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Thursday, 25 May 1989
Page: 2642


Senator ROBERT RAY (Minister for Immigration, Local Government and Ethnic Affairs)(10.08) —I move:

That these Bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows-

TAXATION LAWS AMENDMENT BILL (No. 3) 1989

This Bill amends the taxation laws in a number of respects and in addition will remove some 180 pages of redundant provisions of the income tax law.

Three outdated tax-related Acts will also be removed from the statute books.

The Bill contains measures to apply after today to specifically tax gains and allow a deduction for losses on the disposal of traditional securities.

As announced on 22 November 1988, the exemption from capital gains tax for a taxpayer's sole or principal residence is to be extended to make sure that it covers those residing in retirement villages and the like.

The Bill extends the exemption from income tax of maintenance payments received by a wife or former wife to maintenance payments received by a spouse, former spouse, de facto spouse, former de facto spouse or by or on behalf of a child.

Other amendments in the Bill ensure that a minor who is in receipt of a child disability allowance or is a disabled child will not be subject to the special anti-avoidance measures that deal with the unearned income of unmarried minors.

The level of beneficiary rebate for 1988-89 will be increased from $260 of $262.

Gifts to funds for the relief of persons affected by the earthquakes in Armenia and to the Australian Ireland Fund are to be allowable income tax deductions.

The taxation secrecy provisions are to be amended to allow the Commissioner of Taxation to disclose tax information to specified law enforcement agencies in certain circumstances, and to the Australian Customs Service.

Finally, the Bill makes some minor technical amendments to the tax laws.

I turn now to a more detailed discussion of these measures.

Redundant Provisions

The Government is conscious of concerns expressed over the volume and complexity of tax legislation with which taxpayers, tax administrators and other users must cope.

Much of this legislation has been directed at curbing the excesses of the tax avoidance era that we inherited in 1983, and at creating a fairer taxation system.

As part of this overall process, the Government is committed to improving the tax laws and to responding to constructive criticism of these laws.

In that vein, this Bill will slash some 180 pages of redundant provisions from the Income Tax Assessment Act 1936.

Further changes of this kind will follow.

Honourable Senators will also continue to see the adoption of a simpler drafting style in new tax laws, and the gradual revision of their provisions that could be expressed more clearly.

It must be remembered, however, that all developed countries have complex laws-including tax laws-which necessarily reflect the complexity of commercial affairs.

Indeed, some laws must be complex, if only because those out to exploit them do not shy from complexity in what they do.

This ongoing process of law improvement, which will involve consultation with practitioners and industry groups, will ensure continuing progress in a key element of our tax reform program.

The whole Australian community can only benefit from this initiative.

Taxation of Traditional Securities

This Bill introduces new rules to apply after today for the taxation of traditional financial securities not being securities issued at a discount to which the accruals provisions of Division 16 of the Income Tax Assessment Act 1936 apply.

Under the existing law certain gains and losses on the disposal or redemption of traditional securities are dealt with under the capital gains and capital losses provisions.

This Bill excludes from the operation of those provisions gains or losses on the disposal or redemption of traditional securities acquired after today.

Instead, under specific measures included by this Bill, the future tax treatment of gains and losses on the disposal or redemption of traditional securities will be dealt with under the general income tax law.

The amendments will result in a small but unquantifiable gain to revenue.

Capital Gains Principal Residence Exemption

The Bill will give effect to the proposal announced on 22 November 1988 to extend to units in retirement villages and similar accommodation the exemption from the tax on capital gains for a taxpayer's sole or principal residence.

The amendment will apply from 20 September 1985, the date of first effect of capital gains tax.

Maintenance Payments

The income tax exemption available for periodical payments of maintenance received from a husband or former husband will be extended to include payments received, on or after 1 July 1988, from a wife or former wife, or by a person from a de facto spouse or former de facto spouse.

Periodical payments of child maintenance received by or on behalf of a child will also be exempt from tax.

A related measure will ensure that an income tax deduction is not available for expenditure or payments in respect of maintenance of a spouse, de facto spouse, or a family member under 16 years of age.

