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Thursday, 15 June 1989
Page: 4136

Senator HAINES (Leader of the Australian Democrats)(4.03) —Maybe it would satisfy even Senator Bishop if I argued that I should not talk to the Managing Director of the Commonwealth Banking Corporation but that I should talk to the lawyers. I point out that Mr Sanders, the Managing Director of the Corporation, in his letter said:

I understand you are aware that officers of the Bank and Treasury have been discussing whether the provisions of the above Bill would enable Approved Deposit Funds (ADF's) to distribute selectively the exemption from tax to eligible depositors only.

Treasury have asked us to comment directly to you on the following sub-clause which they have drafted for inclusion in the Bill . . .

He then cites the addition to the Government's amendment. He goes on to say:

The intention of this sub-clause is to provide a basis on which complying fixed interest ADF's can provide eligible depositors with tax exempt earnings on their original 25 May balances without giving other depositors claims to share in the tax exempt earnings.

Our concern was with those people who had invested in good faith prior to 25 May; those who assumed that they were going to get a secure and non-taxed benefit. He further states:

Our legal advisers are of the opinion that the inclusion of this sub-clause will enable the Commonwealth Bank ADF to amend its Trust Deed to give effect to that intention without fear of successful challenge by non-eligible depositors. The amendments to our deed would provide for the ADF to adjust the 1988/89 and subsequent earnings of eligible depositors in this way.

I do not need to talk to the lawyers. One presumes that the Managing Director of the Corporation has talked to its lawyers, that he has run the amendment past its legal section and given its lawyers the opportunity to have a close analysis of it, and that they have indicated to him that it satisfies their concern that they may not be able to implement the legislation without running into a legal minefield.

Most of the rest of the Opposition's concerns have been with whether people will be disadvantaged and who did what deals with whom. I mentioned earlier today redeemable preference shares, but it might be worthwhile pointing out that a letter from David Lennon of Lloyds International Ltd, which was forwarded to the Opposition spokesman in the House of Representatives, Mr David Connolly, makes a very valid point with regard to the value of redeemable preference shares used even by fixed interest funds. Lloyds International said:

. . . it is possible for the low risk roll/over funds to invest in equities yielding franking credits on a capital guaranteed basis. This is possible by way of investment in Redeemable Preference Shares paying fully franked dividends with the payment of dividends and repayment of invested capital guaranteed by major Australian trading banks. We believe that since the proposed commencement date for the tax (1 July 1988) approximately $2 billion to $3 billion of such shares have been issued in Australia and have been subscribed for by both ordinary superannuation and capital guaranteed funds. . . .

This significant market has developed on the basis that the relevant funds in question would be subject to tax.

That is, the market had developed on the basis that the funds were taking advantage of the imputation element within this to reduce their 15 per cent tax to zero. Lloyds continues:

If such tax legislation is to be opposed, we submit that it should be opposed on a prospective, rather than a retrospective, basis preferably as from 1 July 1989.

Lloyds wants this legislation to continue because that has opened up a market for redeemable preference shares, which is why most people in the industry are arguing that very few funds will be paying any tax at all. The return to the investor funds from the preference share investment, according to Lloyds, was calculated on the basis that the fund will receive the benefit of the relevant franking credits. Lloyds says:

Although the dividend yield on these investments is attractive (to a tax paying investor) it does not compare with the return on a traditional ``at interest'' investment upon which an investor is not subject to tax.

However, there is a significant offset component. Mr Lennon of Lloyds further states:

We understand that the Commissioner of Taxation has issued private rulings to the effect that, where dividends paid thereon are commensurate with the capital sum invested, they are not offensive in terms of the anti-avoidance provisions of the Act.

There is no doubt that if the funds invest properly, as they are being encouraged to do, this alleged wide sweep of people who allegedly will be hurt some time down the track certainly will not be.

The Opposition seems to be making a great fuss and bother about some deal that has been done when what has happened, as I have explained before, is that people in approved deposit funds, who were going to be the only ones paying 15 per cent tax, have now got an exemption from that tax.

