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Wednesday, 4 December 1985
Page: 2943

Senator SHORT(8.00) —The Bills now before the Senate form part of the Hawke Government's overall economic policies and, therefore, should be viewed in this overall context as well as for their specific content. These tax proposals are being introduced at a time of considerable uncertainty in the Australian economy. The proposals themselves have added to this uncertainty and have had a negative effect on confidence within the community, particularly business confidence. No wonder, because the tax proposals now before the Senate and the proposals to be brought forward by the Hawke Government next year, when taken together, constitute the greatest anti-business tax package introduced into this Parliament for a very long time.

This attack on the business sector, on the productive sector of our nation, on large and small businesses alike, on miners, manufacturers, farmers, and service sector producers alike is totally at odds with what Australia needs. How is the Government able to get away with this? How can it so damage this nation? It can do so only because of the complicity of the Australian Democrats in supporting this further imposition of a whole range of new taxes on a tax weary Australian public. What the Government should be doing is encouraging productive activity, encouraging effort and enterprise and adopting policies to make our producers more competitive and export-oriented by reducing costs and other burdens on business. The thrust of the Government's policies, however, is in quite the opposite direction to this.

If the Government does not take urgent stock of its economic policies the economy will be facing a very bleak outlook before too long in 1986. The warning signs are already with us. Failure to heed them now will simply make the necessary policy adjustments that much more difficult when the inevitable crunch comes in 1986. What are those warning signs? There are quite a few. The September quarter national accounts figures point to an unbalanced economy. The overall growth rate is slowing despite strong growth in private consumption. The rural sector is experiencing a severe downturn and private investment is at best sluggish and at worst falling. Inflation is on the rise again. The broadest measure of inflation, the gross domestic product price deflator, rose by no less than 2.9 per cent in the September quarter, the highest rate of increase for 3 1/2 years, an ominous lift in our inflation rate, which in any event is already twice as high and in some instances even higher than the rate of many of our major trading partners. This rate of inflation, if it continues unabated, will very rapidly wipe out the competitive edge which the massive devaluation of the Australian dollar has given us in 1985.

We must never forget that devaluation in itself represents a fall in our standard of living. To take advantage of devaluation we have to adopt other policies which enable us to maintain the original competitive advantage. We are not pursuing these other necessary policies. The Government has continued to increase its own spending at a rate well above what our economic situation demands. It has continued to borrow heavily, therefore putting pressure on capital markets. It has capitulated to pressure from the trade union movement for ever-increasing wage and wage-related benefits for employees-full wage indexation, productivity cases and superannuation deals. Australia simply cannot afford these cost increases at a time when its standard of living is deteriorating as a result of devaluation.

Senator Messner —The people feel it too.

Senator SHORT —They certainly do. Through its accord with the Australian Council of Trade Unions the Hawke Labor Government has created a monster which will wreck this country if it is not tackled head on. The unbridled power of the trade union movement in Australia, aided and abetted by this Labor Government, is the largest single barrier to our nation achieving the rich potential for which we have long been recognised.

The Government, because of its extravagant spending policies and its capitulation to the trade union movement, has been forced to push up domestic interest rates to their highest real level in at least 50 years. The prime bank rate is now almost 20 per cent-the highest in our history. That is an increase of some 7 percentage points, which is more than half, in the last 12 months alone at a time during which both the Prime Minister (Mr Hawke) and the Treasurer (Mr Keating) had predicted that interest rates would fall. Housing interest rates and all other rates have also shown savage increases under this Government.

The Government has been forced into these dangerous and undesirable interest rate increases for two reasons: First, to try to put a brake on the growth of the money supply; second, to prop up the ailing Australian dollar. It has succeeded on neither of these counts. The money supply is growing at an annual rate of more that 16 per cent-far in excess of a desirable or responsible rate. The market for the Australian dollar is extremely nervous. The Australian dollar has fallen more than any other Western currency in 1985 and by more than the currencies of many of the struggling lesser developed nations. Despite this devaluation of the Australian dollar we are still running a frightening balance of payments deficit on our current account. That deficit could well be of the order of $12 billion in 1985-86.

Senator Messner —That is a billion dollars a month.

Senator SHORT —It is, and it could well be more. There is no sign as yet that our exports and imports are responding positively to the devaluation. There are reasons why they may not respond as readily as some forecasts have suggested. If they do not, we can expect to see the Australian dollar come in for a further hammering in the foreign exchange markets. This in turn would put pressure on the Government to increase interest rates still further. Indeed, further increases appear inevitable in the light of the latest damaging blow-out of the money supply figures. The only question is whether this interest rate increase will occur this week or whether the Government will be able to put it off until next week when the South Australian election will be out of the way.

