Thursday, 5 June 1986 The PRESIDENT (Senator the Hon. Douglas McClelland) took the chair at 10 a.m., and read prayers. The Clerk —Petitions have been lodged for presentation as follows: To the Honourable the President and members of the Senate in Parliament assembled: The petition of the undersigned in the State of Queensland respectfully showeth that the film `Hail Mary' is blasphemous and gravely offends our religious beliefs and those of the vast majority of Australian Christians. Your petitioners therefore humbly pray that the Federal Parliament will respect the will of the undersigned and have the blasphemous film `Hail Mary' banned in Australia. And your petitioners as in duty bound will ever pray. by Senator Bjelke-Petersen (from 279 citizens). To the Honourable the President and members of the Senate in Parliament. The petition of the undersigned shows: Your petitioners, as in duty bound, will humbly pray that a public inquiry be conducted for the migration of the Chirita family, (father) Marin Chirita and (fiance) Marc Codruta to be allowed into Australia and that the rights of Ion Chirita be recognised in Queensland. by Senator Gareth Evans (from 12 citizens). To the Honourable the President and members of the Senate in Parliament assembled. The petition of the undersigned shows: The we urge you to oppose the Australian Bill of Rights because: This Bill does not guarantee vital rights such as: The right to own your own home and other property and not be deprived of it without just compensation. The right to insulate our children from radical forms of education and the right to choice of schools. The right to a referendum for constitutional amendments. The right to true freedom of speech. The Bill gives dangerous, unlimited powers to an unelected Human Rights Commission with no appeal, no legal representation and closed hearings. Your petitioners ask that the Senate, in Parliament assembled, should vote to reject the Bill, believing that such a Bill should only be determined by the people at a referendum. And your petitioners as in duty bound will ever pray. by Senator Robertson (from 42 citizens). To the Honourable the President and the members of the Senate assembled. The humble petition of the undersigned citizens of Australia showeth that whereas: 1. The present Australian national flag is not distinctively and uniquely Australian and is confused with other national flags. 2. The people of Australia have never had an opportunity to express their views on an appropriate Australian national flag in a referendum. 3. The present Australian national flag does not properly represent Australia as a sovereign, independent nation. 4. The present Australian national flag falsely proclaims Australia as a colony, homeland, protectorate, dominion or government department of Great Britain. 5. The first condition in the flag competition of 1901 required that the design should show Australia's loyalty to the British Empire. The British Empire no longer exists. 6. A public opinion poll held in 1984 using the Gallup Method revealed that 52% of Australians surveyed wanted a competition for a new design for the Australian flag. 7. There is no inherent link between Australia proclaiming a unique and distinctive flag and the political issue of Australia moving to a republican form of government. 8. The adoption of a truly Australian national flag would serve as a focal point for Australia's bicentennial celebrations in 1988. Your petitioners therefore pray that your honourable house will: (a) Appoint a Committee of the Parliament with representatives from both Houses and all parties to invite and consider proposals for the design of a new Australian national flag, and (b) Require that committee to make recommendations on the form of a minimum cost referendum at the time of the next general elections, in which the electors will be given the opportunity to vote for a flag from a selection of at least three designs which will include the present national flag and the winner of the Ausflag-Bulletin-2MMM.FM competition of March 1985. And your petitioners as in duty bound will ever pray. by Senator Ryan (from two citizens). To the Honourable the President and members of the Senate in Parliament assembled. The petition of the undersigned citizens of Australia respectfully showeth: That we oppose utterly the proposed Bill of Rights because this Bill will Restrict our rights to those listed in the Bill Transfer to government powers not given nor intended to be given by the Constitution Threaten our rights by making them subject to the will of this or any future Government Turn the Human Rights Commission into a political Star Chamber with unjustifiable power Abrogate Common Law and common liberty Set the State above the individual We the undersigned believe in democracy and freedom and earnestly entreat you to recognise that this Bill will undermine the fundamental basis of these. Your petitioners therefore humbly pray that the Senate in Parliament assembled should reject the Bill of Rights. And your petitioners as in duty bound will ever pray. by Senator Sheil (from 97 citizens). To the Honourable the President and members of the Senate in Parliament assembled. The humble petition of the undersigned citizens of Australia respectfully showeth: That we deplore the Bill of Rights because it adversely affects areas of the liberty and freedom of Australians. It will operate against: The States and our Federal system of Government Criminal Justice The Police Education Families Employer/Employee relations It will remove the power of the people through Parliament, by giving power to a new more powerful Human Rights Commission which is not elected, but can act as a Star Chamber. We do most earnestly wish to keep our system of Common Law. Your petitioners therefore humbly pray that the Senate in Parliament assembled should reject this Bill. And your petitioners as in duty bound will ever pray. by Senator Sheil (from 84 citizens). Senator REID(Australian Capital Territory) —by leave-I present the following petition, which was sent to Senator Kilgariff, from 209 citizens of Christmas Island requesting greater participation in matters affecting Christmas Island: We the undersigned, being residents of Christmas Island, hereby request the Christmas Island Assembly to convey to the Parliament (Government) of Australia our deep concern at: 1. the mounting threats to the viability of our community through delays in development of new industries in association with continuing reduction in phosphate mining. 2. the denial of a democratic voice in matters of vital concern to our community. We appeal for greater participation in matters affecting Christmas Island. SURAT RAYUAN MENGENAI MASA DEPAN MASYARAKAT PULAU KRISMES Kita, yang menandatangani di bawah ini, adalah penduduk-penduduk Pulau Krismes, dengan ini meninta Majlis Pulau Krismes menyampaikan hal-hal yang sangat dipentingkan oleh kita ini kepada Parlimen (Kerajaan) Australia. 1. ancaman yang kain meningkat terhadap kehidupan masyarakat kita dengan menanggohkan perkembangan industri-industri baru, yang berkaitan dengan pengarangan terus-menerus dalam perlombongan fosfet. 2. permungkiran hak demokratik dalam perkara- perkara yang bersangkat-paut dengan masyarakat kita. Kita meraya supaya diberi lebih banyak hak menimbang perkara-perkara yang bertaitan dangan Pulau Krismes. Petitions received. Motion (by Senator Reid)-by leave-agreed to: That Senator Kilgariff be granted leave of absence for one month. Senator RYAN(Australian Capital Territory-Minister for Education) —Papers are tabled in accordance with the list circulated to honourable senators. With the concurrence of the Senate, I incorporate the list in Hansard. Leave granted. The list read as follows- 1. Agreement between the Government of Australia and the Government of the Swiss Confederation concerning the peaceful uses of nuclear energy-together with the text of a statement by the Minister for Foreign Affairs. 2. UNESCO General Conference 1985-Report of the Australian delegation. 3. Australian Plague Locust Commission-Annual Report 1984-85. 4. Council on Overseas Professional Qualifications-Annual Report 1984-85. 5. Parole Board of the Australian Capital Territory-Annual Report 1983-84-pursuant to sub-section 27a (1) of the Australian Capital Territory Parole Ordinance 1976. 6. Determination No. 1 of 1986 made pursuant to the Australian Trade Commission Act-pursuant to section 37a of the Merit Protection (Australian Government Employees) Act 1984. Message received from the House of Representatives intimating that it had agreed to the amendments made by the Senate to this Bill. The PRESIDENT —I have received the following message from the House of Representatives: Message No. 372 MR PRESIDENT, The House of Representatives transmits to the Senate the following Resolution which was agreed to by the House of Representatives this day, and requests that the Senate concur and take action accordingly: (1) That a joint select committee be appointed: (a) to examine and report upon the Telecommunications (Interception) Amendment Bill 1986 and, in particular, the appropriateness of the mechanism for conducting interceptions and the safeguards for their authorisation, recording, transcribing, dissemination and retention, and (b) to examine and report upon the recommendation contained in Mr Justice Stewart's report of the Royal Commission of Inquiry into Alleged Telephone Interceptions to the effect that the power of interception be extended to cover all serious offences. (2) That the committee consist of 9 members, 3 Members of the House of Representatives to be nominated by either the Prime Minister, the Leader of the House or the Government Whip, 1 Member of the House of Representatives to be nominated by either the Leader of the Opposition, the Deputy Leader of Opposition or the Opposition Whip, 1 Member of the House of Representatives to be nominated by either the Leader of the National Party or the National Party Whip, 2 Senators to be nominated by the Leader of the Government in the senate, 1 Senator to be nominated by the Leader of the Opposition in the Senate and 1 Senator to be nominated by any minority group or groups or independent Senator or independent Senators. (3) That every nomination of a member of the committee be forthwith notified in writing to the President of the Senate and the Speaker of the House of Representatives. (4) That the committee elect a Government member as its chairman. (5) That the committee elect a deputy chairman who shall perform the duties of the chairman of the committee at any time when the chairman is not present at a meeting of the committee, and at any time when the chairman and deputy chairman are not present at a meeting of the committee, the members present shall elect another member to perform the duties of the chairman at that meeting. (6) That 4 members of the committee constitute a quorum of the committee. (7) That the committee have power to send for persons, papers and records, and to move from place to place. (8) That the committee have leave to report from time to time. (9) That the committee present its final report as soon as possible. (10) That the foregoing provisions of this resolution, so far as they are inconsistent with the standing orders, have effect notwithstanding anything contained in the standing orders. SPEAKER Motion (by Senator Ryan) agreed to: That consideration of the message in Committee of the Whole be an order of the day for the next day of sitting. Debate resumed from 4 June, on motion by Senator Button: That the Bills be now read a second time. Senator KNOWLES(Western Australia)(10.05) —We heard some very interesting debate last night on the Income Tax Assessment Amendment (Capital Gains) Bill and the Income Tax (Rates) Amendment (Capital Gains) Bill. It is interesting to note that out of 19 speakers on the speakers list only four are from the Australian Labor Party. Senator Robertson —Don't you start. We are trying to keep them down at your request. Senator KNOWLES —I have included Senator Siddons in those four speakers because the Australian Democrats, as Senator Hill said yesterday, are the fifth wing of the Labor Party. If Senator Robertson is getting all upset, I suggest he go and take another day off. It is amazing to see the absolute smorgasbord of taxes that this Government has started to dish up to us. In the past year we have seen an entertainment tax, the abolition of negative gearing, a fringe benefits tax, the abolition of the quarantining of farm losses and now we have a capital gains tax. It is really amazing. If anyone is in any doubt as to whether or not we have a socialist Government, the real definition of socialism is where a socia-list government stands for the redistribution of wealth, whereas a conservative government stands for the creation of wealth. At the moment we are seeing a massive assault on the redistribution of wealth. The Prime Minister (Mr Hawke) has been exposed as one who has little or no regard for his own promises. My colleagues Senator Mess- ner and Senator MacGibbon reminded the Senate last night of the promise that the Prime Minister made prior to the 1983 election, when he said quite emphatically that under his Government there would be no capital gains. So what are we debating today? A capital gains tax? It is worth remembering also, as I mentioned in the fringe benefits tax debate, that the Prime Minister also promised a fairer and simpler tax system. I repeat