The annual cost to revenue of these amendments is estimated to be $100,000.

Taxation of Unmarried Minors

This Bill will amend the special provisions dealing with the unearned income of unmarried minors which is taxed at the top rate of personal tax.

The changes take account of an amendment of the Social Security Act 1947 which replaced the handicapped child's allowance with the child disability allowance.

The amendments made by this Bill will ensure that a minor in receipt of a child disability allowance or who is certified by a medical practitioner as being a disabled child will not be subject to the special provisions.

These amendments cover all payments of the new allowance, which began on 15 November 1987.

Beneficiary Rebate

A small adjustment, from $260 to $262, is being made to the level of the beneficiary rebate available for certain single taxpayers in 1988-89, so that no tax will be payable on taxable incomes up to $6,192.

The rebate will shade-out where taxable incomes exceed the $6,192 threshold and will shade-out completely where a person's taxable income is $8,288 or more.

This adjustment, which ensures that persons wholly dependent on specified Commonwealth benefits or allowances do not pay income tax, is estimated to cost $200,000 in 1989-90.

Gifts

As announced on 16 December 1988, gifts to a public fund for the relief of persons affected by the earthquakes in Armenia made on or after 8 December 1988 and before 1 July 1989 will qualify for tax deduction.

The revenue cost of this proposal is estimated at $500,000 in 1989-90.

Gifts to the Australian Ireland Fund will qualify for tax deductability from today at a cost of $50,000 in a full financial year.

Access to Taxation Information

Amendments to the taxation secrecy provisions contained in this Bill will permit the Commissioner of Taxation to provide taxation information to certain law enforcement agencies.

The authorised law enforcement agencies are the Australian Federal Police, State and Northern Territory police forces, the Director of Public Prosecutions, the National Crime Authority and State and Territory Corporate Affairs Commissions.

The legislation contains tight controls on the use that may be made of any information provided by the Commissioner.

The amendments will allow the Commissioner to disclose taxation information to authorised law enforcement agency officers only where he considers that the information is relevant to establishing whether a serious offence-that is, an indictable offence-has been committed.

The information may only be used for intelligence purposes.

The amendments also allow the Commissioner of Taxation to release taxation information relating to a person convicted of a serious offence for evidence purposes for a post conviction proceeds of crime proceedings.

The Commissioner will be required to disclose in his Annual Report to this Parliament, in respect of each broad category of offence, the number of requests for information by each law enforcement agency and the number of occasions on which information has been provided to each agency.

The taxation secrecy provisions are being further amended to permit the Commissioner to provide taxation information to the Comptroller-General of Customs.

The requirements of secrecy applying to taxation officers and other persons privy to confidential taxation information will, of course, extend to persons to whom taxation information can be communicated under these amendments.

I present the Explanatory Memorandum, which contains more detailed explanations of the provisions of this Bill.

I commend the Bill to the Senate.

INCOME TAX (INTERNATIONAL AGREEMENTS) AMENDMENT BILL 1989

I am very pleased to introduce this Bill, which will provide legislative authority for the entry into force of a comprehensive double taxation agreement with the People's Republic of China.

The Bill will insert the text of the agreement into the Income Tax (International Agreements) Act 1953 as a schedule to that Act.

This agreement substantially accords with the other comprehensive taxation agreements concluded by Australia in recent years. The Government believes it will contribute positively to the strengthening of trade, investment, and wider relationships between Australia and China.

The agreement was signed on 17 November 1988, at which time details were announced and copies of the agreement were made publicly available.

It deals with all substantial forms of income flowing between both countries, apart from profits on international air transport operations covered by the existing Chinese Airline Profits Agreement.

A particular feature of the agreement is that it provides for ``tax sparing'' credit relief to be extended by Australia for tax forgone by China under specified development incentives for the encouragement of foreign investment.

Where income derived by an Australian resident taxpayer has benefited from one of the nominated development incentives, the agreement calls for a tax credit to be allowed as if the Chinese tax forgone had been paid.

By this means, the Chinese development incentives will retain their attractions for Australian investors as they will not be effectively negated by the imposition of Australian tax.

