AUOT; U-L! A,&
FOR YIEDIA 31 October 1984
GOVERN1MENT TAXATION POLICY STATEMENT
The economic policies of the Government, and the approach
that has been used in developing and implementing those
policies, have produced dramatic improvements for all
Australians since March, 1983:
the creation of over 260,000 new jobs against the loss of
almost 200,000 in the last twelve months of the Coalition
Government; halving the inflation rate from double that of the rest
of the industrialised world to an underlying rate around
that of other advanced countries;
significant reductions in interest rates;
significant reductions in the Budget deficit;
restoration of the housing industry from drastically
depressed levels to high levels of activity.
These results, which are fundamentally important to the
welfare of all Australians, have flowed froi this
Government's unique approach to policy-making. We have not
sought to impose positions from above.
Under this Government's approach there has been more
consultation, informati-on-sharing and tapping into the
accumulated experience and wisdom of business, trade
unionsand community organisations than ever before in the
history of this country.
This approach has been spectacularly successful by all
relevant criteria a fact acknowledged within Australia and
very widely by international commentators.
A handsome dividend on the economic success of the
Government, and the approach that it has used to
policy-making, will be paid with effect from tomorrow.
Substantial persona] income tax cuts $ 7.60 a week for the
average taxpayer or equivalent to a wace increase of $ 11 a
week will flow to all taxnayers. And they represent a
real reduction in personal income tax. Full indexation to
cover the effects of inflation would nave cost $ 1.2 billion
in a full year. These cuts will cost billion.
The Government intends to apply exactly the saine approach to
an overhaul of the Australian taxation system as it has used
in the formulation of the general econo~ mic strategy which
has produced these outstanding results. And the dividends
resulting from an overhaul of the tax system will again flow
to all Australians unless they have been cheating on tax
in a big way.
The Government will conduct a comprehensive review of the
Australian taxation system based on widespread community
consultations during 1985, leading to an announcement on a
tax reform package towards the end of 1985.
The Government has been progressively implementing changLz
designed to improve the existing tax system since assumirzg
office in March 1983.
The first element of the Government's policy as I have
already indicated is tomorrow's substantial personal income
tax cuts. The tax cuts address immediately one important
problem area in the tax system -the excessive levels of tax
on low and middle incomes. All taxpayers benefit from these
cuts. The second element of the Government's policy is the
vigorous strengthening of the existing tax law and
administration. We have cracked down on tax avoidance and
evasion in the cash economy. We have updated taxation
penalties, and created a stronger Tax Office by increasing
its resources.
1We have also legislated against/ tax loopholes, althougir the
Opposition in the Senate flas obstructed the Government's
fproposed action against such notorious tax avoidance schemes
as " bottom of the harbour" and " cherry pickers".
There is strong. commun'ity support for the third element of
the Government's tax policy: an overhaul of Australia's
taxation system. Most Aust). alians believe that the overall
distribution of the taxation burden is unfair. They are
resentful at the unfairness associated with substantial tax
avoidance by a minority. There is also widespread belief
that the tax system is holding back economric development,
and discouraging much potentially valuable investment,
production and employment. There is particular concern that
the interaction of the taxation and social security systems
is discouraging social security recipients from full
participation in the national economy thlat is, thz-t they
have created oovertv t1raos.
And when the community talks of the inequities and anomuralies
of the existing ta,, system, they are talking about a systerr
whic: h has been built-up over a period in which the Coalition
parties had b-en in power for 31 of the 34 years before we
assumed office in iNarch, 1983.
While acknowledging t hese wea'Anesses in the tax system that
we have inherited and particularly the unfairness
associated with tax avoidance the Government does not
underestimate the difficulties of overhauling the system.
Indeed, to be brutally frank, the difficulties are enormous.
This is why there has been no substantial tax reform in
Australia, despite the work of Asprey, Mathews and others.