that this Government has now increased the Income Tax Assessment Act, which was already running at 1,100 pages, by some 350 pages. So much for the promises. We should be reminded also that the Democrats should not be seen to have their hands clean in any of these Bills, because they were elected originally on the catch cry of `We will keep the bastards honest', meaning that they would keep any government to its promises. The Democrats, too, obviously have short term memories, because all of these taxes, which are contrary to the Government's promises, are being supported by the Democrats. The question that should be asked now is: Who is going to keep the Democrats honest? I am not too sure who will keep the Democrats honest, because they cannot keep themselves honest. Senator Crichton-Browne —Because they are in bed with other people. Senator KNOWLES —That is exactly right, they are in bed with other people; they vote with the Labor Government all the time. These Bills are more than just another plank in an anti-free enterprise tax package and involve more than just unfairness or insensitive application. The Liberal Party of Australia believes, firstly, that capital gains tax is wrong in principle, being levied not on income or turnover but in fact on assets. Once the Parliament presumes to tax assets, other than for the most short term of asset gains, it is on a very dangerous path. A capital gains tax belongs in the same stable as death duties and wealth tax. I can say with pride that it was the Liberal Party of Australia under the Fraser Government that saw the scandal of death duties ended at both State and Federal levels. Therefore I can say with equal pride that a future Liberal government would end this unfair capital gains tax as well. These reforms are essential to the future economic wealth of Australians generally and their country. At a time when other Western nations are turning away from a capital gains tax, this bright spark Government in Australia is foisting it on Australians. Last night we heard repeatedly how wonderful it was that other countries had instituted capital gains taxes. Great reference was made also to the United States. But the US has seen capital gains tax rates fall from 35 per cent to 17.5 per cent with a likelihood of further reductions in the near future. Even the New Zealand Labour Government in its taxation scrambling exercise opted against a capital gains tax. But no, not this Australian Government; it goes the full hog. In its pragmatic efforts the Hawke Government has tried to sell these taxes by saying that they will fund tax cuts. But this capital gains tax will not even raise large amounts of revenue. How can the Government ever justify any tax that is wrong in principle? The fact is that after five years this capital gains tax is expected to raise $25m in revenue. By 1991 this will have an effective value of $17m, less than 10 per cent of the amount raised in the current Budget by the bank account debits tax-a tax that in turn constitutes 0.3 per cent of the total revenue of $64 billion received by the Government this financial year. This tax has been introduced simply for political and not economic reasons. Australians are copping this tax which they do not want because the Government and the Australian Council of Trade Unions feel the need to appease the left wing and those motivated by the politics of envy. The unions and welfare groups made it crystal clear at the National Taxation Summit charade last year that they wanted some kind of punitive tax on capital, so this Government is delivering it. The Government, unions and welfare groups are determined to adopt policies which redistribute wealth in preference to providing incentive for all people to obtain wealth. When I say all people, I mean all people, including middle Australians, and not just the wealthy. This tax will not necessarily affect large wealth creators but will have a most deleterious effect on the small investors and those who rely heavily on a preponderance of small investors. One of the most important things to remember with this tax is that the Australian economy simply cannot afford it. A Treasurer who believes that we are becoming a banana republic would surely realise that Australia needs more, not less, capital investment. Private business fixed investment rose only 4 per cent in the last financial year after a 10 per cent drop in 1983-84. So far this total investment in plant, equipment and non-dwelling construction in the 1985-86 year has declined in both the September and December quarters. Yet here we are today debating a tax Bill that will discourage capital formation and investment when we have a survey by the National Australia Bank and the Australian Chamber of Commerce of private firms in the tertiary sector which shows the fourth successive quarterly decline in those firms expecting to increase capital expenditure. The private sector is being given absolutely no incentive to invest or create jobs when it now has a fringe benefits tax, increased company tax from 46 per cent to 49 per cent and now a capital gains tax. The Australian Democrats and Australian Labor Party senators who vote in favour of this legislation should do so in the full knowledge that there has been a steady decline in the real rate of return from business enterprise. In the last decade the real return on private sector funds declined from 10.2 per cent to 9.7 per cent and the advantage enjoyed by these investments over Treasury bonds fell from a difference of 14 per cent to one of 3 per cent. Given all that, this Government believes business can afford yet another assault on its profits. It is worth remembering that governments-especially this Government-do not create wealth; they distribute it. Governments do not take risks to provide initiative for investment capital; they simply make it harder for the private sector to survive. If the Government thinks the private sector will be able to survive with another one of these punitive tax measures, it should think again. Australia already has 600,000 people out of work, with the rate of 15 to 19-year-old unemployment running at 23 per cent, and the average duration of unemployed now stands at 49 weeks as opposed to 35 weeks when this Government took office. It is also interesting to note that the rate of youth unemployment between 15 and 19-year olds has risen since the introduction of the now famous Priority One campaign. The public sector is the one sector in which employment is growing, and this capital gains tax will certainly ensure that it remains the only sector that is growing. In relation to that public sector growth, I ask honourable senators to think of the number of public servants that will be added to the payroll in the Department of the Treasury to administer all these new taxes. We have a huge trade deficit and the overseas debt of this country has doubled from $35 billion to $70 billion in just three years under the world's greatest Treasurer and this Government. The Treasurer has managed to double that figure. Make no mistakes about it. Australia is in dire financial straits. This situation owes much to the fact that we have too much overseas borrowing and too little overseas investment. This legislation will provide an even greater disincentive to foreign investment capital. No one should believe for one second that all of these crippling taxes came out of the Keating-Hawke Summit show. These taxes came straight out of a hotel room occupied by the Prime Minister (Mr Hawke) and the Australian Council of Trade Unions. The Prime Minister shot the Treasurer in the foot yet again. It is very interesting that the Government talks about consensus and seeking approval from the business sector, and so on. It completely ignored the private sector last year. There is no point in Senator Robertson shaking his head. He knows that last year that deal was negotiated in a hotel room with the Prime Minister and the trade union movement. Senator Robertson —It is not a fact, and you know it. Senator KNOWLES —It is a fact. The negotiation that was meant to go on with the private sector did not occur. It was all aborted for a lovely little meeting in a hotel room late at night. It is amazing that the Prime Minister can be summoned to a hotel room by the union movement but the union movement was not invited to Parliament House to discuss the issue with him. It is all a little sinister. However, it is worth recalling how cynical this proposal is. On one hand we had the Prime Minister promising not to introduce a capital gains tax; on the other hand the Treasurer, prior to becoming Treasurer, said that he was absolutely opposed to the imposition of a capital gains tax, but after he became Treasurer he sang a very different tune, which went something like this: What you say when you are in opposition at Party conferences, is for the purpose of getting into government. It does not really count once you get in. There we have the promises of the Prime Minister and the statements and beliefs of the world's greatest Treasurer, who is sending this country down the tube. He has admitted that what one says prior to coming into government bears no relation to what one does when one gets in. Under that philosophy one must ask what will be the fate of the tax cuts supposedly to be introduced later this year. Needless to say, we will be given the same old story by the Government which we got last night ad nauseam-that this Bill will stamp out tax avoidance. That is the Government's predictable fall-back time and time again whenever it is challenged over the effects of this tax on business and on ordinary Australians. It was the Fraser Government in fact that took the steps to stamp out tax avoidance, and not one piece of legislation introduced by this Government goes anywhere near tackling tax avoidance or the cash economy, which is the real tax evasion rip-off in Australia. This Government is not prepared to bite the bullet on the hard decisions. Instead, with this capital gains tax, it will tax family members on the realisation of their farms and it will tax beneficiaries of a will when the family farm is sold. If that is not a back door death duty, what is? The Government was originally wanting to rip this tax from beneficiaries at the time of death. It decided, in its political wisdom, that that could not happen. This tax hits very hard at middle Australia. We should be reminded that it hits not just the wealthy but also those who are fighting to provide a secure income and future for themselves-people who should be encouraged to invest, grow, take risks, prosper and be self-reliant. There should be more and more people who want to do those things. So much for the attempt of the Treasurer (Mr Keating) to dress up this decayed socialist legislation in the language of economic rationalism, claiming that the lack of a capital gains tax distorts investment choices to less productive areas. I submit that this will be the exact consequence of the tax. Sadly, this capital gains tax has the support of the Australian Democrats and, with their aid, it will, like the fringe benefits tax, become law. This is the epitome of contradiction of the `Trust me' campaign of the Prime Minister and the `Keep the bastards honest' campaign run by the dealing Democrats. A future Liberal government is committed to repealing this draconian legislation and to return incentive to those capable of making Australia what it should be-a wealthy country for those Australians who want to earn a living in it. Senator PARER(Queensland)(10.23) —We are discussing today the Income Tax Assessment Amendment (Capital Gains) Bill 1986 and the Income Tax (Rates) Amendment (Capital Gains) Bill 1986. These Bills represent a breach, initially, of the principles of the Prime Minister (Mr Hawke) on taxation as reflected in this package. Let us just look at a few of the principles by the Prime Minister at the time. He said that there would be no increase in the overall tax burden. Firstly, we are seeing the promised tax cuts being delayed and, secondly, the cuts are to be paid by inflation or fiscal drag, whatever honourable senators wish to call it. Everyone knows that these tax cuts are phoney tax cuts as we now have new and extra taxes. One of the other principles was what was called `a simpler system'. Let me turn to the Government's White Paper last year before the disastrous National Taxation Summit of July. Under the heading `Simplicity' the White Paper states in words that I think even honourable senators on the other side of the chamber will be able to understand: A good tax system should be as simple as possible. A complex tax system makes it difficult for people to understand the law and apply it to their circumstances. The present law has become so complex that it is difficult to convey its meaning simply and adequately on tax return forms and in other printed matter. Complexity imposes high compliance costs on the community and high administrative costs on the tax authorities. Complex tax laws also result in socially unproductive and costly tax litigation. These considerations suggest that, where possible, tax reform measures capable of ready comprehension and application should be preferred over more complex alternatives. So much for the simplicity of the system! We have before us 1,100 pages of tax legislation, to which 625 pages have been added. There will be an increase in complexity, not a decrease. It will simply increase the work load of