I note here that the agreement was negotiated on the basis of the existing income tax laws of the respective countries.

The Government recognises that aspects of proposed changes to Australia's general foreign tax credit system, which have been foreshadowed as applying from the beginning of the 1990-91 income year, could affect the practical operation of the tax credit provisions of the agreement, including the tax sparing mechanism.

For example, proposed income tax exemptions under our domestic law for certain dividend payments and branch profits derived by Australian companies from comparable tax countries are likely to provide at least as great relief from Australian tax, and would operate in relation to such income from China.

The agreement will enter into force when all necessary constitutional processes are completed both by Australia and China. This Bill, when assented to, will complete the processes required of Australia.

The agreement is not expected to have any significant effect on the revenue.

I table the explanatory memorandum on the Bill.

May I commend the Bill to the Senate.

SALES TAX (EXEMPTIONS AND CLASSIFICATIONS) AMENDMENT BILL 1989

This Bill will amend the Sales Tax (Exemptions and Classifications) Act to give effect to the Treasurer's announcement of 13 February 1989 that only bottles that are for repeated use in marketing alcoholic beverages qualify for exemption from tax on their initial acquisition by a brewer or wholesaler of such beverages.

To achieve this, the Bill will remove containers used for marketing alcoholic beverages from the scope of items 94 and 94a of the First Schedule of the Sales Tax (Exemptions and Classifications) Act.

At present, these provisions exempt from sales tax bottles and jars that bear a moulded notification that they remain the property of their supplier.

The Bill will also modify exemption item 95 which applies to bottles for repeated use in marketing non-alcoholic drinks.

That item will now also operate to exempt, at the time they are first acquired by a manufacturer or a wholesaler, bottles for repeated use in marketing alcoholic beverages.

The cost of such bottles, together with costs associated with their recovery and preparation for reuse, will be included in the sale value of the beverage on which sales tax is payable.

Finally, the Bill will extend parallel treatment to beer kegs.

This will remedy a situation under which beer kegs became exposed to potential double taxation since beer first attracted sales tax on 24 August 1988.

This amendment will apply from that date so that affected taxpayers may obtain refunds of overpaid tax.

I present the Explanatory Memorandum, which contains a more detailed explanation of the provisions of this Bill.

I commend the Bill to the Senate.

INCOMES TAX (ARRANGEMENTS WITH THE STATES) REPEAL BILL 1989

This Bill will give effect to the Treasurer's announcement of 12 March this year that the Government would repeal the Income Tax (Arrangements with the States) Act 1978.

It will also make a number of consequential amendments to the income tax law to dismantle the mechanisms that authorise the Commissioner of Taxation to administer State income tax laws.

Mr President, the legislation we are acting to repeal today constitutes the last relic of the Fraser Government's ill-fated `New Federalism'.

This legislation enabled each State, if it so chose, to legislate to increase personal income taxes or to give-at a cost to that State-a rebate on personal income tax to its own residents.

No one would be surprised to learn that no State has taken up the option of imposing its own separate income tax.

The reality has been that none has been prepared to risk the political odium of doing so.

To all intents and purposes `New Federalism' was dead long ago.

However, recently the Federal Opposition has taken steps to revive it.

Two months ago the then Shadow Finance Minister-in remarks consistent with the policy outlined in the Opposition's Future Directions Manifesto-foreshadowed his intention of encouraging the States to impose their own income taxes.

In the event, he was over-ruled by the former Leader of the Opposition.

However, given recent changes in the Opposition's leadership, the Government's determination to repeal this law has re-doubled.

Already the new Opposition leader has appointed the former Finance Spokesman as acting shadow Treasurer.

From such a position it is reasonable to conclude he will return to his agenda of double income taxes.

Our concern has also been heightened by the Opposition Leader's unambiguous endorsement of the Future Directions document at his Tuesday Press Conference following his election.

That endorsement leaves up in the air the former Opposition Leader's repudiation of the double taxing proposal incorporated in that document.

