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Tuesday, 2 May 1989
Page: 1595


Senator HAINES (Leader of the Australian Democrats)(5.52) —The Australian Democrats welcome the tax cuts and the increased social security payments that were announced by the Treasurer (Mr Keating) a week or so ago as being largely considerably overdue. Again, to a very large extent, the Government is giving back only a part of its increased tax take as pay as you earn (PAYE) taxpayers have moved into higher tax brackets. The reaction from most of the public the day after the statement was brought down reflected the growing cynicism in the minds of the general public with regard to this Government's taking with one hand and giving back considerably later a little bit of that with the other hand.

From a political point of view, the Hawke Government has suddenly woken up to the fact that wage earners, who were barely surviving as a result of the reduction in real wages engineered by this Government over the last five years, cannot be squeezed any further and are moving away from the Labor Government in droves as far as poll support is concerned. To a certain extent, what the Treasurer offered the Australian people in the April statement was an attempt to claw back some of that lost support from middle and lower income Australia in the same way that Mr Hawke's injunction to his Cabinet Ministers to clean up their language was an attempt to claw back support from the women's vote which, through the polls, was noticed to be declining.

Despite all the hype from the Treasurer in announcing the so-called largess that was dished out during that 20-odd minute speech a week or so ago, the fact is that successive Liberal-National Party governments and the current Labor Government have done nothing to redress the long term trend for more tax revenue to be taken from PAYE taxpayers than from any other taxpaying group in the community. Certainly, over the last 20-odd years there has been a dramatic shift in the proportion of tax paid by individual Australians and that paid, for example, by companies. As the proportion of tax paid by some of the biggest companies in this country has dropped back, so the proportion of tax paid through personal taxation by ordinary individuals, largely middle and low income earners, has increased.

Apart from questioning the collusion between the Hawke Government and the Liberal-National Opposition to protect the interests of their big business mates which we have noticed increasingly over the last few years, we need to ask why and how this dramatic change has happened. One indicator would be to look at an article that came from a report prepared by Mr Greg Crough, an academic and author working with Sydney University's transnational corporations research project. The report that was done for the parliamentary inquiry into international profit shifting found that 15 Australian companies made more than $1,000m in tax haven profits in 1987-88. While it is certainly true that the Government has taken some steps to reduce the incidence of Australian companies shifting profits to tax havens it has not acted quickly or in any dramatic sense.

The first step that the Government took was to announce in the May statement last year that income derived by Australian companies from foreign companies and trusts operating in a tax haven would be taxed in Australia. Those of us who were disturbed by the amount of revenue lost to Australia were heartily pleased to hear that announcement. One year later, however, we have another announcement in the April statement that the new measures will take effect only from the 1990-91 income year. We can very quickly change access by pensioners to their cost of living increases and cut back Austudy for 15-year-old students from poorer families when the Government and the Opposition have a mind to cooperate, but when it comes to cutting back on revenue lost through tax haven rorts, this Government is not willing to act quite so quickly. It will be two years from announcement to implementation and in that time, according to Mr Crough, something like $2 billion of potentially taxable profits will be lost. This is one of the reasons why Australian companies pay less and less tax while pay as you earn taxpayers contribute more to Consolidated Revenue and, ironically, get less back.

According to the Sydney Morning Herald-these figures are backed up by magazines such as Business Review Weekly and Australian Business-some of Australia's largest companies end up paying a pathetically small proportion of their pre-tax profits in tax. In 1988, for example, Qintex paid 0.15 per cent of its pretax profits in tax, an improvement, I might add, on 1987 when the percentage was minus 16.5 per cent; Equiticorp paid 0.8 per cent; Bond Corporation, 0.97 per cent; and Northern Star, 1.3 per cent-and that at a time when the company tax rate was 49c in the dollar. In the interim, the Government, with the support of the Liberal-National Opposition, has cut company tax by 20 per cent from 49c in the dollar to 39c in the dollar. If the sorts of tax havens that have been used are left available to these people, the taxpayers will be paying them back money each year. Negative taxation will become the norm for some of these large companies.