tax lawyers and accountants and become an administrative nightmare for the Australian Taxation Office. Another principle was that it would not disadvantage welfare beneficiaries. With high interest rates and the abolition of negative gearing we have seen rents skyrocketing and we have a reduced availability of private rental accommodation for those who cannot afford to own their own home. A Hooker survey recently showed that 20 per cent rent increases in some State capitals had come about simply because of these tax packages combined with the higher interest rates which are the result, of course, of the Government's policy. These new measures will hurt those they are meant to help. Another principle was that we must provide the best climate for investment, growth and jobs. As everybody knows, Australia is hungry for capital. At present we have declining jobs, no growth, high interest rates, huge debts, high inflation and low investment. Therefore, business needs every incentive it can get to invest, not obstacles and road blocks in the way of investment. One of the other major points raised at the same time was widespread community support. With this total package of Bills, what a joke that is. At the moment we have a tax revolt on our hands which I do not think we have seen the size of anywhere in the history of this country. The National Farmers Federation, the newly formed Australian Federation of Employers, the Australian Small Business Association Ltd and even individuals like Bob Ansett are saying that they will not pay. I believe this is a first for Australia. We have before us yet again a new tax which reflects a failed Taxation Summit and yet another broken promise by the Prime Mi-nister. The people of Australia will recall that in 1983 the Prime Minister said: Let me make one point so that even our opponents can understand it, and let me make it beyond all their powers of misrepresentation and distortion-there will be no new capital gains tax. That is what the Prime Minister said. What do we have today? We have a new capital gains tax. When the man who, from time to time, purports to lead this country cannot be trusted, is it any wonder that he and his Government are on a slippery slide? If the Prime Minister had not been so specific, he perhaps could have been forgiven. Like so many other promises that have been broken, the Prime Minister is now cynically working on the basis that ordinary people, who are going to be so badly affected by this and the other taxes we have been considering over the past few days, will forget. How can they forget? Let us look at the state of Australia today. We have a balance of payments which is heading towards a $14 billion current account deficit for 1985-86 which is $3 billion over Budget projections. Our foreign debt is increasing at the rate of $1 billion a month. We have an inflation rate of 9.2 per cent annually and rising. This is several times higher than our major competitors and it is being fed by wage indexation. From an inflation point of view Australia is the worst of all the Organisation for Economic Co-operation and Development countries and is the worst comparison of the OECD countries for 30 years. Unemployment is still at 8 per cent and too high and youth unemployment is over 20 per cent and likely to rise in 1986-87. Negative growth for March has come out in the recent figures which technically is equal to recession. We have a stagnant business investment and that is unlikely to improve. Our currency has collapsed and on a trade-weighted index basis is probably the weakest of any currency in the world. Senator Townley —And getting worse by the minute. Senator PARER —It cannot improve. Again, this new capital gains tax is the result of directions given to the Government by its unelected masters, the Australian Council of Trade Unions, at the quite extraordinary and obscene meeting held in the middle of the night in a Canberra motel. It represents one of the remnants of a failed tax summit. The preferred option C of the Treasurer (Mr Keating) of a broadly-based consumption tax was torpedoed by the Australian Council of Trade Unions and the Left of the Australian Labor Party. The Prime Minister was content, to the obvious chagrin of his Treasurer, to throw the Left the capital gains tax bone. Who will forget, after the sell-out in a motel room, the Prime Minister patting the Treasurer on the hand and saying: `Don't worry about it, Paul, it will be all right'. Again, we will hear from the Government that the purpose of this tax is to attack the minority of people who could be termed tax evaders. I repeat that the existing provisions of the Income Tax Assessment Act are such that those who deliberately evade their taxation responsibilities could have and should have been picked up. What will happen? The same thing will happen with the fringe benefits tax. By aiming at the minority the Government will shoot the innocent bystanders. The Government claims that this is a mild form of capital gains tax and that it applies only to gains over and above the inflation rate. However, the important point is that it is a foot in the door. If this Government is returned to power there is no doubt that that tax will be widened. What we desperately need in Australia today is the incentive for more people to get into the private sector and develop and expand the wealth and employment generating sector of this economy. Every action by this Government and the string-pulling ACTU militates against that incentive, whether it be industrial monopolies, high interest rates, taxation and over-regulation or a prices and incomes accord which guarantees a wage spiral. By every economic indication Australia is in the worst recession since the Great Depression and it may be the worst in our history. Even knowing these indisputable facts, the Government continues to attack that sector of the economy which feeds it. From time to time I wonder what members of this Government have been doing all their lives. Are these actions crippling the small business sector deliberate or are they simply the results of ignorance? People go into small business and work 80 hours a week in the hope that they will do better than they would by working on a wage. People seek to implement new ideas hoping to gain a sense of satisfaction from achievement. Is this not what this country needs? I refer honourable senators to remarks made by Mr Max Leibler, who is a leading Melbourne tax specialist and lawyer. According to an article in the Herald he indicated that the tax constituted `an unwarranted and premeditated attack on the rights of individuals in a democratic society'. He said that the legislation bordered on the incomprehensible and said that it was `over 100 pages of confusion and complexity'. So much for the principles of simplicity as outlined by the Prime Minister before the National Taxation Summit. Mr Leibler said that on some points the capital gains legislation was not in accordance with the first announcement by the Treasurer, Mr Keating, on 20 September 1985 and that the proposed legislation undermined the rule of law in a democracy. He is reported as saying: The thrust of Government's blatant attack on individual freedom lies in its intent to impose capital gains tax on transactions relating to assets held before September 20, 1985, and to impose this insidious tax on virtually every capital element in every transaction-irrespective of whether the transaction involves the disposal of an asset. The article continued: He said many taxpayers would have incurred liabilities in terms of the proposed capital gains tax for about eight months `which could have been avoided and which would have arisen only by reasons of misplaced reliance on the text of the Treasurer's original statement'. One can only give view with considerable scepticism the claim that the Capital Gains Tax Assessment Bill-over 100 pages of complexity and confusion-will in some way make our taxation system `fairer' or `more equitable'. As examples of cases where the CGT would apply to gains on assets purchased or acquired before 20 September last year, Mr Leibler quoted: A gain from the grant of an option to purchase an asset held before September 20 for an option fee. The granting of a lease of an asset held before September 20 in consideration of a premium; and A forfeiture of a deposit received in connection with a prospective sale of an asset held before September 20 which did not proceed. The article continued: Mr Leibler said the CGT was to be assessed on the full amount of the payments received-it did not deem the taxpayers to have paid or given any consideration or incurred any cost in acquiring or creating the assets sold. Mr Leibler is reported as saying that this was a strange paradox and an unbelievable inconsistency. The Bill seeks to impose a capital gains on virtually every capital element in every transaction other than a straight gift of cash, irrespective of whether the transaction involves the disposal of an asset. The Bill also contains many anomalies which undoubtedly will distort the investment pattern and decision making in the business world. Mr Leibler is reported as saying: For instance, . . . where real estate was sold on an instalment-payment basis, the whole of the capital gain was taxed on the exchange of contracts even though the balance of the purchase might not be payable for several years. . . . The proposed CGT would lead to a substantial bias in favour of equity, as distinct from debt. Companies with paid capital of only $2 will have the indexing of their cost base operating on a very small base for example, . . . people with access to sophisticated tax advice would find ways to minimise the burden of capital gains taxes. Others, without the benefit of this advice, in many cases would incur unexpected and avoidable tax imposts. Why is this Government continually throwing up road blocks to hinder the very thing so desperately needed in Australia today? We need investment, risk taking, initiative, and thus employment. The Liberal-led coalition on return to government is committed to the repeal of this negative tax and the iniquitous fringe benefits tax. Senator BJELKE-PETERSEN(Queensland)(10.36) —In speaking on the Income Tax Assessment Amendment (Capital Gains) Bill 1986 and the Income Tax (Rates) Amendment (Capital Gains) Bill 1986 I would first like to establish the type of economic climate into which this capital gains tax will be thrown. It is important to look at the whole question of taxation in the current economic climate, so as to see the whole sorry mess in some sort of perspective. We had the capital gains tax, quarantining of farm losses, and the negative gearing legislation nearly all day yesterday. We were discussing amendments to taxation laws which will not be for the benefit of Australians generally, but will be for the benefit of the Government. Inflation in Australia is currently running at 9.2 per cent. This is triple the Organisation for Economic Co-operation and Development average, four times the figure in the United States, and eight times the figure in Japan. Unemployment in Australia is currently running at about 8 per cent. We hear lots of questions in this chamber about the unemployment situation in Queensland. Some of our Labor Party senators from Queensland continually raise this matter. We have to realise that this is due in no small way to Federal costs, and of course, the overseas prices of rural products. Another contributing factor is that conditions in rural Queensland have become so bad that wives have had to apply for the unemployment benefit. This has occurred not only in Queensland but also in many parts of Australia. We have the jobless youth rate now over 30 per cent. Across Australia it is about 20 per cent which is higher now than at the start of the Priority One: Young Australia campaign. Australia's current account deficit is expected to be about $14 billion this financial year which is an increase of some 40 per cent on last year's deficit and is twice the level for 1983-84. It amounts to 6 per cent of the gross domestic product. Honourable senators might be interested to know that only Greece has a greater deficit, in relation to GDP among the OECD countries. Our international debt looks like being around $80 billion by the end of this financial year and up to $100 billion by the end of 1986-87. When honourable senators opposite ask questions about Queensland and the problems which they think they see there-which they really do not-they should look at the debt which Australia as a whole has. The Queensland Government believes in making sure that its books balance, whereas Australia as a whole has a tremendous deficit. It is not difficult to understand how a recent survey conducted by Murdoch University shows that in the 12 months to November this year a household on $300 a week faced a drop of 2.4 per cent in their living standard. The outlook for rural Australia is similarly bleak. Average income for a farm this year is expected to be $6,700. I mentioned in the Senate on one other occasion that 35 per cent of rural properties have a zero or negative income. Senator Townley —It is a terrible situation. Senator BJELKE-PETERSEN —It is a very bad situation, indeed. Of course, we have to realise that rural production creates export income. Unfortunately, this year the real net value of rural production is expected to fall by 20 to 25 per cent, which will be the second lowest level in 30 