Mr President, this Government is determined to remove this legislation from the statute books to ensure that no backdoor method be left which would enable a future administration to impose a second layer of personal income tax upon the people of Australia.

If any future Government wishes to pursue this course it will now have to do it out in the open-not by reactivating a relic of the Fraser years.

We are strongly of the view that far from being a step towards more responsible Government, States' income tax powers would instead threaten the entire thrust of macroeconomic reform in recent years.

This Government has already made enormous progress in cutting back Government spending and reducing the size of the public sector.

Commonwealth outlays as a proportion of GDP have been reduced from more than 30 per cent of GDP in 1984-85 to about 25 per cent this financial year.

Further reductions in the outlays ratio are already cemented into place for future years.

The forward estimates show that by 1991-92 Commonwealth outlays will have fallen to 23 1/2 per cent of GDP-or in terms comparable with the period before basic health cover was switched from the private to the public sectors-a ratio of 22 1/2 per cent.

This represents a significant turnaround from the trend of the 1970s and early 1980s when the Government sector claimed an ever increasing share of national income.

What-is-more, this declining share of Government outlays has paved the way for the real tax cuts.

Honourable Senators will be aware that this is the first Australian Government ever to have paid tax cuts from a Budget surplus.

All our predecessors have paid tax cuts by borrowing more money.

We have paid for them by cutting outlays in real terms.

Compare that to the Coalition Government which in 1982 ran up a $9.6 billion Budget deficit after paying irresponsible, unfunded tax cuts.

In contrast this Government in 1989 has found room for responsible tax cuts of $4.9 billion while retaining a Budget surplus of at least $5.5 billion.

We have paid for tax cuts by cutting and better targeting Government spending and delivering the proceeds back to the community.

In the years ahead-as the ratio of Commonwealth spending to the size of the economy continues to fall-likewise the amount of revenue needed to finance that spending will also fall.

In other words, as economic conditions allow, there will be continued scope for further affordable personal income tax cuts.

It is a simple equation, never understood by the Liberals.

Lower Government spending equals lower Government taxes.

Far from being a step towards smaller Government, the Opposition's proposal to give the States greater taxing powers would put all that achievement at risk.

Handing the States taxing powers would merely provide them with the wherewithal to fund increased expenditures, claiming back to the public sector the area vacated by the Commonwealth.

Australia just cannot risk leaving this act on the books.

Mr President, the double taxing legislation we are repealing was in fact the second part of the Fraser Government's `New Federalism' policy.

The first part was equally misconceived.

Introduced in 1976, it provided for the States to receive as general revenue assistance a designated proportion of Commonwealth tax revenue, initially a certain share of income tax revenue, but from 1982-83 to 1984-85, a smaller share of total Commonwealth tax revenue.

In fact, these tax sharing arrangements were topped up by various funding `guarantees', such that in every year but 1982-83, the States received more than their fixed share of taxation revenues.

From an economic policy-making perspective, the main fault in these arrangements was that as grants were linked to revenue collections in the previous year, no account was taken of the emerging budget and economic position in the current year.

In other words, flexibility to adjust fiscal policy settings in the national interest was severely constrained.

For a relatively small country such as Australia-heavily dependent on often rapidly changing international circumstances for our economic well-being-this was a risky situation in which to place ourselves.

The Commonwealth must be in a position to act decisively and with substantial influence if it is to fulfil its macro-economic responsibilities.

So called `New Federalism' denied the Commonwealth that ability.

The Hawke Government acted to remove the shackles of `New Federalism' by replacing the tax sharing grants with financial assistance grants in 1985-86.

Our aim has been to bring the growth in assistance to the States back under control and to help reduce the growth in public spending.

The States, of course, have resisted the large and sustained reductions in general purpose payments that the Commonwealth has imposed.

Similarly, I expect they will complain when, as I foreshadowed in the April Statement, we maintain that restraint at the 1989 Premiers' Conference.

But the ritual complaints of State Premiers have worn thin.

They too must play their part in economic adjustment.

Mr President, there is no debate about the crucial need for continued public sector spending restraint.

