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Wednesday, 19 June 1996
Page: 1850

Senator COOK(5.14 p.m.) —We are debating the Taxation Laws Amendment Bill (No. 1) 1996. This bill contains a number of measures. The one I wish to address my remarks to this afternoon is the provisional tax uplift factor. I acknowledge that the government's expert in taxation matters, Senator Watson, has just spoken, and I want to respectfully disagree with his remarks about the provisional tax uplift factor. But I am reminded, now that I have seen him take the chair, that I ought to do so in a continuing mode of respect, as, of course, I always would.

The problem the government has to grapple with on this subject is that, for much of the debate on this matter, the government is still exhibiting a mentality of opposition. That is to say, they are attacking the previous government and they are arguing that what we said and did in government are things that we ought to do now.

This is an interesting point, because we do not have a mandate that was endorsed by the electorate. What we are doing in this debate is simply holding the coalition government to its mandate—which Australians everywhere think they ought to be held to and which they ought to honour. It is no good saying to us what our views were. We put our views at the election. Unfortunately for us, they did not prevail. What is expected to prevail is the coalition's views. That is what Senator Sherry's amendment is about—to ensure that the views of the coalition, presented to the electorate back in the election, are now honoured in government.

The coalition, in the run-up to the election campaign, made a great deal about small business. Small business is, of course, the vital wellspring of economic growth in Australia. The advantage the coalition seized on was to simply repeat facts about small businesses as if they had made new discoveries. They have not made new discoveries. We have been arguing those things all along. But in the election campaign, there is no doubt that the coalition made a feature of that and there is no doubt that we will hold them to that. There is also no doubt that many of the things they said swayed votes.

It is interesting to note that the Bureau of Industry Economics, that body which is now going to be broadbanded into the Productivity Commission, whatever that might end up being, in its most recent industry survey for the March quarter made some interesting observations about the behaviour of the small business sector. One of the remarks—and I do not have it in front of me, but I will paraphrase it—relates to job growth.

In the election campaign, the now Prime Minister, Mr Howard, railed that Labor had let down small business and stunted job growth. The BIE report shows that there was massive job growth in Australia during the previous period, including the March quarter, created by small business under the Labor administration, and that all of the new jobs effectively created in the economy came from small business, which, I might say, was a Labor achievement.

It also points out that on current trends future investment by small business in expanding their capacity is estimated to be below the levels of what occurred during the Labor period. While it is true that the surveys of business confidence showed business and small business having high confidence—the sort of halo effect you get with a change of government—nonetheless, what they say and what they do are two important distinctions to be made here. According to the BIE survey, it is likely that investment by small business in the future will be below the levels of last year, as presently indicated. I hope that changes, but they are the facts as they stand. It does not, therefore, reflect the confident surveys that the government has been lauding.

In the election campaign, small business growth was to improve unemployment, to increase economic growth and to improve the current account deficit. One of the promises made by the government was to reduce the provisional tax uplift factor. I have to say straight off that at the end of the day the full level of tax due to a small business is paid, whatever the provisional tax uplift factor. Therefore, no-one is here talking about reducing the level of taxation. We are talking about the timing of payment of the level of taxation in this respect.

That is important. It is important because the more you pay in provisional tax as an uplift factor, if the factor is not cast at the right level, the more money you do not have use of in your business. For small business, which is always cash strapped and always overpressed, that is an important consideration.

It has always been a consideration of mine that the best uplift factor is the factor which most accurately predicts what will be the ultimate payment in taxation, because there is a downside in having too low an uplift factor. The downside is that when the tax year ends a small business company can be visited with a requirement to pay out a large amount because they have not paid, in their tax year, sufficient in the provisional uplift. That can come as a bit of a surprise to a company. Given that small business is always teetering on the brink, it can knock some of them over the edge.

I have always thought that the sensible thing here is not to run in a cheer chasing mode, trying to pretend that somehow you are reducing taxation by changing the uplift factor, but to actually tell the truth about the best way to strike the most reasonable level of uplift factor. That has been the consideration that I have followed. However, as I have said, the government in the election campaign made a big feature of reducing it from eight per cent to six per cent. They were elected. This bill enacts that undertaking.

It does much more than that. It continues, for the outyears, to return the tax uplift factor to 10 per cent. I am absolutely certain, because small business have told me, that this is not what small business thought was being promised. When one looks at the fine print of the election undertaking, the fine print just having been recited by Senator Watson in the chamber here a moment ago, one will see that the promise was not to reduce the uplift factor to six per cent—as is commonly understood and, in terms of media presentations on the television, radio and in the campaign literature, was said many times by responsible figures in the government, including the Prime Minister and the then shadow Treasurer—but was, in fact, to reduce it just for the 1996-97 year. The fact that that was in fact the promise, which is relied on now because of the fine print, will come as a surprise, and it has come as a surprise, to small business.

In a recent interview, a journalist asked the Prime Minister: if there is a clash between what you have promised at the election and cost-cutting to fill the alleged black hole, will you repudiate your election commitments in order to fill the black hole? It was a very pertinent question. The Prime Minister said, `No, we will stick by our election commitments,' in so many words.

The election commitment here is for the 1996-97 year. Our view is that that election commitment should be honoured and that the outyears ought to be a matter of calculation, and it ought to be a matter of being advised as to the appropriate level after consultation with small business so that there is a clear understanding as well.

