax dodgers, tax avoiders or evaders in the Liberal Party in the Senate. I said there are tax evaders in the Liberal Party, and there are. As a matter of history--

Senator Jessop —I rise again because--

Senator WALSH —Their names are Corser and, among others, Horgan, Wass, Hughes and Delpiano-all members of the Liberal Party's Western Australian finance committee.

Senator Jessop —I take a point of order. I object to what the Minister has said. By inference and by outright direct insinuation the Minister has said that Liberal Party members, who include people on this side of the House, are tax evaders. I think that is quite unfair and quite uncalled for. I ask the Minister to withdraw unreservedly.

The ACTING DEPUTY PRESIDENT —There is no point of order on this matter. Senator Walsh withdrew the specific reference to members of this chamber. I do not uphold the point of order.

Senator WALSH —Thank you, Madam Acting Deputy President. The Western Australian Liberal Party had a finance committee in 1979. I suppose it still does. However, by mistake that committee sent a letter around in 1979 appealing for funds. That letter, which finished up in my hands or was made available to me, listed the members of the finance committee on the letterhead.

Senator Teague —How many years ago was that?

Senator WALSH —It was 1979. It had 15 members who included Sid Corser, Denis Horgan, Ronald Wass, J. J. Hughes and J. J. Delpiano, all of whom flogged off companies to the Maher organisation, all of whom were bottom of the harbour tax evaders, all of whom publicly and irrefutably were exposed as bottom of the harbour tax evaders. I am talking about five members of the Western Australian Liberal Party finance committee.

Senator Messner —Madam Acting Deputy President, I take a point of order. I ask you to rule on the question of relevance. The Minister is going entirely off track and I believe it is about time that he started to address the real question before us, and that is the effect of capital gains tax on incentive. If he has no way of answering that question he might at least stop boring us with the kind of nonsense he is going on with now.

The ACTING DEPUTY PRESIDENT —I have been listening carefully to the Minister. I would agree that he is straying somewhat from the specific matters outlined in the urgency motion. I ask him to return to the motion as soon as possible.

Senator WALSH —Certainly, Madam Acting Deputy President. I will deal directly with the matter of incentive. The capital gains tax proposed by the Bill will absolutely destroy the incentive to do what those five members of the Liberal Party Western Australian finance committee did in the 1970s, or anybody else who did the same thing. It will destroy the incentive fraudulently to flog off companies to the Maher organisation, Maher now having been convicted, of course of conspiracy to defraud. It will destroy the incentive to flog off companies to evade income tax because the gains which were recorded as capital at that time would be taxed at the same rate as the income would be. It will destroy that incentive.

When Mr Fraser personally was forced for political reasons to move against the bottom of the harbour operators-the Brian Mahers and others-he encountered intense opposition from within his own Party. Spurious claims, similar to those which are made about the effect of the Government's proposed capital gains tax on the economy, were made then. For example, Senator Martyr, on 19 November 1982, a Western Australian Liberal Party senator, had incorporated into Hansard the text of a motion carried by the Liberal Party State Council in Western Australia in August 1982. It said that the Council:

. . . strongly warns the Federal Government that there is mounting evidence that the retrospective proposals it has been considering could destabilise the financial affairs of individuals and companies, leading to thousands of bankruptices and a substantial increase in unemployment.

On the same day, Senator MacGibbon said that perhaps only $200m to $300m would be recovered-as against the estimate by the then Government of, I think, about $450m. On the first point, $460m has been collected to date, so Senator MacGibbon was unequivocally wrong on that point of fact. But, more importantly, it was claimed by the Western Australian Liberal Party, and repeated by Senator Martyr in the Senate at the time, that the legislation then being proposed by the Fraser Government would destabilise the financial affairs of individuals and companies, leading to thousands of bankruptcies and to a substantial increase in unemployment.

One of the supreme ironies of history is that, just as the collection of the money pursuant to that legislation commenced, the economy turned around and entered a period of sustained growth at a rate which had not happened in Australia since the 1950s. Not only was that propaganda on behalf of the tax evaders shown to be false; what actually happened was the direct reversal of what those sections of the Liberal Party had at that time claimed would happen.

