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Thursday, 14 November 1985
Page: 2171

Senator MESSNER —by leave-My personal explanation refers to an answer given by the Minister for Finance, Senator Walsh, to an earlier question from Senator Foreman. Senator Walsh quoted certain statements of mine as tending to indicate that the Opposition was considering the introduction of some form of capital gains tax upon various speculative gains. At the end of the Minister's answer I asked him to table the document from which he quoted. Having examined a copy of that statement I see that it is not any kind of sinister document but rather a general comment upon the whole capital gains tax proposal of the Government. That document emanated from my office on the day upon which the announcement of the tax program from Mr Keating was made in Parliament. I point out that the reference to the item mentioned by Senator Walsh was, indeed, descriptive of the deficiency of the logic in the Government's thinking in respect of the introduction of a capital gains tax and the fact that speculative gains were already incorporated in the present income tax law. I now seek leave to have incorporated in Hansard that whole section of the paper tabled by the Minister which refers to my comments on the capital gains tax.

Leave granted.

The document read as follows-


Although introduction of the CGT applies only to assets purchased from September 20th 1985, and although the estimated revenue yield is a modest $25 million in the fifth year of operation (compared with an expected revenue yield by that time of $450 million from the CGT outline in the Draft White Paper), there are a number of disturbing effects that require comment.

The basic problems with such a universal CGT is that it fails to draw any distinction between productive investment and speculative investment. In the Treasurer's Statement, this failure is reflected in the comment that ``the current system of taxing capital gains violates horizontal equity . . . and undermines the progressivity of the tax system since the distribution of the ownership of capital is skewed in favour of higher income groups.'' (page 41). (Interestingly, this did not stop the government from skewing the income tax scale changes in favour of higher income groups!)

This tax must be opposed, not only because it is economically unsound but also because it is inequitable.

Under present tax arrangements, considerable speculative investment is subject to tax at marginal rates (eg. short-term share, property, and futures investment). On equity grounds, `speculative' windfall gains such as lottery wins ought logically to have been included in any CGT.

But the basic opposition to the proposed CGT is that not only will risk-taking be discouraged through its attack on productive long-term investment (ie. a prospective tax), but also the CGT threatens to devalue existing assets such as farms and small businesses (ie. a retrospective tax).

Moreover, in designing the CGT to apply to real gains upon realisation of assets acquired from September 20th, the proposal introduces two additional distortions into the tax system: viz. a disincentive to dispose of assets which would be subject to the CGT, and any incentive to invest in the family home at the expense of investment of other productive long-term assets.