The administrative, economic and political difficulties
associated with overhauling the tax system explain why the
previous Coalition Government abandoned its attempt to
change the tax system limited ' though that was and why
the opposition has been so vague in its recent tax policy
statement. But two lessons are clear from what has been
said, and more importantly what has not been done in the
past decade about improving our tax system.
IThe first lesson is that tinkering at the margin in
attempting cynically to gain short-term political advantage
A4Z.~ is very likely to generate new complexities, inefficiencies
and inequities. Tax reform will only be worthwhile and in
any case is probably only achievable if it is based on
if detailed and thorough analysis of packages of alternative
measures. The second lesson is that meaningful reform is not possible
in the absence of widespread commiunity agreement that the
tax changes make the system fairer and more equitable.
There can be no progress unless the co:-wunity can be
persuaded that the Government is serious about an overhaul
of the tax system which includes a reduction in some taxes.
The Government's approach to tax reform takes account of
both lessons. The opposition's approach takes account of
neither. The Government's approach to overhauling the tax system is
fully consistent with its approach to the economic
management of thi's country since assuming office: one of
consensus, typified by the holding of the National Economic
Summit Conference and the subsequent establishment of the
Economic Planning Advisory Council ( EPA$ C) and a number of
consultative councils. It is an approach that has the trust
and confidence of the Australian people. It is an approach
that will ensure that the economic procress since March 1983
will not be put at risk.
The idea of a tax review is no short-term election giMMick.
The i'despread comm,, unity discussion th-at the Government has
fostered3 on the tax system has been since the v. ery
first meeting of EPA_ 1C in July, 1983, tne Coun1cil called_
for a Treasury summary of the findinqs cf pre;' i,-ous ta): ation
s tu eS.
in the March, 19863 meeting of EPAC, there was discussion o: c
papers by EPAC members on taxation. I said in my Press
Statement after this zaeeting:
" I am grateful to "-PAC members for the productive effort
that they have put into the w~ ork on taxation policy for this
meeting. EPAC agreed that:
it is clear from these contributions that there are
shortcomings in the present taxation structure, whether
viewed from the standpoint of the efficient long-term
growth of the Australian economy, or of the building of a
more equitable Australian society. i
it is also clear that taxation reform must consist of an
overall package. Single elements of taxation reform
cannot properly be judged in isolation. For communitv
discussion of these matters, and in the end government
decision, to be productive, it-should focus on interrelated
packages of measures. This makes the matter
highly complex, and it will take considerable time for
informed community attitudes to emerge.
reform of the taxation structure is a long-term matter,
with large implications for the growth and structure of
the Australian economy. Different sectors of the econoray
have put very different views to EPAC.
consistent with the Government's approach to building
community consensus on complex issues, the Government
will not take positions on these matters until there has
been wide comnmunity discussion and uantil informed
attitudes to alternative packages have emerged."
By the time of the last EPAC meeting in September this year,
all groups represented on EPAC had presented views on tax
reform. A number of other economic and community
organisations submitted papers to EPAC after my March
statement. Many others have indicated their interest in
doing so, and the Government would welcome further
submissions early in the New Year. These and other
contributions w'ill be discussed within EPAC, and papers put:
to EPAC will be released for wider comm-unity comment.
These contributions and the associated discussion will all
be taken into account in the preparation of a draft white
Paper on Taxation.
The Government will then convene a National Taxation Summit
during the third quarter of 1985, at which interested,
parties will have an opportunity to comment on the draft
Wh-ite Pacer and to suggest a~ ternative approaches.
57 ;-4a A
Invitations to participate will be extEnded to all sections;
of the business community including small business; the
farming connunity; the trade union movement; weliare,
consumer and other community groups; and representatives of'
Federal, State and Local Governments.
I would expect that if broad consensus were to emerge from
the Tax Summit, the Government would announce a tax reform
package towards the end of 1985. And I would expect a
popular and widely accepted package to emerge from this
consultative process.
It would be quite inappropriate to pre--empt the consultative
arrangements on the overall tax system that will proceed
during 1985 by detailing a preferred Government position.
