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Tuesday, 12 November 1985
Page: 1968

Senator HAMER(3.26) —When I spoke last night I referred to the fact that Australia is in serious economic difficulties. It is not all our fault. The terms of trade have turned against us. Nevertheless, we must recognise that we live in a real and highly competitive world and adjust our policies to fit reality. We are trading with the world at an annual loss of more than $10 billion. Depreciation-almost a free fall-of our dollar is the assessment by the rest of the world of our new trading position. We must direct all our efforts to becoming more competitive, both in our export markets and in our import replacement. Unfortunately, as I pointed out last night, we are doing exactly the opposite. For a country trading at an annual loss of more than $10 billion to grant itself a 3.8 per cent pay rise-probably about 6 per cent when on-costs are counted-is lunacy. The fact that this action is held to be necessary to avoid serious industrial disputes is a clear sign of what a disaster area our industrial relations system is.

I also pointed out last night that there were two areas we must reform. The first is our 80 year-old industrial relations system, which is clearly one of the worst in the world. We must free it up if we are to become competitive and survive in the world as it is. Secondly, I pointed out that key areas of our infrastructure-communications and transport-are predominantly operated by government-run businesses. This may have been necessary 100 years ago but Australia has developed since then, though Australian Labor Party politicians do not seem to have changed much. We must examine all these activities to see whether increased competition or in appropriate cases privatisation, would not provide equal or better services more economically. We will never be an economic, efficient country while our communications and transport infrastructure is dominated by inefficient, feather-bedding, monopolistic and unimaginative government-run enterprises.

I turn briefly to the other area in which action is urgent and where the Government is doing almost exactly the wrong thing-the area of taxation. The Government has done nothing to shift some of the load on to indirect taxation, which is economically and socially highly desirable. In fact, the Government has opted for a tax mix which was strongly criticised by its own Treasurer (Mr Keating) at the Tax Summit. There are, of course, some good things in the tax package. The promised reduction in personal income tax rates is welcome. In particular, the matching of the maximum marginal tax rate with the company tax rate is sensible. It will remove the incentive for a lot of highly undesirable tax manipulation practices. I must point out, though, that the tax rates are not indexed, so inflation will steadily push taxpayers into higher brackets. We may finish up with a flat tax at a rate of 50 per cent. Another good aspect of the tax package is the elimination of the double taxation of dividends.

But what of the defects? The Liberal Party of Australia is not against a capital gains tax if it is economically justified. We have supported the taxing, at marginal tax rates, of capital gains realised within a year of acquisition. But a capital gains tax is never going to be a big revenue raiser, particularly if it is-as in fairness it must be-adjusted for inflation and if capital losses are permitted to be offset against gains. The present new Labor capital gains tax is expected to raise only $25m a year in five years time. Why, then, have such a tax? The motive behind the present proposal seems to be envy and spite. But there can be a responsible reason for such a tax: To prevent the distortion of investment which may either damage the economy or perhaps enable people to get social security benefits to which they are not morally entitled. How well does this new capital gains tax meet these objectives? It will not do anything about the social security problem because the Treasurer has said specifically that he will exempt such investments and, as for the elimination of investment distortion, the new capital gains tax will make it worse through the exemption from the tax of the family home and also because it will apply only to investments entered into after 19 September this year. The results of these decisions will make for even more distortion of investment than there would have been if the new tax had not been proposed in the first place.

The other undesirable tax is the new fringe benefits tax. I have no difficulty with the decision to tax fringe benefits. I have watched for years the blatant use of fringe benefits as a means of avoiding tax, but a tax on fringe benefits must, in my view, have two features: It must not treat legitimate business expenses as fringe benefits, and it must be paid by the recipient of the benefit. This tax, in the way the Hawke Government is planning it, fails on both these counts and should not be proceeded with. The Government well knows that union power in some industries, such as mining, will force employers to pay the tax themselves, thus increasing the cost of labour and reducing our international competitiveness-the thing I said we must avoid at all costs. This is, of course, the pay-off to the Australian Council of Trade Unions, as is the decision not to count fringe benefits as fringe benefits if they are in an award. The whole thing is an outrageous rort.

But this is typical of this Government. As I said last night, we are confronted with a most serious economic situation. The Government is carrying on like Neville Chamberlain in the face of the nazi threat. Government members seem to believe that they can appease their way out of danger and that if they ignore a problem totally it will go away. To cap it all, they wave a piece of paper called the accord which they claim will give us industrial peace in our time. It should have been drafted in Munich. We must face reality, and for this country to face reality requires leadership, determination and guts from this Government. I am sure that, if the Government can provide these, the Australian people will react sensibly and effectively, but there is no sign of any of this type of leadership from this lowest common denominator Government.