Reduced public sector spending makes an important contribution to providing scope for the increased private sector investment in new export and import replacing industries that is now taking place.

Of course, the need for all levels of Government in Australia to play their role in this has been made all the more urgent by the recent deterioration in Australia's external accounts.

It needs clearly to be understood by everyone in our community that each month's balance of payments figure is not a statistic in isolation.

To the contrary, each month's figure amounts to a further loss on our external accounts which must be covered by borrowing.

In other words, each month's figures adds more to our external debt and to our national interest bill.

Frankly, Australia just cannot afford to go on accumulating debt at the rate it is at present.

We simply cannot afford the luxury of different levels of Government squabbling about how to divide up a pool of revenue when the overwhelming economic requirement is that all Governments recognise the need to keep their financial demands in check.

Australia's future economic security demands that we have the full support of the States in this endeavour.

This year, more than in any other recent period, strong economic growth has ensured that the States have the financial capacity to do this.

The States have had a revenue bonanza in recent years because very strong growth in stamp duty revenue generated by the share market and property market booms has added enormously to their revenues.

State stamp duty revenue alone last year rose by over 50 per cent.

In recent years State finances have also benefited considerably from the Commonwealth's Accord with the trade union movement.

Since wage costs represent a major proportion of the States' costs in providing services such as education, health and police, wage restraint flowing from the accord has helped increase the effective level of resources at the disposal of the States.

In view of these trends in the States' finances, it has been essential for the Commonwealth to significantly cut payments to the States to encourage them to restrain their spending.

In the past the States have simply spent all the revenue that has come their way.

Not to have cut back on Commonwealth payments to the States in current circumstances would have been economically irresponsible.

The alternative would have been to allow the States to increase their own outlays, offsetting the Commonwealth's spending reductions.

Mr President, some States seek to confuse this issue by producing a plethora of statistics comparing growth rates in outlays and revenue.

Their favourite is to complain that the cuts in Commonwealth payments have exceeded the cuts in the Commonwealth's own outlays and that they are therefore bearing an unfair share of the burden of fiscal restraint.

Such comparisons are simply irrelevant.

The fact is that if the Commonwealth had not cuts grants by the degree it has it is likely the States would have shown no spending restraint at all.

The most appropriate measure of the relative fiscal restraint of the Commonwealth and the States is growth in each sector's own purpose outlays.

In other words, comparing apples with apples.

On this basis, since 1986-87 Commonwealth own purpose general government outlays-that is, excluding public trading enterprises such as Telecom and Qantas-have fallen by 5 per cent in real terms.

On the other hand, and despite the cuts in Commonwealth payments, comparable State outlays have increased by around 2 per cent in real terms.

This growth reflects, in part, the continued strong growth in the States' current expenditures on goods and services.

These grew by nearly 4 1/2 per cent in real terms in 1987-88, and look set to grow at about the same rate this year.

None of this is to suggest that the Commonwealth is seeking to impose draconian spending cuts on the States.

We fully recognise that public services must be adequately funded.

But by the same token, by cutting out waste and inefficiency and better targeting assistance, there is further scope for the States to curtail spending.

They must continue to make a contribution to national economic adjustment in proportion to their importance in the economy.

Mr President, I turn now from expenditure and taxation to policies toward government borrowing, where it has also been necessary for the government to diverge sharply from the policies of the previous government so as to restore order in national public finances.

When the Fraser government came to office, borrowings by State authorities were effectively controlled by Loan Council, under what was known as the Gentlemen's Agreement dating from 1936.

These arrangements were allowed to fall into severe disrepair by the Fraser Government.

Indeed, at times State authorities were encouraged to increase their borrowings, including from overseas.

These increased borrowings were purportedly to be used to fund infrastructure for the much touted resources boom of the early 1980s.

However, they also enabled some States to squirrel away substantial cash balances which they could later spend, thwarting national fiscal policy objectives.

Proper oversight of public sector borrowing under the Liberals was weakened in three ways:

Loan Council failed to extend its oversight under the Gentlemen's Agreement to new, ``Non-Conventional'' forms of borrowing such as financial leases and deferred payment schemes;

from 1977-78, Loan Council agreed to a wave of special additions to State authority borrowing programs for major infrastructure projects; and

from 1982-83, all domestic borrowings by State electricity authorities were excluded from control.

