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Thursday, 6 December 1973
Page: 2589

Senator MURPHY (New South Wales) (Attorney-General and Minister for Customs and Excise) - A number of matters have been raised by various senators, and I will endeavour to give some kind of short answer to them. The information has been provided by the departmental advisers. The answers can be supplemented if they are not sufficient. If I do not have them straight at this stage I think they will be corrected when the Hansard is studied by the departmental advisers.

Senator Guilfoyleraised a number of points. I am advised that the absence of a provision for losses has little practical significance. A taxpayer who resells property within a year of purchase is usually able to show that the transactions were speculative so that any loss could be allowable under the general provisions of the law. To provide for losses in the new provisions would add considerably to their complexity yet would not be likely to have any practical effect in allowing losses that could not be claimed in any case. I am advised that company reconstructions are not likely to be affected, nor is it thought that any locking-in effect of the provision will be noticeable in the operation of the share market. These possibilities will be kept in mind in reviewing the provision. The provision does not tax the proceeds of sales of rights by a shareholder to whom they have been issued. Bonus share sales will attract tax only if the sale is made within 12 months after the purchase of the original shares on which the bonus shares were issued.

Senator McManus asked a number of questions. The answers which I have for him are these: The insurance companies have some practical problems in deducting tax instalments from workers compensation. However, they have been discussed by a number of companies with the Australian Taxation Office and are capable of being solved administratively. The requirement that tax be deducted from workers compensation payments will not have effects outside the income tax law. The amendment will not make the insurance company an employer for other purposes. Timber companies do not lose much under the Bill, simply because their ordinary operating costs remain allowable in full, as before. They include ploughing and fertilising of land and the planting of trees. These companies do not have to wait 25 years for a return. Usually they start to crop and thin out much earlier than that. However, the effects of the Bill will be kept under review.

I have some answers to Senator Maunsell 's questions. The primary producer concessions were not withdrawn primarily for the purpose of dealing with Pitt Street farmers. They distorted investment decisions, led to a waste of resources and to tax inequity whether used by bona fide farmers or by Pitt Street farmers. This was the basic objection to the concessions. It was not the small farmers who got much out of the concessions; it was the higher income farmers who reaped most of the benefit. There has been some misunderstanding about how this Bill affects primary producers. There will generally be little change in the present tax position of an established producer. His ordinary operating costs, including the renewal or desilting of earth tanks, will continue to be allowable as outright deductions.

The information I have for Senator Laucke is as follows: Much of the concern of the wine industry has been based on a misunderstanding that has now been corrected to a large degree. The industry will not be asked to bear crippling burdens or to meet harsh taxation standards. Any individuals or companies which are placed in a difficult financial position will be treated by the taxation administration with sympathy and understanding, as are other taxpayers. Senator Laucke also asked whether the withdrawal of the concessional basis of valuation of end of year wine stocks directly contradicts undertakings given by the Government before the election last year not to replace the wine excise by sales tax or any other impost. The information I have is as follows: The removal of a concession which had been distorting the income position of a section of industry is a very different matter from the levying of a new tax. The proposed change in wine and brandy stocks valuation really does nothing more than bring the wine and brandy industry into line with other industries which already value their stocks on a proper basis. The relevant provisions of the amending Bill will mean, firstly, that in 5 years time wine makers will be paying tax on the same basis as everybody else and, secondly, that over the next 5 years the former tax which was deferred by reason of the special concession calculated at the end of 1973-74 will be recouped. The honourable senator's interpretation of the election undertaking implies that he considers that the unjustifiably privileged taxation status of the wine makers is inviolate and should be preserved at all costs and for all time. The Government does not accept that view.

Senator Cotton asked whether aged people will have more money in the pocket. The answer is that the Bill is part of an integrated taxation and pensions package. Some pensioners may pay a little more tax than they did last year but this will be more than compensated for by extra pension. More than 80 per cent of pensioners will not have to pay tax or lodge tax returns. They must be better off. For the vast majority of the rest, there will be an overall improvement. Senator Cotton said that private companies will not be able to grow and that they will be swallowed up by larger companies. The answer to that comment is that companies are only attractive takeover propositions if there is a large asset backing per dollar of the purchase price. Nothing done m the Budget will lead to that result.

