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Wednesday, 24 November 1999
Page: 12512


Mr LATHAM (1:30 PM) —More than any government in the history of this parliament, the Howard government has introduced regressive and disgustingly unfair provisions into tax law. In taxing consumption, it applies a 10 per cent rate to the rich just as it applies a 10 per cent rate to the poor. This is a flat, regressive goods and services tax. In taxing capital, the rich are even more favourably treated, with a halving of the capital gains tax. For those who hate the GST for all its inequities—and I am a hater of flat taxes—this provision is worse. If you hate the GST, this one is worse.

I am grateful to the office of the Leader of the Opposition for providing this statistic: the proposed changes to the capital gains tax will provide an average gain of $149 a year to people with taxable incomes below $20,700 and a gain of $6,500 a year to people earning between $100,000 and $500,000. These proposals before the parliament entrench the guiding light and symbol of taxation policy of the Howard government: the more you earn the bigger the tax cut.

But they go even beyond the definition of a regressive tax because, under this government, the more you earn the bigger proportion of your earnings you receive in a tax cut. They have established a new category of tax inequity. This goes beyond a regressive tax. These capital gains tax proposals are unique: they establish a new category of gross tax inequity. This is a multibillion dollar free kick for the rich. It is an open invitation for the tax minimisers, the tax avoiders and the capital speculators to do their worst in the Australian economy.

This government has obviously forgotten the reason the capital gains tax was introduced in 1985. It was introduced following the tax avoidance and tax scandals of the early 1980s. This was not just a matter of bringing capital gains into the tax net. It was a matter of taxing capital and income at the same rate to stop the distortion of investment, to stop the distortion of economic activity and to stop high income earners converting taxable income into capital gains through artificial company structures and other avoidance devices. Of course, it was spurred on by the bottom of the harbour schemes. How we forget at the end of the nineties the nature of those bottom of the harbour schemes at the beginning of the eighties. They were based on their participants receiving untaxed capital gains.

The first law of good tax policy is: do no harm; treat all parts of the economy, all types of investment and all types of revenue the same; don't distort investment decisions; don't open up avoidance techniques; don't tax capital at a lower rate than income; don't give the land speculator on the Gold Coast a lower tax rate than the small IT company trying to trade in products and income; don't give doctors buying in and out of private hospitals a lower rate of tax than the local service franchise trying to build up its business activity; don't give the smarties who milk the market for short-term gain a lower rate of tax than those who use their intelligence and know-how to actually develop products and markets and build up an income base; don't reward the great Australian disease of property trading and punish the knowledge economy; don't reward the deep-sea feeders in the Australian economy, the spivs and the speculators while, at the same time, punishing the fair dinkum trading enterprises and their income earnings; don't repeat the worst mistakes and the worst abuses of the early 1980s.

It is too readily forgotten in these debates how significantly the Labor Party in government changed the culture of this place and of the Australian economy. There was a lot of reform and a lot of changes. But the one guiding principle they had at their heart was this: Labor wanted to create an economy in which you could turn a dollar by being creative, not by being a speculator. That was the one principle of all those Labor reforms. If you wanted to create something good in the Australian economy—create some income, create some jobs—you would get a fair chance to do it under our economic policies. We wanted that to ensure that the private sector got into creation instead of speculation.

Unfortunately, these tax changes—the policies of the Howard government—are going back to the future. They are going back to the old culture, the old ways and all the distortion and corruption that came with it. Labor wanted an economy where wealth did not have to come out of the ground; it could come out of our heads, it could come out of our creative skills as a nation. The Liberal Party wants to go back to the old culture.

You need to ask the question: who was there at the scene of the crime in the early eighties? Who was the one politician in this place who was there at the scene of the crime in the early eighties? John Winston Howard. He is the great Bourbon of Australian tax policy. He has forgotten nothing and he has learned nothing on tax in the past decade. He is a backward looking Prime Minister who takes Menzies as his leadership model, the monarchy as his social model and the early 1980s as his tax model—a tax model that was so badly scarred by so much corruption and the bottom of the harbour schemes, all underpinned by the one principle that is reintroduced under this government of taxing capital at a lower rate than taxing income, the one principle that had the bottom of the harbour merchants rubbing their hands with glee. The Parliamentary Secretary to the Minister for the Environment and Heritage can shake her head: she should go to the tax history books.

Not only that, let us talk about someone else who was there at the time not allowing these schemes to take place but trying to clean them up—the then Commissioner of Taxation, Trevor Boucher. He was there when the Labor government introduced the capital gains tax in 1985. What does he have to say about these changes? Take the words of the independent taxation commissioner from the eighties. He said:

Halving the capital gains tax is fiscal vandalism that will entice tax avoiders like bees to a honey pot.

This government is spreading the honey around the tax act for the avoiders to come in and do their worst, just as they did in the early 1980s. It is not the way to build the skills, the knowledge, the new ideas and the enterprise culture that Australia needs to compete in the global economy. This is a tax policy with shiny white shoes, and Trevor Boucher can attest to this flaw.

Some say the inequities in the package will be offset by the abolition of indexation. They must have come down in the last shower, because the only reason indexation is being abolished is that inflation is so low and there is barely anything left to index with. While some might say the GST is going to lift inflation—and most certainly it will—we all know it is an undesirable but yet one-off impact. I wish the capital gains tax halving was just a one-off, but once this thing is in the statute books it will be pretty hard to get out. If you let the white shoes put their foot in the door, we all know how hard it is to get them out. This will be anything but a one-off effect on the Australian economy.

