Parliament Of Australia
01/04/1998 Page: 2294
Mr TONY SMITH Liberal Member for Dickson (Qld) 1996-1998
Mr TONY SMITH (10:22 AM) —The Tax Law Improvement Bill (No.2) 1997 highlights what is an obvious fact and that is that the tax laws in this country have long since passed their use-by date. When we have a tax law improvement bill of 600 pages and an explanatory memorandum accompanying it of substantial proportions—
Mr Rocher—What about the explanatory memorandum for the amendments to it?
Mr TONY SMITH —And the explanatory memorandum for the amendments, as the member for Curtin indicates, it is obvious to all of us, and should be obvious to everybody who is in a position to take notice, that the system is simply not working.
I am very attracted to a proposal that has been floated by Mr John McRobert called the easytax two per cent tax. Easytax is a flat tax on every exchange of ownership of goods and/or services involving monetary considerations. It is a simple, visible and predictable charge for the use of money and facilitating trade and commerce for the exchange of goods and services. It does not apply to money deposited or withdrawn from a bank. This falls outside the definition.
The two per cent tax of the gross monetary value of the exchange of ownership of goods, services and labour would replace personal and company income tax, wholesale sales tax, payroll tax, fringe benefits tax, capital gains tax, withholding tax and provisional taxes. In so doing, it would restore full employment and create a prosperous nation, paving the way for future reforms in relation to tariff and excise matters.
The member for Werriwa (Mr Latham), in his as yet unreleased book, has shown some realism in relation to the tax system with his leaning towards a replacement of the income tax system by a tax on consumption, a tax that would basically move towards taxing those who consume most. Those who consume most, generally speaking, are those who are better able to pay tax, and frequently they are those who are not paying tax at the present time because of the tax arrangements they have made.
There is a massive industry out there devoted to avoiding tax. There is a massive industry out there which is, reluctantly, subsidised by decent and honourable taxpayers who have to cope with the nightmare of the Income Tax Assessment Act and all of its amendments. The current taxation system is far too complex. The cost of compliance is a massive waste of Australian resources and an unnecessary burden on all taxpayers, and in particular, small businesses.
No-one can fully understand the taxation laws; they are too confusing. In my electorate I constantly have members of the accounting profession contact me when a further amendment is made to the tax act. They find that the current tax act is already virtually unmanageable and they simply do not understand it. If they do not understand it, how are they going to explain it to their clients?
Of course, added to that is the fact that they do have to somehow understand it; they do have to somehow struggle with it. That leads to the fact that the extra cost to their clients, and ultimately to the community as a whole, will often defeat the purpose of the tax itself. It is just one burden piled on another.
In my view, complex and punitive taxation is a major obstacle for all businesses, small and large, and it does cause attention to be diverted from good, sound management. How can you tax profit when you do not have a definition of what profit is? That is the whole problem with this area. How can you insist on an income tax system continuing on as it has been since about 1915? At that time, ordinary workers would not be paying that level of tax because of their income, but they are now suffering from bracket creep.
I recall that, when I was working as an apprentice at the Evans Deakin shipyard, if I worked overtime I was immediately pushed into a higher tax bracket. That was a great disincentive to work longer. That has not changed under the current system. In fact, it has got worse.
A small businessman in my electorate said to me recently that his 1998 take-home pay was no different from what it was in the mid-1980s. When people in small business say that to me, there is a real problem. It is a problem that we must recognise. We can be lulled into thinking that because certain areas in the business sector are doing well other business sectors are doing well also. There are some sectors in business that are doing well and have improved considerably—and let us hope that continues—but there are other sectors that are being left behind.
The small businessman who came to see me last Friday was a motor vehicle repairer. He had 14 people working for him in the mid-1980s but he now has two, including one of his sons. As I said before, his take-home pay has not changed. In fact, it has gone backwards in real terms because of the cost of living increases over that period. He is working 60 and 70 hours a week. The anguish was etched all over his face, and we cannot ignore that.
These people are the real battlers out there. What he is saying to me in relation to the tax system and other matters is that those people in the middle group in society are not really being helped by the taxation system. He is saying that the system is crushing them. Therefore, we have to look for innovative ways to deal with what has become a major problem, a modern problem. We cannot keep applying the old system to a modern problem.
I think we all accept that the taxation system must be looked at in a serious way, must be dealt with. This measure attempts to improve the understanding of the system but, in my view, the system itself is beyond understanding. As I said, it speaks for itself with the volume of the material that we have to consider. Australia is in a serious situation; a simpler tax system will allow our businesses to be more efficient and productive, and will provide an equal tax charge for goods and services traded over the Internet, for example, as for those traded over the counter.