In response to the amendment which has been moved, the Prime Minister promised not to increase personal-

The ACTING DEPUTY PRESIDENT (Senator Lawrie)- Order! Senator Murphy, the amendment to which you refer is to be moved to the Income Tax Assessement Bill (No. 5), I understand, which is the next Bill to be considered.

Senator MURPHY - It does not matter. We are dealing with all of the income tax legislation together.

Senator Cotton - The main thing is for you to be happy.

Senator MURPHY -I would think that everyone is happy under the present Administration. Even the Opposition finds happiness in the prosperity enjoyed by the community. The Prime Minister's promise not to increase personal tax rates is being honoured. The measures in the Bill are designed to achieve a rational tax system and to remove sectional concessions that are no longer warranted. In response to paragraph (a) of the foreshadowed amendment of the Opposition, might I say that the arrangements in these Bills are part of the abolition of the means test on age pensions. An anomolous and outmoded age allowance is being replaced by a tax rebate of $160 for aged people. Pensions have been increased, and pensions payable to married couples are not aggregated for taxation purposes. The Government's integrated package of pension and tax measures will, with very few exeptions, make aged people better off in 1973-74 than they were in 1972-73. Overall, aged people will pay less tax than a young couple which is bringing up children and which is earning the same amount of family income. The Government's proposal are fair and generous.

Paragraph (b) of the amendment deals with incentives for manufacturing industry. The investment allowance encouraged investment even where the value which customers placed on the output would not warrant it. The people who did not buy the product had to contribute part of the cost through their taxes. It is an optical illusion to suggest that costs are cut when productivity is increased. In those circumstances waste of resources was encouraged and there was no easing of pressure on resources. The objectives outlined in this pan of the amendment are better served by the Budget measure.

My response to paragraph (c) of the amendment which deals with rural productivity incentives is as follows: It is very questionable, as the Coombs task force pointed out, whether the concessions referred to aided productivity. They distorted investment decisions and encouraged uneconomic investment. Their withdrawal will aid productivity by cutting out misallocation of resources. Paragraph (d) is concerned with life assurance policies. The proposals announced in the Budget do no more than bring life insurance offices more into line with the rest of the tax system. The lower levels of taxation applying to life offices have no basis in taxation principle, whether they are concessional rates or other provisions. Moreover, the concessions represented an unjustified indirect subsidy for life insurance companies and their policy holders at the ex- pense of taxpayers generally who had to bear higher taxes than otherwise would have been the case simply because the tax basis has been so heavily eroded by this and similar concessions for sectional purposes. Policy holders continue to enjoy substantial direct benefits from the concessions relating to the deductibility of premiums on policies. The view that policy holders will be unjustly penalised if the effect of the taxation changes leads to reduced bonuses- this is by no means certain- is without foundation.

I have already answered the matter with which paragraph (e) of the amendment is concerned in my response to the points raised by Senator Guilfoyle. Paragraph (f) deals with small businesses. There is much loose thinking about the relationship of small businesses and companies to the tax system. As far as possible the aim is to keep similar burdens on business income, whether derived from companies or unincorporated businesses, as apply at present. Private company owners can have large incomes. The Budget measure is quite consistent with keeping in line tax on all forms of business. The matter raised in paragraph (g) was answered in my response to the matters raised by Senator Laucke.

Some of the answers I have supplied to the points raised have been short. I have done my best to answer the technical as well as the nontechnical points in accordance with the material supplied to me. But if any of the answers I have given need correction, these will be studied. If any honourable senator wishes amplification of my explanation of any point raised, I will see that that is done. I commend the Bill to the Senate.

Question resolved in the affirmative.

Bill read a second time, and passed through its remaining stages without amendment or debate.

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