The interest rate situation is very serious. The consensus reached at the recent annual conference of Australia's leading business economists was that if interest rates remain at their record high levels for much longer, let alone increase, the Australian economy will plunge into recession and unemployment will soar. The Hawke Government alone is responsible for the serious situation that the Australian economy now faces. The Government's policies are dangerously unbalanced because the Government has had neither the courage nor the will to restrain its spending sprees and because it has completely abdicated wages policy to the trade union movement. Therefore, it has had to rely almost totally on monetary policy to try to keep the economy on the rails. It has placed too great a strain on monetary policy and we are now reaping the very serious consequences.

What the Government has totally failed to recognise is the complete incompatibility of a floating exchange rate system and a wage fixation system which has no downside flexibility if the exchange rate falls. Had it not been for the deliberate mismanagement by the Hawke Government, the Australian dollar would have been much stronger and interest rates would have been considerably lower than those we have experienced to our cost over the past 12 months.

Let there be no misunderstanding on this issue: Our present economic difficulties are due to no one other than this Government. The Government is trying to talk up the economy by pretending that everything in the garden is rosy. It quite patently is not, as the international community is telling us loud and clear through its making the Australian dollar one of the weakest currencies in the world.

Senator Messner —It is a soft currency.

Senator SHORT —It is one of the weakest in the world.

Senator Grimes —Are you trying to talk the economy down?

Senator SHORT —No, I am trying to be realistic about it in a way that the present Government is not doing. It is trying to talk up the economy in a way that is very dangerous for the future of this country. This brings me to the Government's tax proposals announced on 19 September, several of which are contained in the Bills now before the Senate. The reason why all the 19 September tax proposals are not yet before the Parliament is that they are such a dreadful hotchpotch that neither the Government nor the parliamentary draftsmen have been able to translate their broad nature into legislative detail. As the Leader of the Opposition, Mr Howard, said recently in the other place, the Hawke Government's tax proposals are seriously flawed. They fall well short of the goal of lasting reform and they represent the ad hoc remnants of the original tax reform proposals put forward by the Treasurer early in 1985.

Senator Parer —Option ACTU.

Senator SHORT —They are option ACTU, as Senator Parer says. The proposals in no way add up to a coherent package. They do not constitute reform. They are simply the leftovers from the National Taxation Summit that the Australian Council of Trade Unions and the left wing of the Australian Labor Party were prepared to see the Government proceed with. It is important that the Australian public know that the tax proposals do nothing to lighten the total tax burden in this nation. This is because the Government has been neither prepared nor, apparently, able to exercise responsible restraint over its own spending. Indeed, I argue that in the longer term, the Government's latest tax proposals will increase the tax burden on average taxpayers. This is because the proposals in total add up to a vicious attack on the productive sectors of this nation. This attack, which imposes a very heavy additional burden on all forms of business, will make these businesses less profitable and, therefore, less able to pay tax. The shortfall in tax will then inevitably be sought from the average taxpayer and, in particular, from the pay as you earn taxpayer, who already has been mercilessly savaged by the Hawke Labor Government in so many ways over almost the past three years.

Let us look at some of the reactions of the business community to the Government's proposals. The Metal Trades Industry Association, for example, is concerned that the package as a whole will lead to a further erosion of Australia's competitiveness, fuel inflation and threaten jobs. The Confederation of Australian Industry says that business is appalled by the package and that business is clearly intended to carry the major burden of the tax changes. The Business Council of Australia has expressed similar concerns. The associations representing the three-quarters of a million small businesses throughout Australia have also reacted strongly to the proposals. The main concern of small business, although not the only concern, is with the proposed capital gains tax. That proposal is not part of the Bills now before the Senate. It is being stored up for next year when it will be opposed by the Liberal and National parties in the strongest possible terms.

The National Farmers Federation has condemned most of the Government's tax proposals as imposing a further crippling and inequitable burden on farmers at a time when many of them are already experiencing crisis conditions. The Director of the Australian Taxpayers Association, Mr Risstrom, best summed up the general community feeling about the Government's proposals as a whole when, in describing the Government's decision on the non-deductibility of entertainment expenses for taxation purposes, he said: `This is a downright rotten law'.