Opposition Senators might care to remember that the superannuation industry would not be in such a mess were it not for the fact that they themselves in the past have supported significant Government amendments to the superannuation tax area and opposed an amendment of ours back in the early 1980s that would have allowed indexation to apply in an area where it was quite significant, given the rate of inflation that we have been suffering during the 1980s. It would have been nice if the concern expressed by the Opposition today for people who will be hard hit had been something that it had taken to heart itself over the last few years. Maybe if it had, we would not have had so many women aged 45 in tears in my office because they had been on a class B widows pension and found that when their youngest child turned 16 they were forced off it and put on the unemployment benefit. They were told to go out and get a job or go on unemployment benefit. That legislation did not pass this place with the support of the Australian Democrats. We were totally opposed to it. The Opposition said, `But it's a Budget measure; we have to pass it'. It said the same thing when pension consumer price index increases were delayed by six weeks just before Christmas in 1986. It said the same thing when it supported the 2 per cent discounting of ex-service pensions in the same year. I suspect that the concern being expressed by some members of the Opposition is not for the struggler, not for the battler, but for the person on $55,000 plus a year, who has been, and will be, able to take advantage, through the tax system, of superannuation benefits.

I say to Opposition senators: the next time the Government is trying to pull the rug out from underneath you, look to the needy in this community. Have the same care for them as you have expressed for those who are fortunately in a position to take care of themselves.

As far as going back on decisions is concerned, maybe we could run through a few of the Opposition's changes of mind as it seems to believe that this is such a terrible thing to do. Why did Opposition senators change their minds on the health reinsurance fund? Again, this legislation grossly discriminates against the elderly. It defines those over the age of 65 as chronically sick on their first day in hospital, no matter what their sickness. Where is the equity in that? When they so cheerfully supported the Government in the removal of Austudy did they care about the families whose 15-year-olds lost that benefit? They should not talk to me about backdowns and deals when they have just backed down on wheat legislation and left very many growers on the west coast of South Australia worse off. I understand that today the Government has talked Opposition senators into backing down on the Resource Assessment Commission, which sells out the environment to developers. Opposition senators should not come in here and play holier than thou.

From time to time in this place, we all make assessments on current information of what we do. We find out that we do not have enough or that we have been given misleading information and then reassess our position. I would have thought that any sensible person did that. But, apparently, it is only okay when the Liberal and National parties do it. And even on those occasions-this is not one of them-when somebody else does it, it is totally reprehensible!

We then hear from Senator Watson about how we should treat all people the same way. We cannot have some people paying a lot of tax and some people not paying any tax at all. Yet, the earnings tax in this legislation can be manipulated in such a way that nobody needs to be any worse off if the funds are doing the right thing. On the other hand, apparently it is perfectly all right for us to have a tax system that states that people who go out and buy a house for investment can get everything written off against their tax but people trying to put a roof over their children's heads cannot get any sort of deduction. I find it particularly offensive that one can borrow $80,000 or $100,000 to buy a house to put somebody else in and get a tax deduction; but, if one borrows the same amount of money to put one's children in, one cannot get those deductions. Where is the equity in that?

The figures of the Real Estate Institute of Australia show that, since Opposition senators helped the Government reintroduce negative gearing for housing investors, there has been a massive distortion in house purchasing. Investors in the market have trebled and first home buyers have dropped.

Senator Messner —It is because of a shortage.

Senator HAINES —Of course there is a shortage. Investors are buying up the available stock and first home buyers are behind the eight ball. Opposition senators talk about equity; they should try to look at ordinary working families and tell them about equity when, as interest rates rise, they are trying to meet monthly repayments of $800 on a single income. Those interest rates are no longer controlled by this Government because again Opposition senators helped it to deregulate the financial sector in this country. Those people are hurting to the tune of $800 a month.

Another little uneven playing field is the capital gains tax. Make a gain and one is taxed only on that part of the gain after inflation. If one puts one's money in the bank and earns interest, one is taxed from dollar one. No inflationary component at all is taken into account.

Senator Watson —Did you read our policy to overcome that? We seek to remove that.

Senator HAINES —Good. In that case, perhaps I can expect support from the Opposition the next time my two private member's Bills come before this place that give home owners the same tax breaks that investors in housing get and that give interest earned in some bank accounts a tax break. Honourable senators cannot get up in this place and talk about level playing fields when there is nothing in the tax system that is fair or equitable for most Australian families. They should not come blustering in here to talk about how some people are better off than others. There is no need for the earnings tax to be affecting anybody except to the benefit of Australian companies which impute. Maybe, if some of the billions of dollars that the life and super funds have to invest were kept onshore, we would not have an economy which is overheating: we would have access to financing that was sufficient so that competition was not so high that ordinary families are paying 17 and 18 per cent for their money. If these companies stayed onshore instead of going to the Cook Islands, maybe we could actually afford tax breaks for ordinary Australian families.