years. We have just seen the introduction of the disastrous fringe benefits tax which will hit the productive sectors in the community, including the rural sector, very hard. Of course, we are now debating the capital gains tax which presumably is designed to syphon off some more money from the Australian taxpayer to pay for the Government's inept handling of the economy. Senator Townley —It is just wasted. Senator BJELKE-PETERSEN —I am quite sure that the Government could make savings in many ways instead of taxing people all the time. Of course, the Government wants to pursue a system of socialism and bring us all down to the same level. It is interested only in the redistribution of wealth, not the creation of it. I believe that the Government has to give incentive to small business, big business and rural Australia so that jobs and job opportunities can be provided. Make no mistake about it, the problems we are experiencing today are not the inherited problems that the Australian Labor Party would have us believe. The problem at the moment is directly attributable to the prices and incomes accord and to the Government's blatant subservience to the powerful unions of this country. The Government keeps talking about how it inherited a deficit of $9.6 billion. However, it forgets to say that this Treasurer-the so-called greatest Treasurer in the world; but, of course, called that only by the Labor Party-has presided over Budget deficits far larger than any in the seven years of the Fraser Government. So, as with all of the Labor Party's decisions so far, it is a matter of when in doubt, introduce a new tax. Even though the Prime Minister (Mr Hawke) promised that we would not have a capital gains tax, we are getting one. The capital gains tax will apply to capital gains realised on assets acquired after 19 September 1985. The family home will be exempt. The tax is to be calculated in line with inflation. On present indications, we can look forward to an outrageously high figure. It is estimated that the amount of tax collected will be $5m in 1987-88 and will grow to $25m in the fifth year of operation. I suppose that one would not say that that was an outrageously high figure, but it is all money -- Senator Boswell —That is only the start. Senator BJELKE-PETERSEN —That is right. One might say that the Government has one foot in the door. I am sure that it will increase that burden with a burst. As with the fringe benefits tax, taxpayers will be subject to major record keeping requirements under this legislation. At present farms or business enterprises that were acquired before 19 September 1985 are capital gains tax free. However, if one passes the enterprise on to one's family tomorrow, the capital gains liability begins from that date. The capital gains tax liability is postponed only as long as the property remains in the hands of the immediate family. So, over time, all assets owned by all Australians, except for the immediate family home, will be subject to capital gains tax. However, the tax will affect some assets acquired before 20 September 1985 and thus will have a significantly wider impact than was indicated in the Treasurer's September announcement. I understand that if a taxpayer uses part of his family home for business purposes, capital gains tax will apply on a part of the cost of the house. That seems to me to be very poor indeed. Assets disposed of or bequeathed to charitable organisations also are subject to the capital gains tax, even if the previous probate duty exemptions were granted for assets disposed of to such charitable institutions. Senator Crichton-Browne —That is right. Senator BJELKE-PETERSEN —I am glad to hear from Senator Crichton-Browne that that information is correct. He has verified it for me. The Minister for Primary Industry, Mr Kerin, told a meeting of the Victorian Farmers and Graziers Association at Horsham on 23 October 1984 that he would oppose any new capital gains taxes and death duties in the strongest terms. He was quoted in the Australian newspaper of 9 April 1984 as saying: My objection to a capital gains tax is the same as probate in that it has the effect of rendering the rural sector in the long term less viable. The family has to sell part of the property to pay probate or capital gains tax. Now, two years down the track, Mr Kerin is telling farmers that the capital gains tax is a good thing for them. I do not think that too many farmers would agree with Mr Kerin. I am sure about that. The capital gains tax is yet another misguided impediment to incentive and hard work. The Government seems intent upon taxing the backside out of Australian business. In so doing, it is ensuring that the employment level continues to remain at the disastrously low level shown by the latest Australian Bureau of Statistics figures. My recommendation, if the Government wants to bring in another tax, is to bring in a single rate of tax. Senator Collard —Beauty. Senator BJELKE-PETERSEN —Yes, I think that is a very good idea, although one hears other people say that it would not be fair to people who do not get so much income. My feeling about the matter is that if one earns five times more than people on lower incomes, one pays five times more tax. It seems fairly equit- able to me. Senator Townley —Look at Switzerland. Senator BJELKE-PETERSEN —That is right. Switzerland, Hong Kong, Singapore and many other places find that this single rate of tax is a very good proposition. Instead of bringing in a capital gains tax which will hit everybody very hard, I think the Government ought to give consideration to a single rate of tax. Actually, I proposed it when I made my maiden speech in the Senate. I am afraid that I have not heard anyone do much about it since then. But it does not hurt to keep talking about it. I do not understand the thinking of the Treasurer. Senator Boswell —Who does? Senator BJELKE-PETERSEN —That is quite true, but he certainly manages his Budget on a basis which is different from that of most other economies and certainly on a different basis from that of a housewife looking after the money at home. One must balance one's books. Even on properties, if one does not balance one's books, the bank manager comes along and says: `We have to fix something up'. Apparently that does not apply federally, as far as this Government is concerned. I do not see the logic in taxing the hide out of the productive sector of the economy, nor in paying out so much in welfare benefits. The average taxpayer in this country is supporting himself or herself, plus a single mother and two children, as well as his or her own family. I do not see the logic in making it so hard for a person to start up his or her own business. That person, in doing so, will create employment opportunities for other people. That person will only be faced by almost certain ruination because of the massive taxes and charges which this Government seems intent upon introducing. I do not support the capital gains tax legislation which has been introduced by this Government. I certainly join my colleagues in saying that it will be repealed when the coalition returns to office at the next election. Senator SHEIL(Queensland)(10.50) —The Income Tax Assessment Amendment (Capital Gains) Bill and the Income Tax (Rates) Amendment (Capital Gains) Bill represent the last salvo in the barrage of tax Bills that have been foisted on us in recent times. Certainly they have been delayed a long time and the Government has been more or less governing by fear rather than fiat, because people have had to anticipate and try to organise their affairs in the light of the types of Bills that may be brought in. Senator Collard —That shows the small calibre of this Treasurer and Prime Minister. Senator SHEIL —Yes, and the difference in thinking between the Treasurer (Mr Keating) and the Prime Minister (Mr Hawke). The Treasurer seems to march to a more distant drum than the Prime Minister. Senator Messner —The more distant the better. Senator SHEIL —Yes. These two Bills are part five of the barrage I have mentioned and they represent an attack on capital. I have been pointing out, as all these Bills have been going through, that anything the Government wants more of it subsidises and anything it wants less of it taxes. Now that it is taxing capital it will get less capital. As night follows day that will be what happens here and people will be frightened to organise their affairs so that they gene-rate capital, which is the only way to generate wealth and jobs. The whole economy of the nation is involved in the generation of capital. I have seen people quoting from their maiden speeches. When I made my maiden speech in 1974, Gough Whitlam was in power and I remember warning about the Robin Hood philo-sophy in politics where one takes from the rich to give to the poor. I said then that it did not matter what one thought about Robin Hood, the fact remains that he was still a hood. This is what is happening here. The Government is bringing on the robbery of people, stimulated by envy and jealousy. Senator Crichton-Browne —Malice. Senator SHEIL —Malice, probably, thinking it will hit the big guys for the benefit of the little guys. That is simply not true because, as always, it is the bulk of the people who will pay the bulk of the taxes, and in the case of capital gains it will be the working people who will pay it. After all, what is a capital gain? It represents more work, more goodwill, more business and an increase in the capital value. Certainly that is added to by such things as inflation, but that does not alter the value of the capital; all it means is that one needs more dollars to buy it. If a government budgets for a deficit and makes the deficit all right, then prints the difference, the value of the money is diluted by just that amount every year. That has been going on year after year, so the value of our money has gone down but the value of the assets has not. On top of that, of course, we have had a devaluation of the money, which has compounded the whole situation. I remember when I was in the tribal areas of Africa, they did not have a cash economy or even a cash mentality. Their currency was women, children and cattle and had been for 4,000 years, and no inflation was involved. Senator Collard —In that order? Senator SHEIL —I do not know about the order. They would have had different values. They had no inflation for years. Those parts of the tribe who had been converted to a cash economy all at once found themselves faced with inflation and it was a concept to which they could not adapt. We have had to adapt to it over years, to our detriment. The capital gains tax will be a tax on incentives and investments and as such will distort the patterns of our investment in Australia. Combined with the other taxes that have been introduced, we will have further distortions and skewing of our economy to the detriment of the generation of wealth. I am sorry that the Australian Democrats are a high tax party, but they have gone along supporting these Bills for increased taxes all the way. I suppose there is come misguided feeling that the Bills represent part of the Government's economic policy and that the Democrats were elected not to interfere with that, but the Bills will be to the detriment of the little guys. I know that Senator Chipp has given us examples of big share deal operators who have made $10m overnight. He said that this is obscene, but he is not really taking cognisance of the fact that if a guy is investing in the share market he has to have the money to put into it for a start, he has to know where he is investing and he has to take a risk. The odds are, if he has made $10m overnight, he has probably lost $10m overnight on another deal somewhere else, but the money he has put into the share market has provided money for the capital development of other industries. I think that is a very miserable way to look at the operations of the share market, not that I am all in favour of what has been happening on the share market lately. The stock market came into being in order to provide a pool of money for people who wanted to start businesses. Now those people have started trading in the stock market and I think that is a distortion of the stock market. However, that is another argument, but it is involved with the capital gains tax and the stock market will be affected dramatically by the capital gains tax. The fringe benefits tax legislation and the capital gains tax legislation represent an attack on those areas where people could get some relief from the high tax policies of successive governments in this country. Rather than reducing the high taxes and creating a boom, as has been shown to occur around the world, the Government has not reduced the taxes. It has increased taxes, which will put some dire stringency on the people and I think we will see a lack of wealth generation and prosperity in the country. The National Party of Australia is completely opposed to the Bills. Not only that, but also we have promised that if ever we get the chance we will repeal them. Senator BROWNHILL(New South Wales)(10.56) —We are debating the Income Tax Assessment Amendment (Capital Gains) Bill and the Income Tax (Rates) Amendment (Capital Gains) Bill. After listening to Senator Siddons last night I wonder whether these are the Australian Democrats' Bills or the Australian Labor Party's Bills, because in his speech last night he claimed these were his Bills. If