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Wednesday, 6 November 1985
Page: 1644

Senator WATSON(12.33) —Before commenting on the so-called Government's generalised tax reform package I declare an interest in a wide range of matters covered within this so-called package. Therefore, I believe my contribution must have some authority as I am one who is affected by some of these issues. We have to acknowledge that the tax reform package proposed by the Government does very little to reform some of the inequities and inefficiencies of the present system. Admittedly, in some contorted way, it does address some of the problems of avoidance and minimisation schemes. However, I think we all have to acknowledge that the package is alienating the business community on which our economic recovery is dependent. At the same time when one looks at a number of areas one sees that the Government has displayed an amazing inconsistency of principle.

The disallowance of valid business expenditure-I repeat `valid business expenditure'-for entertainment expenses has had an immediate and drastic direct and indirect effect on employment and the viability of many small businesses involved in the hospitality industries. Nobody can argue that the rorts in the present tax system do not need to be removed but to blanket all business expenditure in this category is taking things far too far. There must be some way of determining what are genuine business expenses and what are pure entertainment or perks.

I believe that the so-called mild capital gains tax has lulled the non-business community into a false sense of security. However, the very existence of this tax has already reduced the potential value of present business because subsequent sale will be hit by the tax at full marginal rates. Capital gains are taxed at full marginal rates in very few countries. I believe that this capital gains tax is but the beginning of a more vicious assault on capital. It is but the first foot in the door of more comprehensive schemes that will follow should the Labor Party be re-elected to government at the next election. Anybody purchasing or starting a business from now on will lose virtually one-half of the business goodwill to the tax gatherers. This will have a devastating effect on their retirement income and on new job investment.

Senator Durack —Senator Walsh does not know what that is.

Senator WATSON —He would not have a clue. I had a pathetic call today about a matter which resulted from the Government's last tax package. A part time worker on $9,000 a year said to me: `I pay 26c in the dollar as tax on my ordinary income but 30c on my lump sum superannuation payment'. He said: `That can't be right, Senator'. I said: `Blame the Labor Party-that was part of its first reform package'. This is the effect that some of these reforms are having nowadays on small people in the community.

I believe that the Treasurer, Mr Keating, has failed in his duty not only to the small people to whom I have referred but also to the business and investing communities, to ensure, for example, that the capital gains tax legislation is available for scrutiny now. It is not available. We have had only a very woolly statement. Leading business advisers have already reported that the lack of detail about how the proposed capital gains tax will operate is having a significant adverse effect on investment decisions. The stock market might be doing well at the moment but is that the way in which new wealth should be created in Australia? It is quite ludicrous that a tax, which will take effect from 19 September 1985, has not yet seen the light of day and will not be introduced until the autumn session of Parliament next year. What sort of certainty will that create in the minds of business people? Mr Keating is well aware of the adverse impact uncertainty surrounding the operation of a capital gains tax would have, yet he has failed to have this legislation drafted expeditiously. The form and the details of the tax should have been exposed to critical public discussion and comment before the enactment of legislation and certainly before the tax is imposed.

The Government's so-called reform package has already threatened thousands of jobs around the country and has called a halt to business expansion on many fronts. Instead of treating the business sector as an economic partner responsible for generation of wealth and prosperity, the Government is treating it as an adversary, to be hammered and to be squeezed completely dry. It is the wealth generated by the business community that is subsequently redistributed to the whole community through taxation. It is the business community to which this country must look for the creation and maintenance of the great bulk of employment opportunities. Thus, it seems incomprehensible that a tax reform package could have such an anti-business bias. It is not too difficult to predict that the new taxes will result in higher labour costs for employers and, in turn, higher prices and still higher inflation creating a trend which seems now to be irreversible. In spite of the fact that it is the employers who will initially foot the bill for perks for their employees, it is inevitable that the major part of these taxes will be carried by the employees and the consumers. The labour force will press for compensation through direct wage increases or improved conditions in an attempt to maintain the same level of after-tax income.

The tax changes are expected to have some serious effects on the private sector and the economy before any of the positive influences that are supposed to be generated by the so-called market reductions in personal marginal income tax rates begin to be felt after September 1986. Some small businesses may be devastated in the meantime. `Reform' means `to make things better by removing or abandoning faults or errors, imperfections or confusions'. There is no way that this can be called a reform package. The fringe benefits tax must be amended to enable industry to achieve its full potential. The move to introduce a capital gains tax and to impose a foreign tax credit system can only mitigate against productive investment-the emphasis is on the words `productive investment'-thereby reducing employment opportunities. In addition, the tax credit system will have an adverse impact on export growth and discourage overseas investment by some companies. Yet, surely export growth is essential if we are to improve our economies of scale, particularly as many companies operating in Australia are constrained by the size of the domestic market.

The fringe benefits tax on company cars will destroy the previous rational foundation of the Button plan to protect and promote the Australian car industry. Already several large companies such as the Adelaide Steamship Co. Ltd have stopped purchases and orders for company cars. The Adelaide Steamship Co. Ltd buys between 1,000 and 1,500 cars for its fleets each year and loss of orders of this magnitude will crucify not only the car industry but also the subsidiary companies and specialist manufacturers which supply parts for those major manufacturers. This shortsightedness is typical of the irrational decision making that we have come to expect from this Labor socialist Government which appears to have no coherent or integrated way of formulating policy. It comes up with some good legislation intentions or ideas and then sets about destroying them from another angle. Taxation policy cannot be dissociated from its other policies. It must be seen to complement economic, employment, welfare and family policies.

This Government has consistently refused to address the special needs of families with dependent children in its deliberations on tax. It has done nothing to reduce the number of unnecessarily unproductive takers in our society or to encourage an increase in the number of productive givers in society. It has refused to recognise that both entrepreneurial business and the average Australian family should be rewarded, not penalised, for productive effort and responsible savings and investment. To add to this the Government has consistently refused to acknowledge that tax reform and expenditure reform cannot be separated. The major reason that tax reform has become such a pressing issue is because of the tremendous explosion of public sector spending over the last 10 to 15 years. There is no proposal in this tax package to decrease the overall share of government expenditure and, thus, there can be no significant reductions in taxation. The demise of consumption taxes and consequently wage indexation saw the destruction of any reasonable or equitable reform measures. There has been no reform to an unjust system that places an excessive reliance on personal income tax.

Debate interrupted.

Sitting suspended from 12.44 to 2 p.m.