So the tax cuts were more illusory than real and were nothing more than a part payment to middle and low income Australia of what the Government owed it in any event. The social security measures were even less than official in real terms. Certainly, the Australian Democrats welcome the long overdue indexation of things such as family allowances, because that sort of failure in the past has probably been more damaging to a lot of low income earners, pensioners, beneficiaries and families than the much derided bracket creep has been with regard to marginal tax rates. So we welcome the increase as well in family allowances, the increases in the level of income that pensioners can earn before they pay tax and the removal of the six-week postponement of consumer price index adjustments to pensioners which was introduced by this Government and supported by the Opposition in 1986. Assistance to pensioners and beneficiaries pales in comparison to assistance given to the wealthy by this Government. For example, last year the legislation to give companies almost $2 billion in tax cuts was passed with the support of the Opposition, and the tax cuts of pay as you earn taxpayers announced in April are estimated to cost something like $4.9 billion.

By comparison, the social security package is estimated to cost $710m but will be more than offset by a series of government savings in the same social welfare area. These include, of course, a further attack on social security recipients allegedly to reduce social security abuse, a new pharmaceutical benefits scheme and further cuts to State governments which will, of course, have to increase their charges with regard to utilities and so on if they are to meet the increased costs that they will have to bear because of cuts to government funding from the Federal level.

As a result, the April economic statement has seen the Australian Labor Party, the party supposedly there to support the workers, the low income earners, the people in need and the social welfare recipients and beneficiaries, march further and further to the right. It has introduced its own version of work for the dole by compelling the unemployed to accept part-time employment regardless of qualifications and regardless of the fact that part-time employment is generally poorly paid and unreliable. What is more, of course, it is depriving people who are unemployed from finding the time to look for more worthwhile, long term types of employment. Young people in Australia, the permanently unemployed and the unskilled, the under-skilled, or those whose skills are no longer relevant to industry and commerce, are being penalised by the Government and will quite probably be squashed entirely by the policies of the Opposition.

Both the Government and Liberal-National parties talk about increasing incentives, deregulation and wage restraint at a time when unemployment remains a very real social problem, when the number of sole supporting parents living below the poverty line is growing and when company profits are expanding. We do not need those sorts of additional screws applied to those who are already underprivileged and living below the poverty line. What we do need are progressive, inventive job creation schemes and genuine tax reform. Instead, the Government gives us draconian legislation aimed at further penalising the poorer, less socially and economically advantaged segments in our society.

It is a fact, whether Government members like it or not, that the Hawke Government has failed to act on the poverty traps that are creating child poverty. Children of the unemployed, of sole supporting parents and of other beneficiaries will still be living below the poverty line despite, or maybe even because of, what this Government has done in the April statement and in previous Budgets and May economic statements. A sole parent beneficiary with two children receives an additional $5.25 a week, leaving her-and it is almost always a her-$15.75 below the poverty line. This is in stark contrast with an employee sole supporting parent with two children on $500 a week who gains $23.95 from the package. There are not, I might add, a large number of those people because, unless their children are reasonably advanced in school years and do not require to be taken to and picked up from school each day, most sole supporting parents are not able to go into full-time employment. Those whose children are not of school age find child care so prohibitively expensive that they are essentially prevented from finding work, no matter what their qualifications are.

An even more striking example of the Government's entrenchment of inequity in the social and economic systems is seen in the extra $121 a week gained by the two-child, two-income family earning $45,000 per annum. Where is the equity in such decisions? Because the tax threshold has not been lifted and because tax rebate increases have been confined to age pensioners, the poverty traps remain. No impact has been made on the equivalent marginal tax rates which are a disincentive to those people returning to paid employment. In addition, another anomaly has been created. Single pensioners will have to wait until 1990-91 to receive the full amount of $40 in the income test free area, whereas married pensioners are able to receive their full increase in the current financial year. For a government which espouses a social justice strategy, the package is a sad comment on its attitude towards disadvantaged minorities.