these Bills are his, I say that the Democrats can be damned with the Bills as well as the Labor Party. This package of tax legislation is every bit as vicious, pernicious, anomalous and garbled as the fringe benefits tax package which has just been passed. We on this side of the chamber will be forced to listen to the same old tired lines of the Government, which continually claims that we are protecting tax cheats by opposing such shoddy legislation of which we have had far too much lately. For the Government's sake and for the record I repeat that the National and Liberal parties are very much opposed to this legislation, just as they are to the fringe benefits taxes; not because the legislation will hurt the tax rorters, because I do not believe that it will for very long, but because it will hurt the little people, the battlers and those struggling to improve their lot. The legislation is a classic demonstration of the hypocrisy of our Prime Minister (Mr Hawke). As has already been said by many people earlier in the debate, in February 1983 the Prime Minister made it very clear that he would not introduce any new capital gains tax, yet today we have that very thing. The Prime Minister said also, when the Government's White Paper on tax reform was published, that the essence of any new tax scheme should be simplicity. If this is the Government's idea of simple, I hope we do not see any of its complicated legislation in this place. These Bills, along with the fringe benefits tax package, will be an accountant's nightmare. As Benjamin Franklin said: . . . in this world nothing can be said to be certain, except death and taxes. Of course, Franklin did not know how this Government operates. With this Government nothing is certain, save that it is likely to do the opposite to what it has said it will do. The legislation follows the debate on fringe benefits tax, as I have already said. I hope that the Prime Minister is more aware of the implications of this legislation and more familiar with its contents than he was with the fringe benefits tax legislation when he went to Canowindra last weekend. In case he or any other member of the Government tries to plead ignorance to the impact of this legislation, I will spell it out clearly to them. This legislation is not welcome in the rural community. This legislation will discriminate against farmers and small and large businesses. This legislation has a death duty element in it and the Opposition will repeal it on return to government. Under existing legislation capital taxes already take about $30m a year from the taxpayers' pockets. But this Government is not satisfied with that; it wants more. It cannot keep its sticky little fingers out of our pockets. It claims that in its fifth year of operation the capital gains tax will raise only an additional $25m. I am at a loss to know why it wants this legislation with its death duty element for the sake of extracting an additional $25m from the already overburdened taxpayer. The whole philosophy behind this new tax is offensive. It is a tax on incentive and a discouragement to investment. Basically it means that investors might as well put their money into a savings bank and gain the lower rate of interest. If they put their efforts into an investment which will give returns which might be more than the rate of inflation, the Government will penalise them for doing so. In other words the Government is saying to the person who wants to invest money in capital: `You just drift along'. Only last week the Trea-surer (Mr Keating) told us all that ours was a country short of capital. Is it any wonder? Anyone who invests in this country with the object of making more profit than the average person is called a tax dodger, a cheat, or a parasite living off the rest of Australia. I have said that the farmers of this country will not wear a capital gains tax and I will tell honourable senators why. The threat of capital gain taxes will deter investment in farming by the traditional farming family and the Pitt Street and Collins Street farmers. This legislation is all right for those who happened to own a farm or a small business before 19 September last year. It is pretty tough, however, on anyone who bought land on 20 September or, indeed, any time after that date. Not everyone who buys and sells assets during his lifetime is necessarily a vicious speculator. People tend to buy assets at a rate and of a size that they can afford at that time in their lives. That means that there is an incentive for them to buy small, improve, make a profit and buy better. What is wrong with that? This happens whether the person lives in Mt Druitt and starts with a small two-roomed fibro house and then moves up to a four-bedroomed brick house, or whether a person buys a small, run-down grocery business on an undesirable corner because that is all he can afford, and through hard work and initiative-and let us not knock hard work-he builds the business up into a desirable commodity and then sells it. The incentive is the same for both those people, but the tax is not. Because the grocer makes a profit the Go-vernment says: `You have no right to be successful, we will tax you'. But the man who buys and sells his family home is not taxed. I do not believe that the Government should tax the home buyer and seller, but equally I do not think it is fair that it should tax the grocery shop buyer and seller either, simply because he chooses to make an effort to improve his financial position under the existing tax legislation. But this is the constant theme of this Government-to tax the person who wants to have a go and not to tax the person who just drifts along. The Government is saying: `Let us make sure that no-one rises above mediocrity. If a person tries to do so we will tax him until he stops trying'. So the reason this legislation is not welcome in the community is that it kills incentive. Overseas experience is precisely the same. While capital gains taxes are never large revenue raisers, they are generally regarded as having disincentive effects on investment. The next aspect to which the rural community is opposed is the element of retrospectivity. If a farmer owned land before 19 September 1985, and this year built a large shearing shed, machinery shed or whatever else he required to make the land functional, and in five years time sold the property as a working, viable farm, he would be taxed on the capital gains on the buildings on that land. It does not matter that he owned the land before; the fact that he built on it after 19 September makes him eligible for capital gains tax. The Government has denied that there is a death duty element attached to this Bill. But of course there is. It is just that it is delayed. A person can bequeath property-be it land, works of art, antiques or shares-to his or her spouse or children. That in itself does not constitute a capital gain. But if, for example, that property must be sold because the family has no money to live on, then a capital gain is deemed to have accrued and the spouse or family is taxed accordingly. Of course if those people cash in the property early the tax will be minimal, but if they retain the property for some years and sell it later only to provide for themselves, they could quite conceivably be up for a lot of money. Why does the Government not act honestly and call this tax a form of death duty in the first place instead of dressing it up in another guise? Will the Prime Minister now plead that he was not aware of that aspect of the legislation? When he next meets farmers who complain that they will be caught in a capital gains tax net with their farms, will he act innocent and with mock shock admit that he was not aware that was happening? There are a number of questions and anomalies associated with this legislation that I wish to canvass. According to a Melbourne taxation accountant, the legislation will discriminate against companies in voluntary liquidation. The accountant claims that the legislation provides continued tax-free status in the form of rolled over exemption from tax for assets transferred between wholly owned companies if these were acquired before 20 September last year. However, he says that it fails to extend this exemption to the distribution of investments, property and other assets when this is done in another form, such as liquidation. In these instances it appears that there is what amounts to a retrospective capital gains tax obligation, even if the liquidation arrangements were underway before 20 September last. Another query relates to bonus shares. It is unclear how the profit on sales of bonus shares will be taxed and what cost will be attributed to those shares. Options are another grey area. It would appear that if someone entered into a contract to purchase an asset prior to 20 September last, that asset would be deemed to have been owned prior to that date. I do not know whether that includes options on assets. What about company owned housing? Would the principal residence exemption still apply if the house were purchased by a trust or in a company name? Apart from the anomalies, there are a number of inequities. Take for example the treatment of capital loss. If an asset is sold for less than the amount for which it was purchased, there will be no deduction or right of offset for that loss. Another inequity relates to goodwill. The introduction of the consumer price index to calculate the cost base of an asset will extend to goodwill. When goodwill grows at the same rate as the CPI no capital gains tax will apply. However, if the proprietors of a small business build up the goodwill through sheer hard work, as Senator Sheil said earlier, the goodwill component of the sale will attract capital gains tax. In essence, those people will be penalised for working that much harder and making their business just that much more attractive to a purchaser. The Australian Democrats have forced a concession on the exemption of 20 per cent goodwill. Why 20 per cent? Why not 50 per cent or, better still, why not 100 per cent? I regard this legislation as yet another slug on the private sector. The private sector cannot and will not put up with the continuing attacks on its viability. We have started to see the rumblings with many sectors of the business community demonstrating their anger at the actions of the Government with fringe benefits taxation. Capital gains tax is no less repulsive. The Opposition will oppose the legislation and, in the future, will repeal it. In the meantime, the people of Australia must suffer the burdens that will come with the tax, but they must remember that it was the Australian Labor Party and the Australian Democrats who foisted this legislation and all those other draconian tax measures on to the community. The community will not forget that, and the Opposition intends to make sure that it does not. This Bill might be the thin end of the wedge, but the wedge will not have much time to get any bigger. This legislation, the Government and the Democrats will all be thrown out at the earliest opportunity. Senator BOSWELL(Queensland)(11.11) —Today we are debating the Income Tax Assessment Amendment (Capital Gains) Bill 1986 and the Income Tax (Rates) Amendment (Capital Gains) Bill 1986, one day after the fringe benefits tax legislation was passed by the Parliament of Australia. This Government, with its left-right combination, certainly has business, small business and farmers out on the ropes. This Government has to take the cake for the terrible things it has done in its continued and sustained attack on the productive sector of the community. I do not think we can ever talk about capital gains tax without referring to a certain quote. I know that everyone has used it, but it has to be referred to again and again until it gets out into the community. I will use it, and I hope that every honourable senator on this side of the chamber who speaks in this debate will use it. It is a quote from the Prime Minister (Mr Hawke). He said: Let me make one point so that even our opponents can understand it; and let me make it beyond all their powers of misrepresentation and distortion. There will be no capital gains tax. Senator Sheil —He got into government by deceit. Senator BOSWELL —As Senator Sheil so wisely says, the Prime Minister got into government by deceit, but what did he say in 1984? I told the people of Australia that there would be a capital gains tax. It was as obvious as the nose on one's face that this Government was a high taxing government. The continued remarks made by Government members in the Senate that the Government would redistribute the wealth of Australia told me very clearly that there would be a capital gains tax. I warned the people of Australia that there would be such a tax. I said at a National Party Senate campaign launch that there would be a capital gains tax and that the National Party would oppose it. That was 12 or 14 months ago. We are now debating the capital gains tax and the National Party and the Liberal Party are opposing it. Senator Brownhill —Can you trust this Government? Senator BOSWELL —Of course one cannot trust this Government. One could not trust it at all. Senator Gietzelt —You are a clairvoyant. Senator BOSWELL —I do not think I am clairvoyant. I think any person who had been a member of the Senate for three years could obviously see the way that this Government was going. Australia, at this time, is having very serious