It would be an insult to those who are participating in thE
community discussion, and who will participate in the
Summit. But without taking a position on any particular ta-x or
package of taxes, I am today setting out nine firm
principles which the Government will insist upon in the
process of community consultation on the tax system, and in
any tax reformn package.
Nine Point Tax Review Principles
First, there must be no increase in the overall tax
burden, as measured by the share of Commonwealth
Government tax revenue in gross domestic product, next
year or through the Government's next term in office.
Second, any reform must continue the process already
begun by this Government, and provide further cuts in
personal income tax.
* Third, taxation changes must. contr: ibute to smashing tax,
avoidance and evasion, which remain as features of the
tax system which the Government inherited.
Fourth, any reform must lead to a simpler system, which
therefore all Aust'ralians can understand more easily,
and which therefore makes tax avoidance and evasion more
difficult. Fifth, any reform package must result in a tax system
which is fairer, so that Australian~ s are only required
to pay tax according to their capacity to pay, and the
overall system must be progressive.
Sixth, any tax reform must riot disadvantage recipients
of welfare benefits, and should reduce or remove
" 1poverty traps".
Seventh, if any reform package which includes changes in
indirect taxes is contei'plated, it must be acceptable to
the various groups in the Austral4an community whose
response will determine whether we can maintain
moderation in wage movements.
Eighth, any reform must provide the! best possible
climate for investment, growth and employment in
Australia. Ninth, any reform package must have widespread community
support, including support at a widely representative
National Tax Summit of economic orc'anisations and
community groups.
These are clear and unequivocal undertakings, which will
give the people of Australia a basis for a clear decision on
1 December.
All nine principles are important to making Australia a more
equitable society which is better able to overcome the
structural barriers to strong, sustained non-inflationary
growth. The first and seventh principles are absolutely crucial to
our sustaining non-inflationary growth in the years
immediately ahead.
Given the Government's well-known and successful approach to
economic management, the first principle requires further
reductions in the deficit in the process of continued
economic growth through expenditure restraint. We pledge
ourselves to this result.
The seventh principle is essential to the Government holding
inflation on a downward path, which itself is crucial to
maintaining strong growth in production and employment. We
must do nothing as a nation to put at risk the hard-won
gains in the fight against inflation over the past eighteen
months. The opposition has claimed that the Government is committed
to the introduct'ion of a capital gains tax, death an-j gift
duties, and a wealth tax. Day in, day out, the Leader of
the opposition has been making~ wild and unsubstantiated
allegations to the Australian people on this issue and in
the process making corrmunity acceptance of any geunine tax
reform more difficult.
In fact, as has been made clear cons istently, the Gc-JE= nment
has taken no such position on these taxes.
The only decisions it has taken~ are those that have hieern
outlined today.
But some community views have al. ready been put to the
Government on these issues, and as these will be fully taken
into account in the review, and Fit the National Tax Summit,
it is appropriate to refer briefly to them.
There is a widespread view in the community that existing
capital gains taxes i Australia should be reviewed, because
they are unpredictable and arbitrary, and because they
provide avenues for tax avoidance. Various suggestions for
such changes have been put forward for consideration in a
qualified way, including by the Business Council of
Australia and the Confederation cof Australian Industry,
largely to close off existing opportunities for tax
avoidance. These groups have emphasised that any changes to
the existing capital gains taxes should be considered only
in the context of a package of reform measures.
Whether the types of changes that: such -groups have presented
for consideration represent the niost effective way of
addressing the widely recognised shortcomings in the
existing capital gains taxes is a m'atter for careful and
cool analysis and community discussion outside the context
of an election campaign.
And a cool and careful analysis of the Government's nine tax
review principles should put to rest the desperate
inventions with which the Leader of the Opposition seeks to
frighten the Australian people. A fairer system, a system
which provides the best possible climate for investment,
growth and employment and a system which strengthens the
fight against tax avoidance and evasion in this country, is
not one which taxes in any way the family home, or threatens
the continued growth of farms and small businesses in this
country. Indeed quite the contrary.