The third element that the Treasurer mentioned in his April statement was the question of wages, the accord and the issue of the new Industrial Relations Commission determining wage increases. The important point that needs to be made is that the outcome of the announcements by the Treasurer in the April statement with regard to the wages package is highly speculative. It does depend on decisions to be made later this month in the Industrial Relations Commission and the arguments put before it by the unions which are able to prepare a satisfactory case. Appendix D of the economic statement says:

. . . the ACTU and the Government are agreed that wage increases in 1989-90 will need to be consistent with an outcome for growth in average earnings . . . of the order of 6 1/2 per cent . . .

That would be a reasonable enough target to be aiming at. The question is: how can we achieve this outcome; how can we ensure that the much vaunted restructuring and productivity measures actually occur rather than simply be used as excuses to give pay rises to the most powerful unions? What about the areas in which restructuring and increased productivity cannot be quantitatively or even qualitatively produced? For example, where can productivity increases be achieved in areas such as nursing, teaching or many of the other caring professions? I do not believe that it will be easy for the Australian Council of Trade Unions, the Minister for Industrial Relations (Mr Peter Morris) or the various business organisations, whether they are big or small, to achieve the twin aims of keeping wage increases at 6 1/2 per cent and ensuring that the wage increases that are given result in a more efficient work force.

What has been left out of the statement? The answer is essentially more than was actually in it. There is, for example, no attempt to look at the twin problems facing middle Australia of an encouragement to save and the issue of increasing interest rates. The Democrats came into this chamber in the August 1981 Budget session and acknowledged then that Australia was facing a problem in the area of savings. At the time by way of a private member's Bill, we introduced a method by which the Government could encourage savings. That Bill and a Bill relating to housing interest rates were sent to a committee by a combined vote of the then Fraser Government and the Labor Opposition and the report came back saying, `Do nothing in 1981 about holding down interest rates and encouraging savings'. We can see now in 1989 the mess that has come from the combined Labor and Liberal-National parties do nothing approach. Had these things been listened to seven years ago perhaps we would not be seeing the sorts of problems that we are currently faced with.

The coalition has suddenly, however, discovered that there is a problem. The Hawke Government has yet to recognise it. The simple fact of the matter is that Australians need to save more if we are to spend less overseas and reduce our growing dependence on foreign borrowings. In so far as there is a danger with the tax cuts and the wage increases promised in the April statement, it is that they will be translated into an ever bigger demand for imported goods because people have no reason to save. A large amount of their interest is eaten up in tax and they can see no way to save for a deposit for a home because they do not believe they will keep up with the pace of the increasing prices in housing or that they will ever be able to meet mortgage payments. It is therefore imperative that the Government act in this area. In line with this belief, in March this year I introduced legislation to exempt from tax the first $2,000 of interest earned in savings accounts with financial institutions which lent for housing provided those accounts pay 12 per cent or less in interest. There would be a number of beneficial effects from this. It would encourage savings in general. If offers small investors, especially the elderly and the retired, a secure investment with a good return. It would assist those who are saving to buy their first home and interest rates for housing loans would drop as the pool of money to be lent for housing increased.

If ordinary Australians are to be helped with regard to interest rates we need to level the playing field in the area of borrowings. We need to return to the days when we had at least some tax deductability on mortgage repayments to help families who are struggling to meet the increase in home loan interest rates which are continuing, inexorably, to move upwards, with recent predictions of 18 per cent. Again, last month I introduced legislation to give tax relief to people who are buying the house they live in. It does not go anywhere near matching the generosity of tax concessions to owner home buyers in the United States and the United Kingdom. But it goes some little way to levelling a playing field which in Australia gives a tax reduction to people who want to borrow money to invest in housing to rent to people who cannot afford their own home but does not offer it to those people who want to put a roof over their own and their children's heads. We have either to level that playing field or to go back to the days when it was not possible to negatively gear in the real estate area. What we have seen since that was reintroduced is a very significant distortion of the home buying market where fewer and fewer people who are borrowing are first home buyers and more and more who are borrowing are investors.