The package of Bills we are now debating contains many odious proposals. The proposal that has attracted most attention, and on which I will concentrate my remaining remarks, is the proposal to disallow income tax deductions for entertainment expenses incurred in the course of earning income after 19 September 1985. This proposal is contained in the Taxation Laws Amendment Bill (No. 4) 1985, one of the Bills in the package before us. The Bill has 54 pages. It also has an accompanying explanatory memorandum that runs to no fewer than 103 pages. Despite this wondrous welter of words, neither the Bill nor the explanatory memorandum contains any clear definition of the word `entertainment'. That is ludicrous. How can business be expected to know whether it is entertaining if neither the Treasurer nor the parliamentary draftsman can put into words what they mean? The best the Treasurer can do is to say, as he did in the other place: `Entertainment is about purpose and circumstance'. What on earth does that mean? The proposal discriminates against small business. The deductibility of dining facilities for use by employees will be available only when these are in-house. But what about small and medium sized businesses which cannot afford to provide their employees with similar facilities on their work premises? They will be penalised, as will all self-employed persons, including sole traders or partnerships.

There are other unwarranted restrictions in this proposal. For example, expenditure on an `eligible seminar' is tax deductible. This is described as one that has a continuous duration of not less than four hours. Lunch and other breaks are excluded from the calculation of the four hours. Most normal seminars would not meet the eligibility criteria. There are other similar examples in the Bill. The Treasurer says that the Government has put this near blanket prohibition on the deductibility of business entertainment expenses otherwise it would be too difficult to police. But that is not a valid reason for this draconian measure. If a particular form of expenditure is a genuine cost incurred in earning income, it should be tax deductible. For many people, entertainment expenses fall quite clearly into this category. Administrative problems in ensuring compliance should not be a reason for making these legitimate business claims illegitimate for tax purposes. The substantiation of claims can be difficult, but it can be done. Indeed, the very same Bill, which refuses to countenance substantiation in the case of entertainment expenses, does so for car and travel expenses. If substantiation is satisfactory in one case, why not in the other?

The Treasurer claims that the denial of tax deductibility for entertainment expenses will save the revenue $310m. A careful study by BIS-Shrapnel Pty Ltd, however, puts the figure at $61.5m. Whether this latter figure is correct, I do not know. However, it certainly sounds more plausible than the Government's figure of $310m, which in any case seems to have been arrived at with, at best, scanty research. The BIS-Shrapnel study also examined the employment effect of the Government's entertainment expenses proposal. It put the likely total employment loss at 18,600, of which 11,100 would be lost in the hospitality industry. Many of these lost jobs are now occupied by women and young people on a part time basis. Alternative employment opportunities for these people would be negligible.

Another recent survey, this one by Yenn, Campbell, Hoare and Wheeler, has indicated that 80 per cent of all business expenses can be properly validated. The Opposition and the hospitality industry fully accept that abuses of the system must be eliminated. However, this can be done by the use of stricter substantiation provisions rather than through destroying a viable business by jackbooted draconian measures that completely overturn all the accepted principles of taxation law in this country.

As Senator Messner has foreshadowed, the Opposition will be moving an amendment in the Committee stage. That amendment will require that deductible expenses must be directly attributable to earning taxable income. That wording, coupled with effective administration by the Taxation Office, should correct what abuses of the system may be occurring. I urge the Australian Democrats to support this amendment. To allow the Bill to pass in its present form would be a prostitution of acceptable taxation law; would be of dubious revenue gain; would lead to further distortions in the tax system; would set a very dangerous precedent and could put almost 20,000 people, particularly women and young people, out of work.

Apart from all their other faults, these Bills are ideologically motivated by the left wing of the Labor Party. They impose what might well be called `taxes of envy'. They are anti-business in their philosophy, they are anti-growth-they smack of a moralism which seeks to reduce everyone to mediocrity and uniformity, which will stifle our country and our people if it continues to take root. It is about time that we encouraged people to strive, to achieve and to be able to reap reward for achievement, rather than being intent on cutting down anyone who looks as if he or she might develop into a tall poppy. That, in essence, is what these Bills are about. That is why I, and the Opposition, oppose their main provisions. That is why, on behalf of the Opposition, I move the following amendment to the motion for the second reading of the Taxation Laws Amendment Bill (No. 4) 1985:

At end of motion add:

`, but the Senate notes the deleterious effects of the Bill on small business, the restaurant trade and the tourist industry, and considers that it should be amended to provide that entertainment expenses directly attributable to gaining or producing assessable income continue to be a taxation deduction'.