EMBARGO: 5.00P14
PREE MONISTER
FOR MEDIA SUN4DAY SEPTEMBER 26 1982
ELECTORATE TALK
The Government is determined to get rid of the cancer of
tax evasion, and blatant artificial and contrived tax
avoidance schemes.
Already the Treasurer, John Howard-, has done more to
eliminate tax avoidance and evasion schemes than any
Treasurer in the history of the Commonwealth. Some of
the rewards that honest tax payers are reaping fromr the
Government's unremitting campaign against tax evasion
are particularly evident in this year's budget. For the
first time in many years, the Commissioner of Taxation
has said that it will not be necessary to make allowance
in income tax revenue estimates in the budget for revenue
lost through tax evasion. Indeed, hundreds of millions of
dollars of extra revenue will be collected this year from
measures taken against avoidance and evasion.
Taking out that extra revenue to be collected from tax
dodgers there is actually a fall in real terms in tax
collection-.. Clearly, the measures we have introduced
are having an impact on tax levels faced by honest tax
payers, and there can be no doubt that the measures have
contributed significantly to the Goverpment's ability to
give the tax cuts which will start from November 1..
One of the measures that we are introducing is designed
to allow the Government to recoup tax lost as a result of
the so-called bottom-of-the-harbour schemes. These schemes
were particularly unpleasant, and particularly fraudulent.
They always involved some people in some parts ofL the
transactions acting-illegally. Let me give an examjple of
how a bottom-of-the-harbour operation worked, an exampl~ e
drawn in its broad outline from the McCabe Lafranchi Report:
A company has made a current year trading profit of about
$ 750,000 on which company income tax should eventually
be paid.. Including that current year profit, it has a total
" fcashed-up" value of about $ 1.1 million. That is, when all
its assets are sold, and the proceeds put into the company's
bank account, there is the amount of about $ 1.1 million in
that account.
The company is then sold for about $ 1 million and that
$ 1 million is then divided between the company's original
shareholders. The other $ 100,000 then goes to the promoter
or to the person who did the deal. The $ 1 million represented
capital to the original shareholders. / 2
2-
We'need to remember that in the particular example there
was about $ 750,000 which was current year profit on which
taxes should have been paid but o ' n which no taxes had been
paid. No allowance was made for meeting the tax either by
the original shareholders or by the purchasers and that is
where the fraud came into the scheme.
You can see that there was a lot of money involved. It was a
fraudulent way of avoiding paying company tax. At some point the
scheme had to involve fraud. At some point the scheme had
to be illegal. These became known as bottom-of-the-harbour
schemes because in some cases the documents were literally
dumped into the harbour.
I think you can see how unfair all that is, how unreasonable
that is. Why should people be able to profit by that kind
of device? Why should the Government and honest tax payers
put up with losing the tax that ought to have been paid
which in the example that I have given could have been
over $ 340,000?
The practice was stopped by a special Act of Parliament
in 1980 and that legislation provides for very severe
criminal penalties of up to five years in gaol. Schemes
of this kind corrode the whole basis of Australian society.
There are some who say that they went into such schemes
innocently, not knowing that something was wrong. But the
essence of these schemes is that the price paid to the
shareholders was * too high because no allowance was made
for paying tax. Some people involved in this practice went
back to the trough time and time again. The Government made
up its maind that it was going to collect the tax that should
have been paid, and we are going to collect that tax fro~ m
the pepewopoied from the device. That is, from the
shareholders who sold the company and from others who
benefited from the deal. I would think that most'Australians
would agree that that was fair enough.
There is an element of retrospectivity in the legislation
that John Howard introduced last Thursday and 1 know there
are many people who intensely dislike any idea of retrospectiVity.
As a broad principle, I and all members of the Government would
support that view. It is an important principle. But it is
not the only principle by which we must govern. There is, above
all, the principle of fairness. The Government represents
all Australians. Its duty is to govern fairly for all
Australians. At elections, people divide up their vote
between political parties. But it is the duty of governments
and of members of Parliament to represent all Australians.
That deepl. y held conviction is the very foundation of the
Liberal Party. It is clear that the Government had to make
a difficult choice between supporting absolutely the principle
of no restrospective legislation or maintaining its support
for the principle of governing fairly for-all Australians. / 3
3
In this instance, in relation to the bottom-of-the-harbour
schemes, we made the decision that we must place the principle
of fairness above the principle of retrospectivity. I hope
that the legislation will be given a thoughtful but
nevertheless speedy passage through Parliaanent so we
can get on with the business of collecting taxes that
should have been paid.
There is no doubt that the legislation will be passed.
My Government will not stand by and see average Australians
ripped off by a very few mean and greedy individuals who
have been very unAustralian in their attitudes and practices.
There is one final point I want to make, and that concerns
Mr Hayden's cowardly and vicious attack on Mr John Reid,
following his appointment as Chairman of the Review of
Commonwealth Administration. The Cornunissioner of Taxation
has given Mr Reid a clean bill of health, and that fact has
now been widely publicised. Mr Hayden began a smear campaign
against Mr Reid without any attempt to have his implied
allegations checked. The record has been set straight,
but Mr Hayden seems determined not to accept the facts.
He seems determined to continue the smear. He can gain
no credit from that.