This, of course, leads us to the question that also was not answered nor was even attempted to be addressed in the Treasurer's April statement-that is, why are interest rates as high as they are? Fairly obviously there are a number of reasons for that. Our foreign debt, somewhere in the vicinity of $121 billion at the end of last year, does not help. It means that Australia has become a very risky country to lend to. The way of compensating for that, of course, as far as governments are concerned, is to encourage interest rates to be high so that we can encourage foreigners to invest in this country. Interest rates have been forced up in this country by a Government keen to attract foreign lenders.

Inflation is rising, too, despite the fact that imported goods should have been cheaper over the last two quarters as a consequence of a rise in the Australian dollar. This has not happened and the Government was very slow to sool the Prices Surveillance Authority on to retailers in this area. The deregulation of the financial system has meant the Government has given up its ability even to control interest rates in some areas and to control bank lending through the mechanisms of the past. It is time to reregulate at least part of the financial sector.

What can and should be done to introduce some sort of social and economic equity into the system? We could look at a surcharge on luxury imports. This would either cut imports directly by discouraging people from purchasing those higher priced items or, at the very least, make the well-off who can afford to pay even the higher price to make their contribution to our balance of trade problems. We could discourage private overseas borrowings by ending the current tax concession used by companies who borrow overseas. We need to recognise that the bulk of our foreign debt is private. At the end of 1988 our top six corporate borrowers-Broken Hill Proprietary Co. Ltd, News Corporation, Bond, Bell, Industrial Equity Ltd and Elders-were responsible for something like $26 billion worth of foreign borrowings, $3 billion more than the foreign borrowings of the Federal Government.

As I mentioned earlier, we could discourage consumption of imports by encouraging savings. We could do this, as I said, with a tax exemption on some of the earnings of people who save with banks and building societies that lend for housing. We need to acknowledge that company profits are high while wages have been squeezed. We need to acknowledge that prices have not dropped despite the fact that imports are cheaper to the importer and to the retailer as a consequence of the appreciation of the dollar. We have seen inflation rise as a consequence. The beneficiaries of this are obviously not middle and low income Australians. They are in fact executives who are paid ever-increasing salary packages with no need to justify those increases before the Industrial Relations Commission. Companies which are importing at cheaper prices without passing on the price reductions are benefiting. Major shareholders of companies where profits are increasing are, of course, also benefiting. These are people who are already well off and need extra assistance like they need a hole in the head. What we need to do is to apply far stricter controls on prices and on executive salaries. I find it quite offensive that one of the major private banks in this country is paying $1 1/2m salary packages to its senior executives in Japan and America whilst charging pensioners and low income earners fees on small bank accounts.

The Opposition alternative is to provide tax cuts but to fund them through things like expenditure cuts in the areas, presumably, of education, aged care, social security and health. One wonders how people on low incomes will pay for those services if they are forced to dig deeper into already shallow pockets for the money. The Opposition still has as its favourite solver of all problems, of course, privatisation. We need to ask ourselves whether low income Australian families and, in particular, rural families will benefit from privatisation; whether they will be compensated sufficiently to meet the extra expenses of privatised utilities such as Telecom, Australia Post, the hospitals or the schools systems. Furthermore, since the Government, of whatever flavour or colour it happens to be, can sell those enterprises only once, how are the tax cuts to be sustained? The next favourite item is something like a broad-based consumption tax which, of course, hits lower income earners hardest.

The fact is that none of these things or, indeed, the next favourite item-selling off Australia to overseas interests-will help middle and low income Australians. At best the solutions are short-term and at worst they substitute a foreign debt problem with a foreign ownership problem and/or hit hardest those on lowest incomes through the introduction of a broad-based consumption tax.

What we need instead is a return to a policy of social and economic equity. We need to recognise that our wages are no higher than those of our major trading partners, except Korea; that Australia has a generous tax system-tax levels and deductions-especially for companies when compared with our major trading partners; but that we have an adversarial political and workplace system which is a sad heritage of our colonial past. Until we get rid of employee versus management conflict, and until we come to an across-the-board agreement about tax and social services equity, we will not see Australia pulled out of the mire. Until these sorts of problems are attended to this country's economy will continue to decline and take middle and low income earners further down the mine than they already are.