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Thursday, 1 June 1989
Page: 3212

Senator LEWIS(1.11) —The Senate is now debating the Income Equalization Deposit Laws Amendment Bill 1989. In the 1960s drought bonds were introduced by coalition Government to encourage farmers to make provision for bad seasons by cash deposits as well as providing hay and water reserves. In 1976 the Fraser Government broadened the scheme to cover all the factors which can significantly alter farmers' incomes. Nearly six years ago the Hawke Government scrapped the old income equalisation deposit scheme, effectively denying farmers the opportunity to put something aside for bad times in a way that would not penalise them in relation to other taxpayers while, at the same time, not put them in some special favoured position. That was the substance of the Fraser Government scheme.

At that time Senator Walsh was on his rort craze. Everything Senator Walsh could see that was happening in this nation was a rort-frequently and most often a tax rort. So Senator Walsh, as soon as he got into government, went in with his broadsword, cutting off heads wherever possible without regard for the economic consequences or the difficulties that taxpayers might have to face as a result of his changes to legislation. He was totally preoccupied with tax rorts. He used to talk all the time about everyone in this country, except himself, rorting the system. Without regard, as I say, for the farmers that he was affecting, the Hawke Government removed the tax link from the scheme because Senator Walsh alleged that the incentive was too generous.

By removing the tax link, Senator Walsh, Mr Keating and Mr Hawke effectively ruined the scheme and deposits have steadily declined since then. Instead of applying their minds, as might have been expected, to discovering whether any loopholes existed and, if so, removing them, they have wrecked the scheme. They put in its place a scheme which they claimed would encourage more farmers to participate but it was nothing more than glorified savings account system and it has been a disastrous failure, as we predicted at the time when they brought it down. That scheme-the Hawke Government scheme-no longer attracts funds because, as the Government was warned by the coalition, the replacement scheme offers no incentives to farmers to participate or save.

Incentive is the key to any saving program. That simple truth appears to have escaped this Government. Farmers voted with their feet and there was a mass exodus from the scheme. Lodgments fell from over $73m in 1979-80, to $485,000 in 1987-88. The value of the Fraser Government scheme can best be illustrated by the fact that during the 1982-83 drought, when the net value of rural production fell by 80 per cent and Australia was in the grip of one of the worst droughts in the nation's history, redemptions peaked at over $65m and those redemptions saved many farmers from absolute ruin. And, of course, with the good commodity prices that we have been having over recent years, farmers should have been putting away savings to help them deal with some future drought or crisis on the land. But this Government has not enabled them to do so, other than in a way which does not offer incentive.

I might mention that the 1982-83 drought is always conveniently ignored by the Hawke Government when it discusses the problems that the Fraser Government faced during that year. Ever since then the Hawke Government has been under pressure to restore what was undoubtedly a worthwhile scheme to encourage self-help; to reduce natural disaster relief and rural adjustment assistance payments; to allow farmers to put aside funds for their own benefit to be used when they face a crisis; and compensate them for the greater amounts of tax they pay in good years.

In the 1988 May economic statement the Government at long last announced that it would reintroduce a tax linked income equalisation deposits scheme to operate from 1 July 1989. The mix of high wool prices and the economic mess created by this Government's economic policies are the reasons the new scheme is not to come into effect until the next financial year. What the Government is doing is saying, `All right, you can have it as from 1 July 1989. We know that there were very high wool prices last year but you will not be able to benefit from those high wool prices. What you are going to be looking at is from 1 July 1989'. But the problem is that the Government is locking the stable door after the horse has bolted because recently wool prices in fact dropped by almost 30 per cent and it is too late.

The economic mess that this Government has created is a disaster all round, as we observe a net overseas deficit of $100 billion. But, of course, the people of Australia will not have to worry too long about Senator Walsh because his political future has now emerged as a key issue in Western Australia where the Labor factions are fighting as to who will get his seat. The right wing Labor Unity faction is apparently demanding that Senator Walsh retire early so that it can get his seat.

Senator McKiernan —Oh! That is drawing the longbow.

Senator LEWIS —Do not worry about it, Senator. The honourable senator is involved in this too because he is hoping he will end up leading the ticket in due course. We understand what is going on over there.

Senator Panizza —Preselection in Western Australia.

Senator LEWIS —That is right. They are in all the trouble around the place; they are cutting themselves to pieces over there in the west.

The average farmer is not engaged in tax rorts. Farmers are battling for survival and due to the policies of the Hawke Government they are being exposed to crippling interest rates, frequently up to 23 per cent on overdrafts. These interest rates are stopping investment in rural enterprises and robbing Australia of much needed export income. The income equalisation deposits scheme of the Hawke Government does not offer significant benefits to the average farmer. It is largely cosmetic because of the tax rates involved and the real winners may very well be those in the top tax brackets-the rich mates of the Prime Minister (Mr Hawke).

Interest will not be paid on the part of the investment which is considered deferred tax; it will, however, be paid at the short term Commonwealth bond rate-that is, 14.5 per cent-on the investment portion of the deposit. We should compare that bond rate with the rates which farmers are paying on their bank borrowings at present. As I said, they are paying about 20 to 23 per cent on overdrafts. The tax deferred component will be considered to be 39 per cent, the second highest tax rate. This means that depositors will be paid interest only on 61 per cent of their money. There is no provision in this Bill for a constant update of the average tax rate and our amendment calling for the annual declaration of the average tax rate of depositors to be published each year with the Budget was defeated by the Government in the other place. In order to enable the Government to get through its legislative programs, we have decided not to press on with that amendment in this chamber.

The Government should closely monitor the operation of this legislation to see whether it provides any real incentives for the average or battling farmer to participate. This amending legislation is an admission of the stupidity of this Government in abolishing the Fraser Government's tax indexed scheme and, as it moves back towards that scheme, it is not opposed-it is better than it was previously. In government we will review the operation of this legislation to establish whether it benefits those that it is intended to benefit, or should be benefiting, namely, the average farmer, the battler on the land.