financial problems. The deficit will be $14 billion by the end of the 1986 financial year. The internal economy of Australia has stalled or is in a depression. Despite various front bench members of the Labor Party trying to talk it up, it has stalled. Members of the Labor Party would do very well in the winter recess-I recommend this option to them-to set aside one week to go out into their electorates and talk to the business people. They should not just talk to the union people. Of course, they have to talk to them, but they must balance things, as we do in the National Party. It is necessary to talk to the workers, to the business people and to the captains of industry. Senator Coleman —Come on! When did you talk to the workers? Senator BOSWELL —We talk to all people. I suggest that when the honourable senator returns to Western Australia she should go and talk to her greengrocer, to those who work in her local hardware store and to a couple of manufacturers in her State. I am sure that the honourable senator will find that most people in the business sector and the farming sector in Australia will not be able to tell her that they had a good year. They will certainly not be able to tell her that they are looking forward to a better year. If the honourable senator goes out to talk to the productive sectors of the community-the business people-she had better take a double bed sheet to cry on. That is how bad things are under the honourable senator's Government. Very few people are making a great profit. Senator Gietzelt —It is 100 per cent better than it was under your Government. Senator BOSWELL —I do not accept that for one minute. Every economic pointer is showing Australia up in a bad light. Our inflation rate is higher than that of our trading partners. Australia's rate of inflation stands at 9.2 per cent. Japan's rate is 1.1, the United States of America has a rate of 2.3 and West Germany 0.1. Senator Crichton-Browne —And they are all falling. Senator BOSWELL —Those countries' inflation rates are going down. We cannot expect to trade with them. We are pricing ourselves right off the market at every turn. Our standard of living has fallen from third highest to twenty-first in the world. The Labor Party's policy solution to this problem is to introduce a fringe benefits tax and to follow it up on the next day by introducing a capital gains tax. The Labor Party believes the answer to Australia's economic problems is to tax the productive sector, tax the farming communities and tax the mining sector. These measures will cost the mining sector $61m. Goodness knows how much the capital gains tax and the fringe benefits tax will cost the rural sector, but it will certainly be considerable. Out of 72,000 rural workers 20,000 are expected to lose their jobs just due to the fringe benefits tax, not to mention the capital gains tax. That is certainly not the right way to go. When Australia is crying out for investment, the Labor Government has introduced two of the most anti-investment taxes ever to go before the Parliament. This Government, in its desperation to crank up the economy, is saying that it will give some form of interest rate subsidy to encourage manufacturers to invest in more efficient production methods. Most manufacturing companies or businesses will not invest any type of money-they would not even invest confederate money-while this Government is in power. There is no incentive to invest. Why would anyone invest? As some of my colleagues have pointed out, one is better off putting one's money in an interest bearing deposit than investing it in a business and taking the risks involved. With these two taxes the Government has killed incentive in this country. It has taxed the farmers. It has bled them dry. They have nothing left to give. The next people on the list are those in the manufacturing industries. The other day, in my speech on the fringe benefits tax legislation, I mentioned that 360,000 people in the manufacturing industry have lost their jobs over the last nine or 10 years because of redundancy payments, the holiday loading, the 38-hour week and the 3 per cent productivity claim which have made this country unproductive and uneconomic. The interest subsidies that the Government proposes to give will not work. We have seen the Government try and crank up and kick start the economy by pork barrelling the car industry and the steel industry. Only the other day the heavy engineering industry was given $84m. I believe that the steel and car industries received about $200m. At the same time the Government has taken $440m away from the rural producers. That is what the rural producers have lost under this Government, not to mention the effects of the fringe benefits tax or the capital gains tax. Of course, those two taxes will impact heavily not only on the manufacturing industries but also on the rural industries. For four years this Government has engaged in a sustained and vicious attack against the primary producers. The disgraceful behaviour of the Prime Minister at Canowindra is a typical case in point. He got carried away by the friendly country people out there who gave him a nice country welcome because he was the Prime Minister. He told them that he would look into the impact of the fringe benefits tax on rural homes. Senator Coleman —It has not had any yet. Senator BOSWELL —It started to have an impact as from yesterday. He said to those people at Canowindra: `I will go back and have a look at the situation.' He built up their expectations. They trusted him because he was the Prime Minister. He returned to Canberra and did not one thing about it. It was the most disgraceful behaviour that any Prime Minister has ever engaged in. He told the people exactly what they wanted to hear. He got carried away. Even the Minister for Primary Industry, Mr Kerin, said: `I think he is doing the wrong thing. He is building up their expectations. He will never be able to deliver.' That was the advice that the Minister for Primary Industry gave the Prime Minister out there. The Prime Minister's performance was disgraceful-one of which he should be absolutely ashamed. I want to talk now about the impact that this capital gains tax will have not only as a capital gains tax but also with the built-in death duty. After a number of years the Queensland Premier fought to abolish death duties. He forced every State in Australia to follow suit and he then forced the Commonwealth to follow suit. So death duties were abolished throughout Australia. It was a great move. Senator Bjelke-Petersen —A very good man. Senator BOSWELL —Senator Bjelke- Petersen has a right to be proud of her husband. He did a great service to Australia and the productive sector. We now find that this Government is going to undo all that good work that was done in removing those death duties by introducing a capital gains tax. I will tell honourable senators on the other side of the chamber why it is a capital gains tax. There are no capital gains when a farmer or businessman passes a farm or a business on to his wife or his sons and daughters. Let me instance my own case. My father-in-law, who passed away 12 months ago, had five daughters. Those daughters are married and live all over Queensland. His farm will have to be sold to another person-it cannot be passed on to a son-in-law who wishes to work it-and the capital gains tax and death duties will apply to it. That is not an uncommon thing. Every time that a family divides a property for probate a capital gains tax and death duties will be applied. Senator Gietzelt —It does not apply in those circumstances. Senator BOSWELL —I have just explained it. Even the Minister for Veterans' Affairs should understand what I am saying. It is not hard-it is about grade 4 standard. The Minister should be able to understand that there is a death duties tax when a farm is passed on after the owner dies so that the probate can be settled. This tax will be retrospective for farmers and businesses from 19 September 1985. Any person who has a business or a farm and who wishes to make that business or that farm more efficient may put capital into it. All businesses run on capital. This is something that members of the Australian Labor Party fail to understand because not many of them have had to run a business. I do not think that anyone on the opposite side of the chamber has ever run a business. As I look around at the honourable senators on the Government side of the chamber at the moment, I do not think anyone over there is capable of running a business. The facts of the matter are that, if a businessman puts in some new shelving or a farmer builds another shed, the capital gains tax is working against him as it is retrospective from 19 September 1985. Senator Coleman —It is only fourth grade wording and you can't understand it, can you? Senator BOSWELL —If the honourable senator wants to develop an argument on the capital gains tax I would be very willing to hear it. If the good senator wants to develop an argument on the capital gains tax, I suggest that she gets up and puts her Party's position on it. Very few people from the other side of the Senate have been prepared to stand up and put their position. I must admit that Senator Cooney has, but he is one of the few. This Government has now put a capital gains tax on accommodation. It has put the squeeze on rental accommodation. Building approvals for domestic residences have fallen nationally by 26 per cent since August. Because of the capital gains tax, domestic rents have risen by 20 per cent nationally in the last six months and they have risen by up to 35 per cent in Sydney. The Labor Party and the Australian Democrats should be ashamed of themselves for introducing both the fringe benefits tax and the capital gains tax. But I think the Democrats should be especially condemned for building up expectations in the rural community as the Prime Minister has. When these taxes were first introduced into the Senate the Democrats said that they would reduce the goodwill component on a farm by 20 per cent. I asked them, I asked Senator Walsh, who is a farmer and the Minister for Finance, I asked the National Farmers Federation and various other people whether they had ever heard of a goodwill component on a farm. Senator Walsh told me that he had never heard of one. The publishers of the Queensland Country Life newspaper had never heard of one and the National Farmers Federation had never heard of one, so I asked the Democrats. I even sent Senator Chipp a letter as Leader of the Democrats and I asked him how they were going to reduce the goodwill component on farming properties. I am still waiting for a reply to the letter which I sent to him six months ago. I think the best reply that I received came from the publishers of the Queensland Country Life newspaper. They told their readers that the only way to defeat a capital gains tax and a fringe benefits tax was to vote for the National-Liberal Party. That is a good piece of advice. Senator Crichton-Browne —The Liberal- National Party. Senator BOSWELL —It depends on who is speaking. The capital gains tax and the fringe benefits tax will be repealed when the coalition parties are returned to government and I believe that that will be after the next election. We know that the only way that Australians will enjoy prosperity will be by creating a business atmosphere that will give incentive for investment and allow people to make a profit without being taxed. The Government has its policy wrong. It devalued the dollar in a dirty float in order to cut off imports and encourage local manufacturing resulting in exports and investment. That is what should happen. But this Government has brought in so many taxes, such as the capital gains tax, the fringe benefits tax, and taxes on expenses, that there is no incentive left in Australia for people to produce anything-whether they are primary producers or secondary producers-and they just will not invest. People who were fortunate enough to sell their businesses when this Government came into power have the money in income-earning deposits. The less fortunate ones are hanging on by their fingernails waiting in anticipation for this Government to change. When this Government came to power on the promise of no extra taxes-that is what it promised-it had, to some extent, a reasonable rapport with the mining industry. I do not think that primary industry ever voted for this Government but it has had a reasonable rapport with primary industry and some manufacturers. This Government has squandered that goodwill and now the business and mining communities are waiting for the day when this Government will be thrown out of office before the predictions of the Treasurer (Mr Keating) come true and we truly become the banana republic of the South Pacific. Senator WATSON(Tasmania)(11.30) —In his second reading speech on the Income Tax Assessment Amendment (Capital Gains) Bill the Minister for Finance (Senator Walsh) said: . . . it will make the tax system much more efficient by encouraging investment that will generate growth and jobs. I have always regarded Senator Walsh as someone who prides himself on his economic prowess or expertise, but the primary criticism of this Bill is precisely the devastating effect that it will have on investment. In a classic example of poor timing the Government has chosen to introduce legislation which would act as a veritable brick wall to all investors. At a time when this