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Thursday, 28 August 1980
Page: 899


Mr WILLIS (Gellibrand) - The House has before it a number of tax Bills which deal with a wide range of matters. By far the most important of these Bills, and certainly the one which will have the most impact on Australian taxpayers, is the Income Tax (Individuals) Bill. This Bill formally imposes the rates of personal income tax for 1980-81 as were declared in the Income Tax (Rates) Act 1976 by amendment in the last session. These rates were determined by the statement of the Treasurer (Mr Howard) on 6 March which announced the Government's decision to apply only half tax indexation for 1 980-8 1 .

At this stage, the Government proudly trumpeted the fact that this half tax indexation adjustment, which in fact turned out to be less than 40 per cent indexation after discounting together with an increase in the spouse allowance, would mean a $4.15 a week tax cut to taxpayers with a dependent spouse. What it did not mention with as much fanfare was the fact that the great majority of Australian taxpayers, or more precisely 80 per cent of them, would receive a miserly 90c a week which is not even enough to buy three litres of petrol or a bottle of beer. Not surprisingly, given the fate of previous Fraser Government tax cuts, these meagre tax cuts soon disappeared, swallowed up by the latest increase in petrol tax of 2c a litre which meant an extra 90c to fill up the petrol tanks of most family cars. So the 90c given on the income tax side disappeared at the petrol station. This was poor consolation indeed for Australia's taxpayers who have had to endure five years of the tax policies of this Government, policies which have made the Fraser Government the highest tax government in Australia's history. No amount of Government rhetoric or obfuscation can hide the fact that the Fraser Government is indisputably the highest taxing government in this nation's history. Every possible measure of tax incidence makes this point clearly. Government supporters had better get used to this statement because it will be repeated many, many times before this election is over.

The Australian people now realise the truth about the taxing policies and the many unkept promises of the Fraser Government. Every time they fill up their car, do the family shopping or open their pay packets, they plainly see and feel the effects of the Fraser Government's policies. They realise that their living standards have fallen markedly over the past five years, that the income tax bite is taking more, that petrol taxes have skyrocketed, that medical insurance costs more and that the money they have left over buys less - and that all of this has come about because of the policies of this Government.

Before going on to examine the increased tax burden in more detail, it is worth reminding the House of some of the promises made by the

Government concerning taxation. In his 1 975 policy speech, the present Prime Minister (Mr Malcolm Fraser) said:

We will encourage people's initiative and enterprise, not batter them into the ground with punishing taxes . . .

He also said:

One of the most significant contributions to prosperity will be our personal income tax reforms.

One of his gems was:

We will reduce the tax burden. We will put an end to Labor's tax rip-off.

He said:

We will fully index personal income tax for inflation over three years.

He said further: . . it will make government more honest with your money. They will no longer be able to rely on the secret tax increase of inflation.

Those are some selections from the present Prime Minister's policy speech in 1975 in which he in no uncertain words clearly indicated his intention to reduce the burden of taxes on the Australian people.

Again, come election time, the Prime Minister promised further tax cuts. In his 1977 policy speech, he said:

We have reduced taxes . . .

He said:

Under Labor, taxes doubled. We have ended the big tax rip-off.

He also said:

This Government has brought in the largest and fairest reforms ever made to Australia's tax system . . .

He said:

From February 1--

That is 1978: further tax cuts will come in for every Australian wage and salary earner . . .

He also said:

The Australian people will not accept a return to high taxes.

I interpolate to say he might well be right there. He went on to say:

The Government will bring taxes down further - not increase them.

These promised tax cuts, exemplified by a fistful of dollars in the Government's election advertising, lasted a whole seven months, until the 1978-79 Budget, when the present Treasurer imposed the iniquitous 1.5c tax surcharge which imposed an eight per cent tax increase on those on lower incomes but a much lower increase for people on much higher incomes. It should not be forgotten that the Treasurer was at pains to stress at that time that this was to be a temporary surcharge and that the legislation would expire at the end of the 1978-79 financial year. As it transpired, this promise also turned out to be one which was easily disposed of. At the end of 1978-79, the surcharge was reimposed or extended for a further five months until November. Now the Prime Minister has the astounding gall to describe the final, long-overdue removal of the surcharge at the end of November last year as a tax cut. It was nothing more than the removal of an unfair impost which taxpayers had every right to feel ought not to have been imposed in the first place, particularly given the promises made about tax cuts at the last election. 1 summarise what has happened to this point. We had the promise of a tax cut before the last election; the tax cut introduced soon after the election lasted seven months; the promise of tax cuts was broken by what was described as a temporary tax increase; the Government's promise was further broken by the extension of that tax increase; and then when the tax surcharge was removed the Government claimed it had cut taxes. What a tremendous attempt at fraud on the Australian people. Associated with this, of course, has been a lack of full tax indexation so the tax incidence has increased as well as the application of the income tax surcharge. While recalling the Government's undertaking on taxation it is illuminating to recall a truly remarkable statement of the Prime Minister which appeared in the newspaper the Australian on 12 June last year. Of course these comments were made after it was made clear that the Government was going to break its promise to limit the tax surcharge to the financial year 1978-79. It was clear that it would continue for some time. The Prime Minister was reported in the Australian as saying:

We never said taxes wouldn't go up. We never said that at some stage we might not have to collect more taxes to pay the government's bills.

What an incredible statement from a man who only two years earlier had promised to bring taxes down further, not to increase them. This statement clearly shows the bind which this Government has got itself into because of the inconsistencies between its promises and its actions in regard to taxation. I now turn to examine the evidence which unequivocally shows the record levels which taxes have reached under this Government. I seek leave to incorporate in Hansard a table headed 'Increased Incidence of Taxation under the Fraser Government'.

Leave granted.

 


Mr WILLIS - I want to look firstly at total Commonwealth tax receipts as a proportion of gross domestic product. This table has three segments, one of which deals with total Commonwealth taxes as a proportion of gross domestic product. The other two segments look at the net pay-as-you-earn tax receipts as a proportion of total tax revenue and as a proportion of wages, salaries and supplements paid. Looking at total Commonwealth tax receipts as a proportion of gross domestic product, we find that during the three years of the Labor Government total tax collections averaged 22i per cent of GDP but in the first three years of the Fraser Government total Commonwealth tax receipts averaged 23.4 per cent, about one per cent more than the average under the Labor Government. However, since then it has gone up even further. In 1 979-80 it was 24 per cent and for 1 980-8 1 , using the Budget projections for tax receipts and also for the increase in GDP, the figure will be 24.6 per cent. It is moving up all the time. It is well above the level of 22.5 per cent which was the average under the Labor Government.

During 1 979-80 total taxes collected increased by 17.2 per cent while this year they are budgeted to rise by 16.4 per cent. With these large increases in total taxes imposed by this Government naturally the proportion of tax to GDP has risen even further. As I have said in 1980-81, 24.6 per cent of GDP will go in taxes. That is far above the average of the Whitlam years. This movement has been acknowledged in the recent report of the interdepartmental committee on economic strategy from which the Leader of the Opposition (Mr Hayden) quoted the other night. Of course, that is a very important body. That is the Government's senior source of departmental advice on economic management. In that report it was stated:

Since 1975-76 . . . the overall burden of taxation (as a proportion of GDP) has increased. Indeed, the increase in the burden of taxation was the most important factor underlying the reduction of the deficit achieved in 1979-80.

I add to that the words 'and again in 1980-81'. That committee is saying that the means of reducing the deficit is by imposing large increases in taxes. It was that way in 1979-80 and, of course, it is certainly what is happening again this year. It is the reason that the Government is able to point to a domestic surplus. It is swamping the deficit with massive increases in taxation. How has this dramatic increase in the tax burden occurred under a government which promised generous tax cuts? Close examination of the figures will reveal that the increased burden has not been shared equally across the community. It has come about firstly because of the substantial increases in income taxes attributable mainly to two broken promises of this Government. I have already mentioned them. They are the income tax surcharge introduced in 1977-78 which continued at a reduced level to the end of the last financial year and the failure to fully index taxes against the effects of inflation.

Tax indexation has never been fully introduced by this Government despite assurances in 1975 that it would be introduced over three years to make governments more honest with the taxpayers' money. In 1976-77 we had 93 per cent indexation; 80 per cent in 1977-78; 35 per cent in 1978-79; no indexation at all last year; and 39 per cent indexation for the current financial year. Of course, the net effect of the failure to fully index taxes has been that as money income rises with inflation taxpayers are continually pushed up the tax scale so that they pay a continually higher proportion of their incomes in taxes. The Fraser Government clearly has relied on the secret tax of inflation and, to use its own words, has decided against making governments honest with the taxpayers' money. Wage and salary earners in particular have felt the brunt of these policies as is shown in the table I have incorporated in Hansard. Net pay-as-you-earn taxes, that is taxes paid by wage and salary earners, have risen from an average of 41.6 per cent of total Commonwealth tax collections during the three years of the Labor Government to an average of 44.2 per cent of total collections for the period of this Government. That has occurred despite the enormous increase in petrol taxes.

Last year alone net PA YE collections jumped by 17 per cent. This year they will go up by 13.6 per cent, a total increase in two years of 33 per cent. I repeat that in two years - last year and this year - on the Budget projections, taxes on wage and salary earners will go up by 33 per cent. During this time average weekly earnings, an index of the movement in wages and salaries generally, will rise, on the Budget assumptions, by 23 per cent. Wages and salaries will go up by 23 per cent and taxes on wages and salaries will go up by 33 per cent. That is a tremendous increase in the tax incidence in those two years - last year and this year. As a proportion of wages, salaries and supplements, paid net PA YE tax collections have gone up from 1 6.3 per cent during the three years of the Labor Government to reach 19.6 per cent last year. That is far above the level set by the Labor Government. These points have been in general, broad terms. But what do they mean for the individual? What they mean is that there has been a substantial increase in the tax burden for almost everyone but not quite everyone. 1 seek leave to incorporate in Hansard two tables which deal with the increase in the tax burden over the period of the Fraser Government.

Leave granted.

 

 


Mr WILLIS - I thank the House. The first of these two tables deals with taxpayers without dependants. These tables show the change in the income tax burden for taxpayers at various income levels, assuming that their incomes increase in line with average weekly earnings from 1975-76 to 1980-81. Of course, we can use the Budget assumptions for average weekly earnings increases in the current financial year. The first table which deals with taxpayers without dependants shows that all persons earning under approximately $ 1 6,000 in 1 980-8 1 -that will be about 80 per cent of taxpayers who pay tax as a single person- and whose incomes increased in line with average weekly earnings from 1975-76 to 1980-81 are now paying a higher proportion of their income in income tax than they paid in 1 975-76. I emphasise that point. Taxpayers who pay tax as a single person - 80 per cent of people are in that category - will have had an increase in their tax burden from 1975-76 to 1980-81. They are the people who will earn less than $16,000 this financial year. Those who earn above that level will, of course, have had some tax reduction but for those below that level there will be an increase. Importantly, the further one goes below that $16,000 level the greater has been the increase in the tax burden. Thus, if we take a person who earned $6,000 in 1975-76, with the movement in average weekly earnings he will be earning $9,852 in this financial year. On our assumption that he moved in line with average weekly earnings, his income has gone up by 64.6 per cent, but his tax has gone up by 82.4 per cent. So there has been a significant increase from 17 per cent to 18.9 per cent in the proportion of his income that he pays in tax.


Mr Kevin Cairns - How many years was that?


Mr WILLIS - From 1975-76 to 1980-81. If we take the person who earned $7,000 in 1975-76 and who moved in line with average weekly earnings, he will be earning just under $1 1,500 in this financial year. Also on the assumption that he has moved in line with average weekly earnings, his income has gone up by 64.2 per cent, but his tax has gone up by 74. 1 per cent. So the proportion of his income that he pays in tax has gone up by over one per cent. This is an extremely important development. It means that the burden of tax on people who earn below $ 1 6,000 has increased, and the lower one goes below $ 1 6,000 the truer that is. Of course, that has enormous consequences for the equity of the tax system. Before I leave that table, I should also emphasise the other end of the scale. If we take someone who earned $50,000 in 1975-76 and whose income increased in line with average weekly earnings, he would be earning $82,000 in this financial year. But despite an increase in income of 64.2 per cent, his tax has increased by only 52.7 per cent. So the proportion of his income paid in tax has fallen from 53.3 per cent to 49.6 per cent, giving him an effective tax cut of $58.40 a week, compared to what he would have paid if he were paying the same proportion of his income in tax now as he paid in 1975-76. At the other end of the scale, of course, there has been an increase of several dollars in the categories I have mentioned.

All of those figures relate to a table for taxpayers without dependants. If one looks at the table for a taxpayer with a dependent spouse, and this is certainly a minority of taxpayers, but an important minority because they are family people, one will see that there has been an even greater increase in the incidence of taxation on them. The cut-off point in that increase for taxpayers who claim a dependent spouse is not the $16,000 level but the $24,000 level. In other words, taxpayers who claim the dependent spouse rebate and who earn less than $24,000 in this financial year will be paying a higher proportion of their income in tax than they paid in 1975-76. It may be said: 'Of course that is true, because in 1976 the system was changed in respect of family allowances and tax rebates for kids, and that increased the tax burden but gave families more by way of family allowances'. We have taken account of that in these estimates and have treated family allowances as a negative tax. However, the point I am making is still correct, that is that the $24,000 income is the cut-off point, and all persons with a dependent spouse who earn less than $24,000 in this financial year will pay a higher proportion of their income in tax than they paid in 1 975-76. The more they are below that $24,000 mark the truer that will be and the greater will be the increase in their tax burden. So a person who this year earns just under $10,000 and claims a dependent spouse rebate will be paying just under $5 a week more in tax than he would have paid had there not been an increase in his tax burden imposed by the Fraser Government.

These tables are well worthy of study. I do not have time to go into them further, but they demonstrate unequivocally that under this Government there has been a substantial increase in the tax burden affecting the vast majority of taxpayers, affecting both the taxpayer who pays tax as a single person and the taxpayer who claims the spouse rebate. Additionally, the Fraser Government's cutbacks on public expenditure in regard to health insurance must also be taken into account. Certainly this is not a tax, but the effect on people is much the same as an increase in tax. In 1975-76 all Australians were entitled to free or near free medical cover. Today they must pay in the order of $3.60 a week for 100 per cent medical cover for a single person or over $7 for a family. Of course, these increases, which are like a tax but not paid to the Government, also involve a loss of welfare for the vast majority of people.

Two other factors to be taken briefly into account when assessing the reasons for inequitable increases in the tax burden are, firstly, the explosion in tax avoidance over recent years, which is now responsible for lost revenue in the order of $ 1,000m a year. All this avoidance by high income earners means that they are not paying even the reduced rates of tax which this Government kindly allows them to pay, if they were to pay their taxes as originally intended. Every dollar these people successfully avoid is a further dollar that has to be taken from wage and salary earners - so much so that wage and salary earners are now paying around $4 a head to make up for the activities of tax avoiders. I note in this regard that the Government's claims that it has stopped tax avoidance are wrong. There has been a thirteenfold increase in the number of tax avoiders identified by the Taxation Commissioner in the first three years of the Fraser Government. Secondly, there is the explosive rise in petrol taxes under this Government. The crude oil levy has increased from $257m in 1975-76 to an estimated $3,054m in 1980-81- an increase of over 1,000 per cent. When we add on the increased excise on petroleum products we find that in just five years there has been an increase of $3,000m in petrol tax to almost $4,000m. Petrol taxes have risen during this period from 5.9 per cent of total tax receipts to 12.6 per cent now and cost each family up towards $1,000 a year. Clearly, under the Fraser Government every pump has become a tax office. This tax is grossly inequitable as every person, regardless of whether he is a millionaire or on the minimum wage, pays the same tax on a litre of petrol. The large increase in this tax has added to the highly inequitable tax structure which has developed under the Fraser Government.

In conclusion, I want to summarise the Government's record of tax achievement. Four out of every five working Australians now pay out a bigger share of income tax from their weekly pay packet than they did under the last Budget of the Labor Government. Total tax receipts have almost doubled since this Government came to office. More taxes have been collected in the last four years under this Government's policies than the combined taxes collected in the previous 1 1 years by the Menzies Government, the Holt Government, the Gorton Government, the McMahon Government, and the Whitlam Government. What a record of tax achievement this is, a record to be proud of for a Government which promised to end the big tax rip-off.

I now wish to deal briefly with other Bills covered by this debate. Firstly, the Income Tax (Companies and Superannuation Funds) Bill 1 980 merely declares the rates of tax to be paid by companies and superannuation funds for 1980-81. These rates are unchanged from 1979-80, except for a minor change involving certain superannuation funds which are in the nature of accumulation trusts. We do not oppose that Bill. The next Bill before the House is the Income Tax (International Agreements) Amendment Bill (No. 2). The purpose of this Bill is to ratify a new double tax agreement between Canada and Australia, signed on 21 May 1980, to replace the original agreement concluded in 1 957 and now outdated by a number of tax changes in both countries, but especially in Canada. Basically, double tax treaties aim to prevent two companies imposing the same tax on identical incomes. Such an occurrence would have a harmful effect on the international movement of goods, services, persons and capital. This is achieved by stipulating which nations have taxing rights on different classes of income and by limiting tax in the source nation on certain types of income. This may involve some revenue loss, but that is more than made up for by the benefits from facilitating international trade and exchange of information.

