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Wednesday, 4 December 1985
Page: 2928

Senator COATES(4.54) —We have just heard Senator Jessop's justification for his vote on this package of tax Bills. Judging by some of the things he has said in the past, one would have expected him to have supported some of these measures, including the Taxation Laws Amendment Bill (No. 4), which I presume the Opposition will oppose. The Leader of the Opposition, Mr Howard, justifies the Opposition's position on these Bills by saying that Opposition members will vote for the good parts and oppose what they see as the parts with less popularity. In other words, he wants to support the tax cuts that will be introduced in legislation next year to take effect in the next financial year and the one after. He did this on the amazing justification that that was part of the Budget and that everything else in these tax measures is not. If he thought about the matter for more than a moment, he would appreciate that no one part of the tax measures is any more or less part of the Government's Budget than any other. He is grasping at straws with that justification for the messy position into which the Opposition has got itself in its attitude to these Bills.

One could be forgiven for thinking that there was primarily only one tax measure in this package, judging by the comments made so far. They have tended to concentrate on the effect of restaurants of the abolition of tax deductibility of business lunches. However, I would point out that the Senate is dealing with six Bills together, five of them tax Bills and the other a social security Bill. They generally bring in some of the measures announced by the Government in the tax package in September, some other matters that were announced in the Budget in August, and several other less significant tax measures. Other parts of the tax package have already been passed, and other parts again will be in groups of Bills to be introduced next year to cover items such as the capital gains tax, negative gearing, and so forth.

In dealing with these six Bills, I will concentrate mainly on two of them, the Social Security (Poverty Traps Reduction) Bill and one aspect of the Taxation Laws Amendment Bill (No. 4). There are relatively few government speakers in this debate, although not because of any lack of commitment to these Bills by the Government. In fact, these measures are among those that find us most wholehearted in our support. There are Government members who would have spoken in this debate if more time were available, but we are being reasonable about the matter and not dragging the legislative program nearer to Christmas. Unfortunately, following my contribution to this debate there will be six Opposition speakers in a row before the Minister for Finance (Senator Walsh) will sum up the debate. Much of the debate from the Oppositions has been unnecessary. There has been a lot of repetition, and some strident comments by speaker after speaker on one aspect of the tax package-that is, the business lunch.

Before I get onto that issue in order to answer some of the assertions that have been made by the Opposition, let me deal with the Social Security (Poverty Traps Reduction) Bill, which was announced with other tax measures on 19 September by the Treasurer (Mr Keating). The proposals alleviate some of the problems caused by poverty traps and this is done in the overall tax context. People on pensions and benefits in certain parts of the income scale can be affected both by income tests on their benefits or pensions and by taxability, and they gain relatively small net amounts from increased amounts of income. So the separate income test on rent assistance is to be removed, and that will be of great benefit to something like a million Australians.

Senator Peter Baume in his comments on this Bill said: `Yes, that is a good thing, but the Government is doing nothing about the other two poverty traps'. I acknowledge that despite the changes there will still be a trap affecting people higher up the income scale, but that hardly means that the Government is doing nothing about it. We have not said that we are abolishing poverty traps, as much as we might like to do that. But we are alleviating the poverty traps and ensuring that they are at a level of income at which they are of less significance. It is not as if Senator Baume came up with any solutions on this matter. He knows the difficulty of actually abolishing poverty traps because of the problems of the fading in and fading out of benefits. That is especially a problem, as we all know, with respect to entitlement to fringe benefits. There is, if you like, an absolute poverty trap at the point at which people with one extra dollar of income lose benefits which are of much greater value to them than that dollar, although, of course sometimes people penalise themselves unreasonably by attributing greater value to those fringe benefits than they really have.

To answer Senator Baume, who pointed out that these poverty trap alleviation measures will not take effect until the end of next year, I point out that because they are part of the tax package they will take effect at the time that the tax rate changes come in. All these measures are linked and are designed to come into effect towards the end of next year. I would have preferred these charges to have come in earlier, but let me point out that it is the Opposition that insists on there being less expenditure by this Government and not more. Yet people such as Senator Baume come up with suggestions which would, if implemented, affect this year's deficit. While he accuses the Government, because of that time lag, of not having compassion, I point out that the Government of which he was a member for seven years did nothing about this problem at all. Senator Baume pointed to some other tax decisions which do take effect from the date of announcement but again, as he would well know, some measures have to take effect from the date of announcement because if they did not they would distort all sorts of investment decisions and other aspects of the economy by virtue of the fact that people actually had notice of them.