Senator Watson in his remarks referred to the coalition document A new deal for small business. The coalition made a great play of saying that in the first 100 days what they would do for small business is hold a small business summit. They have held it. They held it just outside of the 100-day limit, but one would be somewhat unfair to make a significant point of that.

The fact is that the small business summit that was promised would be held was held, but it was really not a summit. It really was a ministerial council meeting. What it consisted of was relevant federal ministers and relevant state ministers, with some local government people along for the ride, and small business being hand-picked and invited to make set speeches to the so-called summit.

At the end of the day it was a total fizzer. It did not come down with anything that would reduce the burden of compliance costs on small business as it was mooted it would. It did not come down with any hard changes. What it came down with at the end of the day was a decision to meet again in another year and see whether or not in the ensuing period the changes that had been lauded at election time can, in fact, be delivered. I know that there is a lot of disquiet among small business about the unhappy outcome of that summit.

One of the other promises that the government made at election time in that new deal for small business was to cut compliance costs, that is, to reduce red tape by 50 per cent. Unfortunately for this debate right now, the immediate bill preceding this one, the EMDG bill, has been on. All of the major business organisations, including the small business organisations, gave evidence to the Senate committee inquiring into that bill that the compliance costs and red tape would massively increase with the passage of that bill.

The government has set up a committee to look at compliance costs. What we are now getting is a promise on the never-never, in the hope that that committee will examine it and find a way through it. What we are now getting from the responsible minister is a back-pedalling and a softening of his language as to whether or not compliance costs can be reduced and as to whether or not the burden of red tape can be cut at all.

I make the point for this debate, because small business will be watching this debate very carefully, that, whatever the level of compliance costs and red tape that the government inherited when it came to office, it has now added to them. It has now added to them with the passage of the most recent bill, the EMDG bill. That is the opinion of business. That is the opinion as adduced in the Senate committee hearing, and it is widespread.

Let me now turn to the provisional tax uplift factor. My colleague Senator Sherry has pointed out that, by going back to 10 per cent in the outyears after 1996-97, there will be an extra burden of $540 million imposed on small business. That is what this bill does. The government should not have done that. Senator Sherry is right to say to all the government senators in this place, who last year and the year before stood up and made pretty speeches about how they were going to slash the provisional tax uplift factor, that they should cross the floor and vote for this amendment. If they do not, their words do not count for anything. In fact, their reputations are being held out to dry by the government treating them as backbenchers and as mushrooms in this case.

It has also been said, rightly, that the Senate Economics Legislation Committee, which conducted an inquiry into this legislation, received three submissions and that, in those submissions, the cut from eight per cent to six per went was widely—I quote the word used in the report—`applauded'. That is an accurate description of what the submissions did say.

But they also referred to the increase from six per cent to 10 per cent. In those submissions, the organisations—the Australian Society of Chartered Practising Accountants, the CPAs, the Association of Independent Retirees and the Taxation Institute Of Australia—said that they condemned the move to 10 per cent. The report itself, in reflecting the evidence before it, refers to that view as `the move was widely condemned'. That is a quote from the report. So it is not a matter of saying that we, the opposition, are saying that this is condemned; the responsible organisations that had made submissions to the inquiry have condemned it. On the basis of their condemnation, we are trying to give effect to their view and the decision of the government in the election campaign.

The reason why we are is that, of course, a 10 per cent provisional tax uplift factor will fall hardest on small business. It will be a repudiation of a government claim. No amount of obfuscating will change that. No amount of saying that we are putting it in the act for machinery reasons and that we will come to it each year and deal with whether or not it should be 10 per cent or some other figure will calm the disquiet among small business.

It will not calm it because the 10 per cent will be sitting there as a legislative fact and small business every year will have to mount its lobby to try to persuade the government what the reasonable level will be. So every year small business will form itself into a battalion, march on the government, knock on its door and say, `Do what you promised in the election.' That is the political dimension.

The practical business level dimension is more important, which is this: what a government should do for the business community, and which is absolutely desirable in all cases, is give long and strong reliable signals to industry as to what the parameters for their activities will be. Tax is an important parameter. The government should give long, strong signals about what its tax intentions are. Industry should be able to believe them so they can then conduct their business activities within those parameters.

If they want to talk to their bank manager about how much they might have available next year to take out a loan to finance business expansion, they ought to be able to know what the tax uplift factor will be. With the 10 per cent sitting there, not the six per cent, business is bound to take the 10 per cent as being the likely outcome and, as a consequence, reduce the amount of investment they might have made in expansion. If it is not 10 per cent—it could be any damn figure—they would take the conservative course and protect themselves rather than be pushed into believing it might be lower when it in fact turns out to be 10 per cent. In other words, they might invest only on the basis of 10 per cent.

The government, by leaving that in this bill, is in fact sending a very bad signal to industry that the long, strong signals—the certainty—that it requires are not there. It is a variation year to year. This government is going to exercise its right to vary it. Against this background, business, in particular small business, expects the figure will be six per cent.

I make those remarks because I hope the minister at the table, the Assistant Treasurer (Senator Short), when he replies, will deal with what small business should do. Should small business, given the remarks of Senator Watson, believe 10 per cent? Should it believe it will be eight per cent? Should it think it might be six per cent? How does it plan its next out year? What does it say to its bank manager or its loans office when it tries to finance its own further business development?

They are important questions for small business. I hope the government can answer them. In the meantime, I will vote for the six per cent. I will support Senator Sherry's amendment to make that the level because I believe absolutely that is what the government told the people of Australia and that is what the people of Australia expect the government to do.