By 1983-84, over 75 per cent of State authority borrowings were outside Loan Council control, and the net PSBR of the State and Local sector had grown from 1.7 per cent of GDP at the end of the 1970s, to 2.9 per cent of GDP in 1982-83, the highest level since the 1950s.

Mr President, while there was much worthwhile public sector capital investment in the early 1980s, there was a significant component that could not be properly justified on any reasonable basis.

Further, the concentration of infrastructure spending in that period added enormously to our foreign debt burden and contributed to the wages blow out and high inflation that marked the period.

The present government, when it came to office, was faced with the task of re-establishing national control over the net PSBR through Loan Council.

Accordingly Loan Council's acceptance from 1984-85 of the global approach to authority borrowings was secured.

This approach reasserted Loan Council's responsibility for control over all forms of financing by Governments at all levels.

In the early period the global limits did not bite as much as they should have because of the cushion left from the Fraser mismanagement of borrowings.

Increasingly, however, the global limits have become a useful tool of fiscal responsibility.

Even so, the States' net borrowing requirement has only declined from 2.3 per cent of GDP in 1983-84, to an estimated 1.2 per cent in 1988-89.

In the same period the Commonwealth Government's net borrowing requirement has been cut from a 4.5 per cent deficit to a surplus of 0.9 per cent.

Mr President, the stabilisation policy issues I have raised serve to highlight the role the States have to play in improving Australia's economic performance.

But just as the States can impact-for the better or worse-on broader fiscal policy settings, so they can have an important part in either promoting or frustrating necessary structural reforms.

Regrettably the States are frequently to be found dragging their feet when it comes to structural reform.

Each State's financial position is affected by the expenditure consequences of its infrastructure and industry policies.

It is no use the States crying poor while, at the same time, their profligacy is revealed in continuing explicit or implicit industry subsidies and by sub-economic pricing of key resources, such as for out-moded rail services.

Mr President, for its part the Commonwealth has matched its success in fiscal management with a broad ranging program of micro-economic reform.

We demonstrated our determination to progress in this area by overriding restrictive State provisions in order to accelerate the essential deregulation of wheat transport and marketing.

Earlier this week, further reforms in the area of science and technology were announced, while later this month a major statement will be made on coastal shipping and the waterfront.

But we have to recognise that many of the structural rigidities and impediments to growth are rooted in State practices-particularly in the important area of transport.

It is crucial to the objective of improving waterfront efficiency that State port authorities reduce their costs, charge economically sensible prices for their services and become more active in encouraging competition within ports.

Where States have taken steps towards reform they need to be rigorously followed through.

Most States have not even begun the reform process-they need to lift their game.

The State railways are another area crying out for reform.

They largely account for State enterprise subsidies of some $2.3 billion per annum.

In the skies Commonwealth deregulation of domestic trunk passenger aviation will begin in 1990, and the hard but correct decision was taken on the third runway at Sydney airport.

But most States seem reluctant to give up their detailed regulation of intrastate air services, even though this will frustrate the full benefits for customers of the Commonwealth's initiative.

Mr President, it is also important that progress made by the Commonwealth towards a stronger industry structure is not dissipated by inappropriate State policies.

There is a complex web of State incentives, taxes or charges and unnecessary and inconsistent regulation within and between States.

Regrettably, one area where our Federal system has been all too productive is in the generation of unnecessary regulations: packaging and labelling regulations, occupational licensing, and the disparate regulation of companies and the securities and futures industries are cases in point.

Mr President we look to the States to play their part in helping to remove such impediments and structural rigidities.

It is for all these reasons, Mr President, that we repeal the last relic of the Liberal Party's new federalism.

I present the Explanatory Memorandum, which contains an explanation of the provisions of this Bill.

I commend the Bill to the Senate.

Debate (on motion by Senator Reid) adjourned.

Motion (by Senator Robert Ray) agreed to: