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Tuesday, 8 November 1983
Page: 2424

Mr ROBERT BROWN(9.40) —I take this opportunity to review some of the background to the Taxation (Unpaid Company Tax) Assessment Amendment Bill [No. 3 ]. Before I do that, I will respond to a couple of matters raised by members of the Opposition. First of all, I respond to a quite facetious comment made by the honourable member for Bennelong (Mr Howard), the shadow Treasurer, in his opening remarks. That facetious comment was to the effect that we are considering Blue Hills legislation. I am as aware as the honourable member for Bennelong of the protracted nature of this legislation, but facetious comments of that kind do not sit very well with the Opposition, nor with their colleagues and collaborators in the Senate.

The sorry saga of attempts on the part of this Government to introduce and to have passed effective legislation to pick up tax revenue which was lost to the Treasury in the past but which should not have been lost to the Treasury has not been of our making. How the Opposition can now reconcile its attitude to this legislation with the attitude it adopted to legislation considered here earlier today, I do not know. It claimed that it did not oppose the second reading of that earlier legislation because it was a Budget provision. We have maintained, with some substance, the claim that this legislation also is a Budget provision. It was announced at the time of the May economic statement and the revenue to be obtained by this legislation has already been included in the Budget. So, the suggestion from the Opposition, that it will not oppose Budget measures, simply does not stand up to scrutiny or examination.

I make reference also to a comment made by the honourable member for North Sydney (Mr Spender) with respect to what he alleged to be adequate definitions of tax avoidance and evasion. I was interested to hear him refer to tax avoidance as a legal arrangement. Tax avoidance is nothing of the kind. Tax avoidance certainly takes place within the law and under legal provisions, but to call it a legal arrangement when it represents a legal manipulation, an attempt to find a way through the law and to enter into non-commercial practices by utilising the wording of the law and offending against the intention of the law, is to offend against the language and the meaning of tax avoidance. Tax evasion certainly is illegal, and I endorse the honourable member's definition of that. When he is talking of legal arrangements and suggesting that the law has been designed to enable that sort of arrangement to be undertaken--

Mr Spender —I did not suggest that for one moment.

Mr ROBERT BROWN —The honourable member referred to a legal arrangement. There is nothing wrong in people engaging in tax minimisation. That is their responsibility and to minimise the tax that they pay within the legal provisions that exist they can then make legal arrangements. But I would suggest that an attempt at legal manipulation by finding smart-Alick ways through the law and by enter into non-commercial arrangements simply to obtain some tax benefit and then excusing that by defining it as a legal arrangement offends against all the concerns expressed about tax avoidance and evasion.

I said that I wanted to review the background of this legislation. The former Government's original legislation dealing with the wet Slutzkin scheme was introduced by the former Treasurer on 23 September 1982 and was reintroduced in a modified form on 21 October 1982. The Australian Labor Party Opposition at that time supported that legislation but, in the process of supporting it, we took advantage of the opportunity to make it perfectly clear that, were we at any time in the future given the opportunity to legislate to pick up the rest of that tax that had not been paid, we would do so. On that occasion the Australian Labor Party, as the Opposition, served notice on the Australian electorate that it would act as soon as it was able, to pick up the tax that had been avoided. We made that perfectly clear before the last election as well. Everyone knew or should have known that that would be the intention of the Labor Party if it became the Government and, with that in its election policy, of course, the Labor Party was elected to government. There is no question that this Government has a clear, unqualified mandate from the Australian electorate to introduce this legislation and to pick up that tax.

I will say more about how that amount of possible tax recoupment has been diminished as a result of the actions of the Opposition in this House and, with its collaborators, in the Senate. Our original legislation-that is, the honouring of that undertaking to pick up that tax-was introduced on 18 May this year by the Minister for Finance (Mr Dawkins). First of all, it honoured the election undertaking but, secondly, it provided for the former owners of stripped companies to be made liable for the personal tax on the total after-tax accumulated profits which were in effect received by them as part of the price they received from the sale of their shares. As far as the Labor Party was concerned, that was the major deficiency in the legislation introduced and passed by the former Government.

Of course, the original Bill was passed in the House of Representatives because we had the numbers. If my memory serves me correctly, the Opposition divided on the question in order to make its opposition more apparent. Despite the fact that it was passed in this House, it was then defeated at the second reading stage in the Senate on a tied vote. The first major issue considered in the Senate on that original legislation was what became known as the Senator Macklin amendment. He wanted to refer the Bills to the Senate Standing Committee on Finance and Government Operations. But the Senate was satisfied that, because of the taxation secrecy provisions, the Committee would not be able to establish the facts of any case. That amendment was lost on a tied vote. The second major amendment became known as the Senator Mason amendment. It was designed to remove any of the purely paper capital gains from the provisions and to provide for an organisation to consider any possible anomalies involved in the application of the legislation. That amendment was defeated in the Senate overwhelmingly. Senator Harradine, the Independent senator from Tasmania, indicated that he would not support the Bills unless, in addition to removing the capital profits provision, they also excluded the dividends or after-tax profits that were reinvested by way of loans or share capital in a new corporate entity carrying on the same business. As a result of those amendments and the attitude then adopted by all members of the Opposition in the Senate, together with three Australian Democrats and Tasmania's Independent Senator Harradine, unfortunately that legislation was defeated.