The flat tax of two per cent of receipts of income and sales could be phased in over a three-year period. Obviously there will be transitional problems in some areas, but those always happen when one is moving to a new system. This is a reality of life; we cannot change the tax system overnight and expect everything to just fit straight into place. Over a three-year period, using a tax pool arrangement to install new gross wages equal to take home pay plus two per cent would effectively slash the cost of employment, while increasing the purchasing power of the after tax dollar. I emphasise that slashing the cost of employment will increase the ability of employers to employ more people, and that is what we need to do.
Easytax is quite different from a VAT or a GST. It is simpler. In the fully implemented system, there are no deductions, no thresholds, no demarcations, no deeming, no accruals, no pre-payments, no repayments, no exemptions and no nonsense. The net effect is to lower the taxes on employment, drop the cost of employment and increase the demand for employment. Australia has 13 million employable people with only eight million deemed to be employed. So the unemployment statistics just do not add up. After the implementation of a two per cent easytax, it is obvious that over time other taxes will be discarded as the economy improves.
The two per cent tax has the advantage of being visible. This is one of the things that, I think, we struggle with in the community now—certainly, the people of Australia struggle with the fact that so many of these taxes are hidden. People say, `We don’t have a GST now’ when in fact we do in so many areas. This particular idea, in terms of reforming the tax system, will mean there is a visible tax which will show on the sales of goods, services and property—that is, every receipt will show a two per cent surcharge on the listed selling price. It will be a constant reminder of the cost of government, and people need to be reminded of those sorts of things. I think it is part of the accountability of government to the people. The simplification will activate a strong motivational multiplier effect in our economy and this will drive job creation.
For small transactions, such as those less than $100, the tax may be added to or deducted from the sale price at the seller’s option. The tax on receipts will be due for payment by the end of the month following the month in which the taxable transaction takes place. Annual financial statements will be lodged within six months after the close of the financial year, together with a statement of cash flow and reconciliation to the annual financial statements.
Importers will be responsible for payment of the receipts tax on imported goods and services, those being taxed at two per cent of the purchase value. Internal sales of these imported goods and services will again be taxed at two per cent on sale. Exports will attract the two per cent tax on sale under the normal terms. There will be legal definitions and ATO rulings for different types of taxable transactions but these will be simple.
Payment of interest and dividends will be taxed at two per cent for both Australians and foreign investors, with taxation at source for overseas remittances. Deposits and withdrawals from bank accounts will not be taxed, as they are not sales. A delay in the payment of the two per cent tax by the party responsible will incur a penalty tax at the rate of two per cent per month on the tax outstanding but with increasing penalty rates after six months after the end of the financial year. There may be extenuating circumstances but those sorts of details would need to be worked out over time and, frequently, on a case by case basis.
The quality of life for the citizens of Australia, in my view, would be improved by this proposal. There would be a massive increase in job opportunities, better job satisfaction and an incentive to work harder. There would be a great influx of people with the entrepreneurial infusion, if you like, of wanting to work harder and get on with their dreams of achieving a reasonable standard of living and, at the same time, being rewarded for effort and not taxed out of existence. Prompted by the concept, I am advised that a unique and powerful computer model of the Australian economy has been developed by Unisearch Research Pty Ltd, at the Queensland University of Technology, to show the relevant impact of all types of taxation on all sectors of commerce and industry. The model was based on 1988 to 1991 figures and reconciled on the national accounts. It was then upgraded to cover the period 1992 to 1995 using the latest complete set of ABS statistics. Indications are that a low rate of tax on receipts has predictable stability and would be difficult to increase once entrenched.
In summary, as I have indicated, this particular system of taxation would be simple, and would be much easier to enforce. Indeed, effectively, instead of the complex tax returns that we are now filling out, this would be a one-page tax return. It would be simple and efficient. It would encourage accountants to get into development planning and estimate planning instead of being bogged down on the negative side of taxation—the finding of one’s way through and wading one’s way through the hopelessly complex taxation legislation, the Income Tax Assessment Act and related acts.
I think, in the circumstances, we have to consider a new way of viewing these things. We have to look very far-sightedly because we have been wrapped up and tied up in knots by a system which is doing everything to discourage people from investing, working hard and providing more employment. Really, we cannot have a situation where we have five million people basically twiddling their thumbs, because they could be capably and adequately employed with a system that would encourage employment.
In the particular circumstances of this measure, without saying anything other than that the system we have is fracturing and has fractured, I do encourage those in a position to do something about it to look at these measures and to speak with people like the tax reform group in Queensland headed by John McRobert. Let us hear an argument about it. Let us hear someone say, `That would not work because . . . .’ I am yet to hear any significant argument against but, obviously, there are areas that have to be considered. Let us look at these things because, at the end of the day, the system will eventually crack under the strain of the weighty legislation with which we are dealing.