Of particular importance are the provisions contained in the treaty facilitating exchange of information between taxing authorities in both countries and authorising tax authorities to adjust reported taxable profits where they do not reflect results which would be expected to accrue if the parties were not at arm's length. These provisions provide a weapon for the Taxation Office to use against multinational corporations which indulge in transfer pricing activities to reduce artificially their Australian tax. Such a provision is doubly necessary in the light of the attitude of the High Court of Australia to section 1 36 of the taxation Act, which was originally designed for use against transfer pricing. Only last week, in the Commonwealth aluminium case the High Court held that section 136 did not apply because an almost totally foreign-owned company was not foreign controlled merely because a majority of Australian directors were present when relevant decisions were made by the company's board. In the light of this almost incomprehensible decision, the treaty provisions are almost the only weapons available to the Australian Taxation Office in the fight against transfer pricing - at least until the Government overcomes its tardiness and acts to amend section 1 36 in the manner called for by the Opposition.

Finally, 1 will deal with the provisions of Income Tax Assessment Amendment Bill (No. 4). This Bill will give effect to most of the tax measures announced in the recent Budget. First, there is to be a provision for accelerated depreciation brought about by a 20 per cent loading onto existing depreciation rates. Given the acknowleded inadequacy of existing rates, the Opposition supports this measure but we wish to re-affirm our intention to abolish the investment allowance on return to office. The investment allowance is little more than an outright subsidy to replace labour with machines. Accelerated depreciation, on the other hand, is a deferred tax which assists industry modernisation and encourages the build-up of a more soundly based capital structure but does not result in any ultimate tax loss. The Opposition does not oppose the change in the basis of assessing provisional taxpayers who do not elect to self-assess, but finds it hard to fathom the rationale behind the decision to assume only a 7f per cent growth in these incomes when wages and salaries are assumed to grow by 1 2 per cent over the same period. Over the past two years the growth of non-wage incomes has far outstripped the growth in wages and salaries.

The Opposition does not oppose any of the other provisions, but I wish to say a few words about the superannuation provision for selfemployed persons. This provides a $1,200 deduction additional to the existing $1,200 concessional expenditure rebate for contributions to an approved superannuation fund by self-employed persons or employees who do not participate in employer funded schemes. The Opposition recognises that under present tax laws people who do not participate in employer funded schemes are at a disadvantage in that they do not receive the benefit of tax deductible employer contributions and cannot build up the same level of retirement benefit as supported employees. However, there are other relevant factors which restrict the ability of the self-employed and others to build up comparable benefits. The maximum lump sum retirement benefit is set for the self-employed at $155,400 compared to a range of up to $277,000 for others, depending on salary. Also, contributions by the self-employed are closely restricted by age to less than the total contributions for employees based on a reasonable end benefit.

Despite all the Government's rhetoric about ensuring comparable superannuation treatment between the self-employed and unsupported employees and those who contribute to employees' funds, it seems that it has not thought the issue through thoroughly and that further changes may need to be made concerning these factors. Also, it is interesting to note that due to the complex formula determining allowable contributions, only self-employed persons over 35 years of age- I emphasise over 35 years of age - will be able to take full advantage of the $1,200 deduction. It is also doubtful whether the Government has thought through the tax avoidance possibilities of the provision. It seems most likely that enterprising accountants will now be encouraged to set up tax avoidance schemes for groups of wealthy selfemployed involving loan-backs of tax deductible contributions in the same way as companies abuse their internal superannuation funds for tax avoidance. Given the Government's refusal to take action against this scheme, despite continued revenue losses from its open use over the last few years, it would be expecting top much for appropriate safeguards against abuse of the new provision to be introduced. Finally, 1 wish to move an amendment to the motion that the Income Tax Assessment Bill (No. 4) be now read a second time. I move:

That all words after 'That' be omitted with a view to substituting the following words: whilst not opposing the provisions of the Bill, the House is of the opinion that (a) the provision of a deduction from income tax for superannuation contributions by the selfemployed and by unsupported employees is inequitable, favouring high income earners at the expense of lower income earners, and (b) the Bill should contain a provision to replace the deduction by a rebate of 40c in the dollar for the first $1 , 200 of superannuation contribution'.

I move that amendment because the Opposition believes that the provision for deduction will be of much more assistance to high income earners, that there is no reason why it should provide more benefits to wealthy people than to people on lower incomes, and that a rebate of 40c in the dollar would be absolutely equitable treatment to all taxpayers making superannuation contributions.

MrDEPUTY SPEAKER (Mr Millar)Order! The honourable member's time has expired. Is the amendment seconded?







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