As a result of that legislation being defeated the Government then amended its approach and introduced further legislation incorporating the amendments that were based on the obvious concern and opposition within the Parliament. That second legislation, the amended version, was introduced on 23 August. In that legislation we no longer sought to recover the personal tax on the total accumulated profits of the cashed-up and stripped company. The recoupment was to be confined to the tax avoided only in relation to after tax revenue profits in the year in which the evasion of the primary company tax occurred. In other words, it was to apply only to current year profits. An implication of that limitation was that a liability for avoided personal tax would not arise where the only tax evaded in that year was undistributed profits tax under Division 7 of the Income Tax Assessment Act. One of the other amendments or modifications introduced into that legislation was that personal tax was not to be recouped in respect of any capital profits of the stripped company. Even those concessions were not acceptable to the Opposition. They would have reduced the total amount of the tax which could have been recouped to $270m. Who was responsible for that reduction in the amount of tax to be recouped? As I have indicated, it was the three Australian Democrats and the Tasmanian Independent, Senator Harradine, working in collusion with all of the members of the Opposition in the Senate.

I want now to emphasise the taxation or the revenue significance of the position which has been adopted by the Opposition. In the first place, had the present Government persisted with its claim that what should have been collected was the real value of that tax which has been avoided since 1972 as a result of those schemes that were operating, and if as a result of that the present Government had arranged to index that lost revenue, the amount picked up as a result of the legislation introduced by the present Government would have been $ 840m. That figure represents the real value of the unpaid tax which stayed with the owners of those companies. That is an important figure to keep in mind because the rest of the developments which indicate the way in which that $840m has been reduced to an negligible amount, reflect very unfavourably on the position which has been adopted by the Opposition.

The Government abandoned the intention to index that sum in the legislation that was introduced on 18 May. The effect of that conscious decision by the Government was to reduce the real value of that recoupment from $840m to $570m. So if the legislation introduced on 18 May had been passed the public revenue would have benefited to the extent of $570m. But it was not passed and it then became necessary for the Government to modify that legislation. The modified legislation was introduced on 23 August. I indicated that the Government abandoned first of all the recoupment of personal income tax which would have been payable on the accumulated revenue profits prior to the year in which the evasion of primary company tax occurred, and it also abandoned the recoupment of any capital profits of the stripped company. Those modifications had the effect of further reducing the possible revenue to be gained under this legislation to $270m. Up to that point we had gone from a potential recoupment of tax of $840m, to a potential recoupment of $570m, down to a potential recoupment of only $270m .

As I said earlier, the Senate was not satisfied even with those concessions. The legislation was defeated again. The Government has now abandoned in this legislation the attempt to recover the personal income tax from the former shareholders of companies involved in bottom of the harbour schemes. All this legislation is designed to do is to strengthen the existing legislation, that is , the legislation which was introduced and passed by the former Government in order to recoup the evaded company tax. In order to recoup that evaded company tax this legislation contains two provisions to tighten up the existing legislation.

First of all, in connection with the post-sale avoidance schemes, the existing recoupment tax legislation contains a let-out provision that operates where the stripped company was the subject of an unsuccessful post-sale scheme to avoid tax. That means that if the owners of the company had entered into an arrangement to avoid tax and that arrangement had proved to be unsuccessful, the former shareholders of the company are not required under the existing legislation to pay that back tax. That defies all logic. The Government simply does not understand why that provision was introduced, and I believe that we do not understand it because it defies logic. This legislation is designed to tighten up that provision. It is also intended to tighten up the provision concerning the pre-sale avoidance schemes to ensure that in any pre-sale scheme which is ultimately established to be ineffective, its tax avoidance purposes will also be disregarded. Those tightening up provisions will have the effect of picking up only $40m.

We are also building into the existing legislation some relief for circumstances which may be considered to be anomalies. Those provisions will assist people in cases where their recoupment tax liability was traced through an interest in a public company; that is, where they themselves were well removed from the actions that gave rise to the recoupment tax liability in question. The cost to revenue as a result of building in relief for those types of anomalies will be about $5m. So we pick up $40m, we lost $5m and the net gain to revenue is $35m.

I wish to go over those figures again just to summarise and emphasise the position that this Government has been forced into despite the fact that it had a clear mandate from the electorate to pick up that money. First of all, the amount was to be $840m. As a result of our own initiative in deciding not to index it, it was reduced to $570m. As a result of the frustration within this place and particularly on the part of the Opposition in the Senate, it was reduced further to $270m. As a result of the further frustration in the Senate it has now been reduced to $35m. The figure has dropped from $840m to $35m-a difference of about $800m.

Who picks up the tab? It is the ordinary wage and salary earners, the people who, because they are locked into the taxation system, are not able to enter all of these smart, clever arrangements to which the honourable member for North Sydney likes to refer as tax avoidance, the use of legal arrangements. So the $ 800m lost to revenue will be picked up by the pay as you earn taxpayers, the wage and salary earners of Australia, who for too long were carrying an unfair share of the burden. The people who have had access to that $840m in real terms will now be required to pay only $35m. Public revenue will be deficient to that extent. Public expenditure commitments still have to be met. Someone has to pay that amount and of course, as I have said, the people who will pay it are those who are unable to avoid their tax commitments.

This legislation, which was referred to by the honourable member for Bennelong as the Blue Hills legislation, probably better than any other experience I have had in this Parliament indicates the attitude that members of the Opposition- members of the Liberal Party of Australia and members of the National Party of Australia-have to those smart operators in the community who avoid their taxation commitments.

Mr DEPUTY SPEAKER (Hon. Les Johnson) —Order! The honourable member's time has expired.