The average taxpayers, and those who through their
productive endeavours have underpinned and will continue to
underpin economic growth in this country, must be
encouraged, not discouraged, by our tax system. I give an
unequivocal commitment that the Government will have no part
of a tax reform which is not based on these conditions.
And this can only be done by shifting nauch more of the
burden onto those who during the periodi that our opponents
held office, cheated and deraudcd the country of taxation
revenue.
The politically expedient option, and t~ he one which our
opponents have now chosen, would be to categor~ cally rule
out certain taxes in any discussion of tax reform. But the!
Australian public has been treated cyni , cally too many times
by the Coalition parties, with their litany of false and
broken promises on tax, to accept ano-ther such cynical
political exercise.
But let me make one point clear. The only group in the
Australian community which has any reason to fear an
overhaul of the tax system by this Labor Government is that
group which, aided by the Coalition parties, has exploited
the system in recent years through avoidance and evasion at
the expense of the vast majority of Australian taxpayers.
For what we must and will do is end the, day when a-small
minority of the Australian people who can afford a smart
lawyer and a slick accountant, and can rely on the Coalition
parties to protect them, pay no tax while the average
taxpayers pay too much.
The Government's approach to an overhaul of th-e taxation
system will allow for rational community discussion and
involvement. We must make every effort to devise a system
that is fairer for all Australians. We must make every
effort to devise a system that promotes a stronger economy.
We must avoid any changes that put at risk the improvements
in Australia's economic performance over the past eighteen
months, This will be the great challenge for the Labor
Government and for the Australian community together in
1985.
As the Australian people will be deciding on 1 December
which party they wish to govern Australia for the next three
years, in outlining the Government's approach to tax policy
it is also appropriate t-o remind the electorate of the
Opposition's record.
That record is highlighted by three features for which the
electorate, rightly, will not forgive, and so will never
trust the Coalition parties.
First, the Coalition parties condoned the growth of the
tax avoidance industry in Australia on an unprecedented
scale. Reporting on the tax avoidance industry,
Commissioner Costigan said in December 1981:
" This industry has developed in Australia, particularly
over the last five years, at a rate far in excess of
any cther iWd JZ'~ ny, and has brought with it profits
comparable only'to the heady days of the Victorian
rush. Unfortunately this industry carried with it a
serious detriment to the interests of government and
the Australian comr. unity The amounts involved
are very large indeed, amounting to many hundreds of
millions of dollars per year or more. The impact on
the community has been very serious. It has introduced
into the community a class of people, almost invariably
the highest earners, who pay little or no tax and make
no contribution in that way as citizens to their fair
share of community costs. In addition it has made more
difficult for government the task of providing for the
community as a whole a more equitable and reduced
taxation burden."
By allowing a small and wealthy minority to avoid tax on
this massive scale, the Coalition Government effectively
imposed an undisclosed but massive supertax upon the
majority of ordinary taxpayers in Australia. The
Coalition parties in Opposition have continued their
protection of the tax avoidance industry by repeatedly
rejecting legislation designed to make tax cheats pay
back what they owe to ordinary Australians.
Second, without any warnings at preceding elections the
Coalition Government imposed on the people of Australia a
wide range of new taxes with substantial impact on
average taxpayers.
Third, the Coalition parties made promises of tax relief
at election time and then, after the election, ruthlessly
and shamelessly grabbed back the tax cuts. All
Australians remember the " fistful of dollars" of the 1977
election, which were taken back within months of their
re-election.
The Peacock-Howard-Sinclair combination, all of them parties
to this fraud and deception of the Australian people in the
last seven years of Libefal-National Party government,
simply cannot and will not be trusted again by the
Australian electorate on the issuE? of tax.
And it is against this background of our opponents' total
lack of credibility that the Government's consistent and
conclusive approach to tax policy will be welcomed by the
people of Australia.