country is in desperate need of continued, if not increased, investment, the Government has decided to push through a tax which will do absolutely nothing for the wellbeing of this nation. On 30 May the Australian Financial Review, which the Government assured us last week was an independent commentator, stated: . . . one thing is certain, the new tax will force every Australian to think twice and maybe once again before making any decision which may affect their tax and financial position: People will effectively be discouraged from creating wealth. Capital gains will remove the incentive to take risks-risks which, given the present economic climate, are already very substantial. The tax will virtually halve any profit. Who is going to place in jeopardy hard-earned capital when a large slice of that return is just spirited away to the Government? With this impost the Government is effectively saying to every Australian: `We will take half your earnings on any particular gain on a capital asset regardless of the risk factor which you must bear'. For this reason the tax can only be seen as an unmitigated assault on enterprise and hard work which will destroy the backbone of this nation, namely, small business and the rural sector. I cannot see how this Government can be so shortsighted. It is obvious that the capital gains tax is destroying incentive. What is even more mind boggling is that the Government will be imposing this tax for relatively little financial gain. It is unpopular. Even the Government recognised this in 1983 when, while it attempted to woo all the voters of Australia, it swore emphatically that it would not introduce a capital gains tax, and in a short time we have this legislation before the Senate. I think it is recognised by the Government that this tax will not be a significant money spinner, even though it will be charged at the taxpayer's highest rate of 61c in the dollar. Revenue, even after five years, is expected to be only about $25m, which is less than 10 per cent of the bank account debits tax. In the long run it is not expected to become a major income producer-unless it is going to be amended; that is where the rub is-because of the complete exemption of assets owned prior to 20 September 1985. It will take at least a generation before its full impact is felt. In the meantime incentive is crushed, investment is stifled and the state of the nation's economy sinks further and further into the mire. Ironically, the imposition of a capital gains tax will hurt the very people that this Government purports to represent. Like the Taxation Laws Amendment Bill, this tax will ultimately hit those people on low incomes. It will do this in several ways: Firstly, no investment means no jobs; it is as simple as that. Those with the capital resources to generate wealth by establishing new businesses will have little incentive to do so. The result is that the creation of new jobs will be restricted. The growth of employment will be severely hampered if investment declines. This can surely do nothing for the welfare of the people and will merely lead to a drop in living standards. The most undesirable aspect of this tax is that it is effectively a tax on the young. As I said earlier, the capital gains tax legislation exempts assets before September 1985. This is all very well for the older generation who have already built up their investments and accumulated their assets, but spare a thought for the young people who have been placed fairly and squarely behind the eight ball. They are the people who are yet to establish themselves in business and are to be further burdened with a tax which will reduce their chances of becoming self-reliant in our society. It is obvious that the people who will suffer most under this tax will be the very people that this Government should be trying to encourage, the individuals upon whom the future of this nation relies. I hope that the voters of Australia will note that it is the present Labor Government which proposes to handicap our young people before they have even left the starting blocks. The Government seems to be intent on making life as difficult as possible for Australia's welfare institutions. Under this legislation, the estate of a deceased will have to pay tax on the capital gains of gifts to churches and charities. Clearly this will result in a substantial decrease in the number of bequests made to these institutions. The Government attempted to tax the charities yesterday through its fringe benefits taxation. If it had not been for the Opposition, the legislation would have gone through. Fortunately we passed an amendment which saved the charities from the imposition of the fringe benefits tax. A further effect of this Bill will be the creation of distortions in the market-place. The Government claims that the introduction of a capital gains tax will result in a more efficient allocation of scarce resources. I believe that such a statement is no more than completely misguided. The legislation will not foster wealth creation; rather it will encourage negative investment and even greater speculation. As principal residences are to be exempt from the tax, investment is likely to be channelled into this direction rather than towards business. In effect, the wealthy will be encouraged to sink capital into the home, a bigger home, a more grandiose home which can later be sold without incurring a capital gain levy. With the present high interest rates people will not be encouraged to build and the demand for existing housing will artificially inflate the price of the home even further. If honourable senators ask members of the real estate market they will tell them that this is happening already. This method of avoidance is only one of the various ways in which a capital gains tax could be circumvented by those who have adequate resources at their disposal. By far the simplest way of doing so is merely by not realising the asset. It will effectively lock investment into existing, often uneconomic, enterprises, many of which may not be in the best interests of the nation. There is no reward for risk taking. The Government is effectively locking people into existing investments, preventing people from moving into better investments. This will be done if the asset is not reinvested, because then no tax will be payable. People will be encouraged to hang on to their assets in order to avoid a tax on any capital gain. With people being reluctant to buy and sell, the market will invariably stagnate. Adding to this arithmetic effect will be the bias generated in the takeover market. The proposed capital gains tax will favour existing company management and disadvantage the bidder as individuals will be unwilling to relinquish exempt shares. This could have the further effect of retarding the progress of business as its moves towards greater efficiency could be obstructed by the rort created by the taxation system. I believe that the Government had an opportunity to avoid the introduction of a capital gains tax. The existing tax system provides mechanisms by which it could effectively have caught individuals. The Government deliberately avoided taking that line. These opportunities included a more stringent application of section 260 of the Income Tax Assessment Act. Also amendments could have been made to section 26 of that Act. However, the Government effectively now has a foot in the door. That is the purpose of the legislation presently before us. The Government is taking one step now; it will take a second step and a third step down the track at a later time. All these so-called mitigating effects of allowing for losses and allowing for inflation and so on within a year or so-maybe in a shorter time-will be wiped out under the score that people are using these as tax avoiding mechanisms to defeat the intention of the tax. We will see a lot of these so-called cushion effects being wiped away by subsequent amendments. In other words, the proposed new capital gains tax is but a first step; it is but a foot in the door. I believe that the present legislation is merely a kite-flying exercise by the Government. Therefore, once the tax goes through it will be easy to bring in further amendments. Also it is an attack on people's ability to save and to accumulate capital and income. It will make people more dependent on the government. From the time of the first economic statement an attack was made on capital. I ask honourable senators whether they remember the tax on lump sum payments. The attack started there. Ever since the Government has been in office we have had a litany of legislation effectively attacking people's ability to save and making people more dependent on government handouts and less dependent on their own initiative and resources. Effectively the tax will be a double sort of tax because people already pay income tax. They will have to pay tax again if they invest and realise on their capital investment and make a profit. I believe that this is a very retrograde tax. I believe that it is a tax that is not in the best interests of Australia or Australians. Certainly, it is a tax on the young. I believe that the fact that this tax is on the young is one of the most serious and understated reasons for our opposing it. That is an important reason. I ask the Government to think again. Senator CRICHTON-BROWNE(Western Australia)(11.43) —We are debating the Income Tax Assessment Amendment (Capital Gains) Bill 1986 and the Income Tax (Rates) Amendment (Capital Gains) Bill 1986. We are debating a capital gains tax despite the promise of the Prime Minister (Mr Hawke) in his 1983 election speech. Again I will quote that statement that has been quoted by so many other senators in their speeches. The Prime Minister said: . . . there will be no new capital gains tax. This legislation, however, does introduce a new capital gains tax. Of course, the Opposition is absolutely opposed to the introduction of such a tax. It has said on many occasions that on its election to government it will repeal any capital gains tax that has been introduced. The Opposition is opposed to a capital gains tax because, unlike the Government, it recognises that production in our economy is generated not by government nor by trade unions but by the daring, skill and straight-out old-fashioned hard work of entrepreneurs. The capital gains tax of course threatens to rob businessmen, both big and small alike, of the fruits of their labour. It will take away almost half the value of any gains made on business property. Of course, the tax represents another attempt to rob those people who are willing to go out and have a go to seek a just reward. In so doing the tax will hit not only the speculators in the share markets but also the smallest of businessmen. Having been forced to pay yet another impost introduced by this Government many business people will decide that they have reached the end of the line. Having been battered by this Government for the final time they may well decide it is just not worth the effort any more. They will not invest and take the risks. They will not create the jobs which of course the country needs so very badly at this time. Our society depends on a healthy business sector which in turn depends on sufficient incentive to make investment worthwhile. The imposition of a capital gains tax will be another tax like the fringe benefits tax which will destroy incentive, deter entrepreneurs and, ultimately, be to the detriment, of course, of the living standards of all Australians. Let me outline how the tax as I understand it will operate and indicate how in my view some people will be affected and, finally, how I believe in turn it will harm the entire economy. As a general rule any taxpayer who bought property after 19 September 1985 will be liable to pay tax on any real capital gain made on this property when it is sold. By taxing real capital gains the Government has decided to tax only those gains which are made over and above the level of inflation. Any losses which are made on property bought after 19 September may be deducted from capital gains. A taxpayer's house used exclusively for residential purposes will be exempt from the tax. As a general rule, the goodwill of businesses will be made subject to a capital gains tax although there will be a 20 per cent remission or concession given on goodwill on businesses of less than $1m value. Certain limited roll-over provisions exist but they do not go so far as to include a situation in which a business sells an asset simply in order to buy another asset. I instance the case in which a business moves, perhaps, from small premises to larger premises. Sales of such assets will of course be made liable to a capital gains tax. In many ways this tax will operate unfairly and, interestingly enough, will not adhere to the Government's oft-stated aim of horizontal equity-that is that taxpayers who derive the same amount of income should pay the same amount of tax. The first of these inequities is that although the capital gains tax taxes real capital gains it does not allow for the deduction of real capital losses. The Income Tax Assessment Amendment (Capital Gains) Bill will allow only the deduction of nominal capital losses. Therefore, if the price of an asset rises perhaps by 50 per cent simply as a result of inflation and the owner of the asset sells it only for the same price for which it was purchased originally, in reality the owner has made a