Aust, tax reform essential, says Treasurer

Press, 3 July 1985, Page 11

Aust, tax reform essential, says Treasurer

NZPA-AAP Canberra Australia’s income tax system had broken down and needed fundamental repair, the Treasurer, Mr Paul Keating, said yesterday when opening the second day of the tax summit conference at Canberra. “The lesson is that with 2000 pages of tax law, rooms full of case law and 30 years of loophole-plugg-ing and pot-hole-filling, the system today is producing less money from a narrower base," he said. “What we are asking the personal income tax system is to cope with revenue demands on it that it was never designed to meet.”

Emphasising that repair was not optional, Mr Keating said that community dissatisfaction with the income tax system was an important reason the summit meeting was being held. In the last 25 years Australia had seen “a vicious circle of a massive compression of income tax rates,” people opting out of the tax system through avoidance and evasion, and the Government responding by taxing more heavily those people who had no choice but to pay tax. “It is that problem which is the major difficulty we face,” he said. When 60c in the dollar had been introduced in the 1950 s as the top marginal income tax rate, it had come in at earnings equal to sAust4oo,ooo a year in today’s dollars. By 1972 that had declined to earnings of ?Austllo,ooo in today’s dollars. The top rate now

came in at sAust3s,ooo. Originally the 60c rate applied to incomes 18 times average weekly earnings. Now it came in at only 1.6 times average earnings. Mr Keating said that higher marginal rates had encouraged people to minimise, avoid or evade tax, and that had meant the top rate of tax was earning less revenue for the Government. “As inflation has lifted incomes into higher brackets and as the tax rates have been compressed ... people have opted out and their share is being paid by other people who don’t have the possibilities of opting out,” he said. The Government already had lifted tax avoidance and evasion penalties tenfold and it now proposed an unprecedented assault on the techniques of avoidance and evasion. Approach A in the White Paper on tax reform — which includes a capital gains tax and a fringe benefits tax — was not optional. “Whether every part of Approach A should be done is a different matter; but an Approach A, including many of the measures which are there, must be done,” Mr Keating said. Approach A would raise about ?Austlsoo million a year in revenue, equal to about 5 per cent of the present ?Aust3o,ooo million tax revenue collected by the Federal Government. The Hawke Administration’s proposal for a national identity card system, Australia Card, was

launched at the tax conference yesterday. Those taking part in the meeting were given a letter from the Health Minister, Dr Neal Blewett, and a large glossy booklet setting out details of the card’s workings and its advantages. Dr Blewett urged serious consideration of such an identification system for its effect in reducing tax and social security fraud. The Government estimates that ?AustBoo million ($1096 million) could be saved in tax revenue in the third full year of the system’s working. Dr Blewett was put in charge of developing an identity card proposal in the light of his department’s success in issuing the Medicare national health benefit cards. The presentation booklet highlights the strong privacy and security safeguards that it says would apply to the Australia Card system. Information contained in the Australia Card register would be limited to basic identifying information, such as name, sex, date of birth, and address. No information would be given to private sector organisations such as credit bureaus or finance companies, Dr Blewett said. Individuals would have access to their information. If the Government proceeded with the identity card . system, legislation could be passed by Parliament early in 1986 and cards could be progressively issued from mid-1986.