I again refer briefly to the problem of the income test taper in the Social Security Act. Poverty traps exist because the taper comes into operation at a level of 50 per cent, but that is a reasonable percentage at which to withdraw benefits when other income is earned. If, for instance, the taper came in at the reduced level of, say, 25 per cent in order that the withdrawal plus the tax effect was smaller and therefore not an effective poverty trap, that would mean that the income level at which a part pension was still payable would be double what it is at present. We would have people still being entitled to a part pension when they were earning something like $400, $500 or $600 a week. It would ensure that we would be including many people who did not need such a part pension. So there are definitely pros and cons in this argument about the pension income test taper. I indicate my support for the Government's action in alleviating poverty traps and congratulate the Minister for Social Security, Brian Howe, for winning these very significant benefits for those particularly affected in this area.

I now turn to the Taxation Laws Amendment Bill (No. 4), which deals with something like 15 or 20 different changes to the Income Tax Assessment Act, in particular the measure which requires substantiation of employment related expenses as from 1 July next year and even more importantly denies income tax deductions for entertainment expenses incurred after 19 September 1985. This is the aspect of the tax package which seems to have stirred up the Opposition most of all. In some ways Opposition members are even more upset about this than they are about the capital gains tax.

Senator Boswell —This Bill doesn't cover capital gains tax.

Senator COATES —I know it does not implement the capital gains tax.

Senator Boswell —We are not debating it because the Bill does not cover it.

Senator COATES —I am not talking only about this debate this afternoon; I am talking about the Opposition's general attitude to the tax package. I merely point out that perhaps Opposition members acknowledge that the capital gains tax proposal is so mild that they have very little with which to argue. But to deal with the denial of income tax deductions for entertainment expenses, apparently one needs to keep on saying that this measure is not the introduction of a tax; it is the removal of deductibility. The Opposition, the business community and the restaurateurs-those who have complained; not all of them have-talk about a new tax impost. It is not a new tax; it is the removal of deductibility. Some people deliberately make that misrepresentation rather than just use the term `tax on business lunches' as a shorthand term. The point is that tax deductibility in general is a concession. I do not believe it is an open-ended right for a taxpayer to self-define any expense as related to business just because the taxpayer says so. Business costs must be legitimate to be deductible.

The Opposition suggests that it can define certain business costs as legitimate but, as is so widely recognised, the so-called business lunch is for purely personal social benefit as much as anything else. One has continually to ask the question: Why should the ordinary taxpayer have to foot half the bill for what are usually more expensive than necessary lunches? Even the supposedly legitimate claim is very borderline. It is not as if a business lunch is like the raw material for a production process or a business's stationery, which is something that is essential--

Senator Boswell —What about the telephone?

Senator COATES —Of course a telephone is necessary to a business, but I am trying to distinguish between--

Senator Messner —You are not doing a very good job of it.

Senator COATES —If Senator Messner just has patience he will be enlightened. The legitimate business lunch, I think, is very borderline. It is not essential to the sorts of business deals that are supposed to go on at such lunches. Someone claimed this morning in the debate that business deals worth millions of dollars can be sealed at business lunches. Is anyone seriously suggesting that just because a business lunch is not deductible such a deal will not occur? Of course they are not. Of course such deals will occur, but there is no reason for that entertainment aspect of the deal to be subsidised by the taxpayer. If restaurant lunches are as essential to business as the Opposition suggests, they will continue, whether or not they are tax deductible. If there is this downturn in the restaurant business, as the Opposition claims, I would suggest that some businesses have decided to use this change in the tax system as a convenient reason to blow the whistle themselves on some of the outlays of some of their employees for their half of all these unnecessary lunches. Then again, if there is such a downturn, as the Opposition claims, it just shows that a lot of business people just went out to lunch in order to gain the tax benefit and that they are too mean to take someone to lunch purely because they enjoy that person's company.

I claim that the business lunch is not essential. I would go even further to suggest that it is an anti-business practice. Real business, if it cannot be interrupted for a meal, is best done around the boardroom table with some healthy sandwiches and fruit juice. I ask those who indulge in these business lunches whether they have ever tried shuffling papers and making notes on a restaurant table amongst the knives and forks or trying to hold a confidential conversation at a restaurant table, expecially when they are being continually interrupted by waiters. If Opposition senators are talking about real business and real negotiation they should consider doing it in the office and if it must be done over lunch, lunch can be taken in the office. I ask in passing how the alcohol, which Senator Messner is so concerned about from the point of view of the South Australian wine industry, is of benefit to business in the middle of the day.