Senator Messner —Madam Acting Deputy President, I again ask you to rule on the point of relevance. The Minister still will not address the urgency motion and argue the case in favour of his Government's objectives of introducing a capital gains tax. I believe that he is again straying far and wide from the argument that is before the Chair.

The ACTING DEPUTY PRESIDENT (Senator Haines) —I repeat the comment that I made earlier: It would help the debate if the Minister really did approach the matter before us today.

Senator WALSH —With respect, Madam Acting Deputy President, I believe that I am doing precisely that, or precisely what Senator Messner sought. I am putting the Government's case for a capital gains tax, because it is essential to have a capital gains tax of this nature to close off for all time the tax avoidance and evasion industry. Knowing that this proposed Bill will close off the tax avoidance and evasion industry, the Liberal Party opposes it. The Liberal Party opposes it because it knows that that would be its effect. The people who opposed Mr Fraser when he introduced his tax recoupment legislation-they were not necessarily the same people who voted against it, of course, because one of those who opposed it was Mr Howard, who was bound by Cabinet solidarity and, therefore, voted for it-are the same people who oppose the capital gains tax now, and they do it for precisely the same reasons: They believe that people in certain positions, mainly the rich and the privileged, should be able to avoid paying taxation, thereby thrusting the entire burden of income tax payments on to the pay as you earn taxpayer.

The difference between the Liberal Party in Mr Fraser's time and the Liberal Party today on this issue is that those who hold the view that the entire tax burden should be thrust on to PAYE taxpayers, ordinary wage and salary earners, those who believe that wage and salary earners should pay all of the tax bill, did not have the numbers in Mr Fraser's time and they do now-and they have a leader who is on their side. We ought to remember the increasingly frantic letters from the Commissioner of Taxation in the late 1970s and early 1980s to the then Treasurer telling him that the taxation base was being destroyed. The then Treasurer, who is now Leader of the Liberal Party, did absolutely nothing-until the massive scandals exposed in the McCabe-Lafranchi and Costigan reports became public. Then, and only then, was action taken.

Senator Messner dealt with section 25A and said that section 25A was all that was required in the area of capital gains taxation. For transactions which take place after 19 September this year, section 25A will, of course, no longer be applicable. It will be replaced by the capital gains tax proposed by the Government. Senator Messner said that that takes care of speculative gains. That goes right to the heart of the deficiency of section 25A. What is a speculative gain? It is a question that is determined subjectively, and necessarily subjectively, by the Commissioner, because it hinges on the question of intent. What was the intent of a person who purchased an asset? Did that person purchase an asset with the intent of earning income or the intent of collecting a capital gain? That is a judgment which section 25A requires the Commissioner of Taxation to make, and it is not fair to impose on anyone the burden of trying to make that sort of judgment, of prying into another person's mind and becoming a mind-reader. I am glad that Senator Messner mentioned that, because he went right to the heart of the fundamental defectiveness of section 25A: That it hinges on the question of intent, which can only be subjectively and arbitrarily determined.

As for the scenario of horror presented by Senator Messner as to what would happen in Australia if we had a capital gains tax, and the way that the economy would be destroyed and so on, of course, Liberal Party members are experts about destroying the economy. The last Liberal Government, including the last Liberal Treasurer who is now Leader of the Opposition, had the distinction of being the only government in our history, including the then Treasurer, which simultaneously presided over double digit inflation and double digit unemployment, and it was the Government which produced the worst and deepest recession for more than 50 years. But more importantly, if we look at those countries of the Organisation for Economic Co-operation and Development with which we normally compare ourselves and which, over the long term, since World War II, or at least since the early 1950s, have had vastly superior growth rates to those which Australia has recorded, what do we find? We find that they all have a capital gains tax, and most of them have other capital taxes as well. Bear in mind that the proposed tax is a very gentle capital gains tax, fully indexed, and no other country in the world provides a fully indexed base. The proposition that that sort of capital gains tax will destroy the economy and investment and the incentive to do anything other than evade income tax, of course, is patently absurd and flatly contradicted by the empirical evidence from all around the world.