The government is promoting this as a measure to encourage share trading. Well, I too want more share trading. I believe in the virtues of Australia as a share owners' democracy. I want to disperse economic power. But the problem with this measure is that it concentrates economic power and wealth at the top end of town. We know that Australia has approximately 50 per cent of its households in share ownership. Surely the great challenge for this parliament in dispersing economic power is to get the other 50 per cent in with their fair share. This should be a matter of bringing the other 50 per cent of Australian households into share ownership. I endorse a first share owners scheme. This parliament should be enacting a first share owners scheme to bring all Australians into the virtues of a share owner democracy—not just one half of Australian households.

The best way to disperse economic power, to build a fairer society and a knowledge economy is to do two things: to apply the equal taxation treatment of income and capital, and to use tax credits for families taking up share ownership for the first time. So, if we are interested in extending share ownership in this country, I think there are better targeted, more effective and more equitable measures that could be introduced by the parliament.

It is not just the content of this legislation that concerns me; there is also a concern about process. It is not often in this parliament that we see instances of corruption, but the capital gains cuts certainly represent a corruption of process. John Ralph, himself a multimillionaire with extensive capital holdings, had a chance to recommend a halving of the capital gains tax. Where does he get his costing for this initiative? Where does it stand up in the Treasurer's test for revenue neutrality? He did not get his costing from the Treasury; he did not get it from the finance department; he did not get it from the traditional sources of professional public service advice in this country; he did not get it from an Australian university; he did not get it from an Australian econometric model. He got his advice on this from the Australian Stock Exchange which has a big financial interest in the measure. It is a bit like putting Hannibal Lecter in charge of the mortuary. That is the corrupted process by which this government is running tax policy. But there is more and it gets worse. Where does the Stock Exchange get its advice from? Not the Treasury, not the finance department, not the independent sources, not an Australian university but a bloke that no Australian would ever have heard of: Alan Reynolds. I can inform the parliament that Alan Reynolds—the source of this advice to the Ralph review—is a director of the Hudson Institute in the United States.

When I heard that Alan Reynolds had come up with a proposition that the government could cut tax but raise more revenue—and not only that, but the more they cut the tax the more revenue they would raise—I went back in my memory bank and thought `That sounds familiar. I once heard an American President talking about the proposition that you can cut taxes but raise more government revenue.' It was Ronald Reagan in the 1980s. It was known as Reaganomics, and it even had an economic theory that went with it—the Laffer curve. I think you will find around the universities of Australia the chapter on the Laffer curve ripped out and thrown down the toilet, because it is the most discredited and disreputable economic theory that you would find in international economic circles.

I thought it interesting to hear that Alan Reynolds was involved in this. I asked my staff to drag out his CV. Where was Alan Reynolds at the scene of the crime for Reaganomics? You look up his career details and he has done many things. He is an institutional investor himself—surprise, surprise that he is looking for an initiative that would be in his own financial interest. Where was he in 1981? He was on the transition team for David Stockman's budget management; he was at the heart of Reaganomics. This bloke was part of the gold card Reaganomics club in the early eighties. So here we are relying not on our professional advice in Treasury or Finance or any other part of the Australian public service but on a bloke who was part of one of the most discredited and unsuccessful economic experiments in the history of the Western world. It is a shame that this parliament is using a corrupted process to make policy. Corrupted process should have no part of our policy making here.

But it is an all too familiar cycle in Australian politics. The government opens up a new tax inequity—a loophole, an imbalance—the smarties pour into it for tax avoidance reasons, there will be public outrage and then an inquiry. At the inevitable tax avoidance inquiry and all the court cases that come with it, one name should be held responsible, one name should be remembered in this debate: Peter Costello. He has the responsibility for our finances; he has responsibility for the integrity of the tax system; he has the responsibility for due process and proper procedures in the policy making of the federal parliament and this particular bill; but he has accepted a corrupted process to bring us to this point. I hope this debate well and truly records his reprehensible role in this particular provision.

In the time remaining to me, I want to raise a matter of detail. I have received representations from cooperative enterprises around the country—I am surprised that the National Party has not taken this matter up—concerned that cooperatives are no longer recognised as a separate legal entity in these particular provisions. This, of course, continues the slow decline of cooperatives and their appropriate taxation treatment. I raise that matter here, hoping the Labor senators in another place might take it up in detail. I think there is an argument to recognise the very important and special economic and social roles of cooperatives. They should maintain a separate legal entity and status in our taxation laws. As I say, that is a matter of detail.

On the substance, I share with other Labor speakers the concern about an absence of revenue neutrality in these measures; I share a concern about due process; I share a concern about the equity features of these particular provisions; but, most of all, I share a concern about the taxation philosophy of the Howard government. I just cannot understand how a government that is putting a 10 per cent flat regressive tax on all working Australian families can come in here and promote, as their version of tax fairness, a measure that gives absolutely enormous benefits to the top end of town, to the richest Australians. Not only that but it is a government that pours billions of dollars of speculative capital back into the Australian economy.

This is all at a time when our Reserve Bank is worried about the economy overheating. We have already had an increase in interest rates. There is a worry about the GST having inflationary pressures and driving interest rates up further. This is the last thing the Australian economy needs. As Australian households and mortgage holders watch their interest rates rise, they should remember that name, Peter Costello, as the person responsible for the interest rate rises and responsible for the disgusting and corrupted process which has brought these provisions before the federal parliament.