Senator Gietzelt —Businessmen probably drink whisky.

Senator COATES —It has been suggested to me that they drink whisky, so perhaps they are not even helping the South Australian wine industry. The result of this Government's decision will be more efficient business and healthier business people. Alcoholism need no longer be an occupational hazard for the business community.

In the debate before lunch Senator Knowles complained about the concession that has been given to seminars which are of more than four hours duration. They will be allowed to include deductible refreshments if necessary. She asked about twilight seminars which started at 4.30 pm and only lasted two hours. She wondered why food and drink could not be served after that. the point is that if such a seminar lasts only two hours, people can then go home for dinner. If they work for four hours after starting at 4.30 pm they can claim a tax deduction for refreshments. As far as trying to define legitimate expenses is concerned, if Opposition senators can guarantee that the conversations which occur at business lunches are confined to business and are not about the cricket or something else, they can have the job of trying to make the distinction. They are the ones who continually argue for fewer public servants, but in reality they are arguing for a lot more in order to help make what I believe is a spurious distinction between legitimate and non legitimate deductions.

I turn to the effect on restaurants. Many of the complaints have come from the restaurants themselves. If restaurants have been affected, they are mainly those which had aimed their business at the tax deductible business lunch. By the very nature of their clientele, they had an incentive to charge fancy prices because they and their clients knew that the rest of the taxpaying community was paying half the price of the meal. Senators opposite cannot justify continuing such a backdoor government subsidy. If restaurants have a case for government assistance let them go to the Industries Assistance Commission and put up a case for a direct subsidy. Let us see how they would go. It is not as if lunch has been banned. People still go to eat and if a restaurant is good enough and adaptable enough it will adjust and survive. At present many restaurants are doing just that. Many will change their outlook and will concentrate on tourists, families and perhaps on providing less expensive fare. That is to be welcomed.

Again, I do not accept that there has been the sort of downturn and threat to employment that has been claimed, but if there has been such a downturn a lot of it has been self-inflicted. Because of the excess publicity given to this part of the tax measures, restaurateurs have encouraged people to stop and think whether they really need an expensive lunch. There has been a bit of a bandwagon effect and it has become a bit of a self-fulfilling prophecy for those restaurants which have been affected. The job losses have not occurred, as has been pointed out by previous speakers. If such losses do occur after Christmas or in the new year, as an earlier speaker suggested, so much of that can be attributed to normal turnover. Everyone knows that the restaurant business is very volatile and there is a high turnover of staff. A lot of people are part time or casual and if there is a reduction-and I emphasise the `if'-it is only in relation to the high that that area of business has been on because of the benefits it has received from the economic recovery under this Government in much the same way as has the rest of the business community.

Sure, there may be changes in the restaurant market, but I think it will shake itself out. In many ways the subsidy that did exist had distorted the market. The money will be spent elsewhere in the economy, probably even in other parts of the hospitality industry, and these areas will be enhanced because of it. The money will still produce other jobs. We want a fairer and simpler tax system-one which eliminates some of the rorts that have occurred over the years. We want a tax system that has the respect of the Australian people. Australians generally have come to have a low confidence in the tax system and if there has been one reason at the top of the list for this low confidence and lack of respect, it has been that business lunch. The vast majority of taxpayers are not able to deduct equivalent expenses themselves, yet they see others getting a tax deduction at their expense.

Tax changes always have effects on industries-some minor and some major. If the action is right it must be done. For instance, presumably the insulation industry was boosted for the period when home insulation was a deduction. That benefit came and went. There have also been various changes in superannuation which have affected the insurance industry. Sales tax changes affect those industries concerned. It has been claimed that the car industry will be modified by the fringe benefits tax. If industry and commerce want to be thought of as enterprising and do not want government interference or subsidies, as they continuously claim, they will survive as they have survived in all those past cases. In fact they will probably come out of it stronger as a result. I point out that the tax adjustments that will occur in the personal income tax rates next year will put more spending power in people's pockets which will benefit industry and commerce generally, and the restaurant industry in particular, provided that it is willing to show that it can change to meet the new circumstances as other industries have done in other years. I wholeheartedly support this measure and the remainder of the Bills that we are debating this afternoon.