capital loss. Senator Maguire —It is a better deal than the wage and salary earners get. Senator CRICHTON-BROWNE —I do not believe that it is. Those people in the community who by their skill, courage, enterprise and endeavour are prepared to risk, to strive for reward and invest are being asked to carry all the responsibility of private sector investment without having the mitigating or offsetting losses available to them in the event that there is a downturn or that the business or commercial decisions that they make are not viable in the economic climate of the time. In my view there ought to be some reward for effort and endeavour. Certainly, there ought to be some reward for the courage to invest. If the capital gains tax were to operate equitably it would allow not only for the effect of inflation when gains are made but also for the effect of inflation when losses are made. Therefore, a person who makes both capital gains and capital losses would be at a disadvantage compared with a person who makes only capital gains. This tax also will operate unfairly because capital losses are deductible only against capital gains. The effect of this is that if a person makes a capital gain it is added to his ordinary taxable income and may well put him into a higher tax bracket. If the opposite occurs and a person makes a capital loss, can this be deducted from his ordinary income so as perhaps to reduce his marginal tax rate which is paid, in the same way as capital gains increases his marginal tax rate. The answer is: Not at all. When the system is likely to result in more tax, the Government will gladly put out its hand. If, however, it is likely to result in less tax, the same rules do not apply; they are set aside conveniently, comfortably and expeditiously by the Government. Capital losses must be carried forward until there is a capital gain against which they can be offset. In some instances this may be years, in some cases it may be never. It is not only the wealthy in the community who will have to pay the Government's capital gains tax, it will often be the small businessman. One interesting attribute which the people who pay the capital gains tax will have in common is that they will be the people who have been prepared to take the risks, to make the effort, to acquire property, and who try to improve their own lives and the lives of their families. The small corner store keeper, who has so often been referred to in this debate, will be caught by this tax. If a person opens a shop and works in that shop for his lifetime he may only earn sufficient income from that small shop to pay for the day to day running of his life and that of his family. Previously, such a person would know that after a lifetime of work he would have obtained a substantial asset in the shop which he could sell ultimately to provide a nest-egg for his retirement. It is now almost inevitable that, after a lifetime of work in such a shop, the shopkeeper will be liable to pay the government capital gains tax. The diligent work of the shopkeeper would contribute substantially to the goodwill of the business. A clean, well-stocked shop which has acquired itself a reputation in the neighbourhood will have accrued a substantial amount of goodwill amongst its clients and neighbours. With the passing of time one could normally expect land prices to rise. These two factors mean that a substantial capital gain is likely to have accrued. Despite, as I said, the concession of 20 per cent for goodwill, the taxpayer may well find that almost half the gain in his shop is handed over to the tax man. Half the earnings of his life's endeavours are taken, are plucked from him; half the rewards, half the nest egg which he would have put aside for his retirement is taken from him by this legislation. I find it amazing that, at a time when the present Government has shown that it is prepared to go to great lengths to have all employees in this country paid part of their earnings in the form of superannuation so that they will have provision for themselves when they retire, it is introducing a capital gains tax which will be a major disincentive for small business people to provide for themselves and their families in their retirement. This Government has shown that it is prepared to introduce legislation which will destroy much of the incentive for a small businessman to work hard throughout his life. It is taking a large part of his retirement nest egg. The capital gains tax will be a major disadvantage for the small businessman who is attempting to expand his business. Many of today's great companies started off in tiny premises, and as time has gone on they have grown, expanded and acquired new assets, new buildings and new factories. But what will happen under this legislation? The owner, of course, will be liable to pay capital gains tax. No provision is made in this legislation for people who sell one business asset in order to purchase another larger asset, and thereby expand their business. There is no incentive for people to upgrade their equipment. There is no incentive for people to expand their business, to take future and further risks, and so stimulate the economy and increase the work- force. This will represent enormous obstacles for the small businessman because in most cases it is the money obtained from the sale of the smaller assets which makes up a substantial proportion of funds available for the larger asset. When the Government takes away substantial proportion of the money made from the sale, the business has no alternative but to increase borrowings, thus increasing future interest payments and reducing future profits. Under this legislation there will be people who will be faced with a capital gains tax who currently may not imagine that the tax will hit them. This is most likely to occur in relation to the taxpayer's home. The Government has, as I said earlier, given an exemption for gains made on the sale of the taxpayer's principal or sole place of residence. However, this exemption is partly removed if the taxpayer uses his home for earning income. Proposed section 160ZZQ (21) provides this qualification. Examples of this include the doctor who uses his home as his surgery, the self-employed person who works out of his home, the shop which is attached to the taxpayer's residence, and the person who takes in boarders. In this case the Commissioner of Taxation is to make some apportionment of the liability to pay capital gains tax based on the length and extent to which the house has been used to earn the taxpayer assessable income. The effect of this part of the Bill will perhaps be most iniquitous to those people who are required to take in boarders. It is frequently those people who cannot earn income in more active ways who are forced to take in boarders in order to supplement their income. Many pensioners do this to supplement their pension income. Little do they realise that in so doing they are using their principal place of residence to earn assessable income and may be liable for capital gains tax if they sell their home. As we know, many pensioners ultimately, because of their fragility, are required to sell their homes and move into frail aged homes. These people will now find themselves subject to a capital gains tax on what has been their principal private residence which they may have occupied for that purpose for the better part of their lives. Another group which will be unexpectedly hit by this tax are charities. How any government can stoop so low as to attempt to tax charities, to me, is almost beyond belief, least of all from a government which pretends to reek of compassion and of concern, which claims a sensitivity to the underprivileged, to the deprived, and to the disadvantaged. Yet we find that this is the Government which is prepared to tax those charities which set themselves up to assist the very people which this Government pretends to represent and the very people who now will be disadvantaged. Those charities are generally exempt under the legislation for capital gains which occur on their own assets. This is not the case when assets are bequeathed to them. While proposed section 160x in this Bill will ensure that the passing of assets on the death of a taxpayer is not deemed to be a disposition and therefore assessable, proposed section 160y in the Bill specifically deems dispositions to a tax exempt body liable to a capital gain as if those assets were sold at the current market price. Charities are tax exempt bodies and will be affected by the capital gains on assets which are bequeathed to them. For the second time in a week this Government, which tries to claim an affinity with the disadvantaged in the community, has shown that it is prepared to tax charitable organisations. First there was the fringe benefits tax levied on cars provided to employees. Now we have the taxation of bequests to charities. Other groups in the community will suffer because of this tax although not directly. The effect of the capital gains tax combined with the negative gearing proposal will be to force up rents charged to tenants. Primarily, that will affect those people who require low rental housing; welfare housing. In many cities at the present time, landlords do not receive enough rent from the properties which they own to cover the interest which they have to pay on the loans used to pay for houses. They are, however, prepared to carry this loss because it is partly reduced by being deductible against other income, and also because the landlord may well make a tax free capital gain when the property is sold. In other words, it is an incentive for him to invest in a commercial asset in which he would not normally invest. The losers in this case are going to be those who will not be able to rent homes at a reasonable rate-at a rate they can afford. When this legislation is passed, with the help of the Australian Democrats, as has been the case with all of the Bills relating to tax packages, none of the advantages I have referred to will remain. Landlords will have to look at housing in the same light as they would look at any other investment. The houses which they buy will have to provide normal commercial returns. They will now be making hardheaded decisions as to where they will invest their funds, and one can reasonably assume that this certainly will not be in the low rental market. Working on normal commercial interest rates charged for investment purposes, a house would have to return at least 20 per cent, after payment of running costs, to be a viable proposition. On a house valued at $100,000, if a capital gain of 12 per cent were to be averaged, approximately $8,000 at the very least would have to be charged to make the house a worthwhile investment. However, this does not allow the investor a return on the money which he has outlayed, nor does it allow for the payment of expenses associated with a house, such as maintenance, rates and insurance. In these circumstances one could imagine the rent on such a house to be about $250 a week. The tax will also have an effect on many existing asset holders even though they may have bought assets before 19 September 1985. This is simply because anyone who buys these assets subsequently will be liable to pay capital gains tax. Inevitably, this means that the subsequent purchasers will reduce what they are prepared to pay for the assets. In this way, another group will be indirectly harmed by the introduction of this tax, although they may not realise it. These are the people who are faced with reduced selling prices for assets which they currently hold. In other words, the person purchasing the asset knows that the asset itself is worth less to him because it is going to be subject to a capital gains tax. So, in making his commercial decision in terms of the return on the investment, he is going to discount it by that much. To that extent, the tax will affect and apply to those people who presently imagine themselves to be exempt from the provisions. When a tax such as this has such a wide effect on so many individuals throughout the community, it ends up affecting the entire community. The facts are that all Australians will lose when this tax is introduced. This Government is showing its usual bad timing. It is going to introduce a bad measure at precisely the worst time. As I have said, this tax will deter enterprise because it will rob investors of reward for hard work and risk-taking. If ever there was a time when Australia needed strong and healthy business, it is now. In April, 7.9 per cent of the work force-or one in every 12 persons-was in unemployment lines. Around 600,000 Australians who were looking for work could not find it. One in five persons between the ages of 15 and 19 years is unemployed. What is needed to provide these people with the work they need is a high level of investment. This investment has not been occurring under this Government's high interest rate policies. In fact, investment is falling. Investment in new fixed capital fell by 3.3 per cent in the December quarter and fell by another 2.1 per cent in the March quarter. I know that is a matter of concern to honourable senators such as Senator Button. This is dreadful news for those people looking for work because it means that their chances of finding employment are falling. In my view, a capital gains tax is lunacy in such circumstances. It can only reduce investment and reduce the chances that job seekers will find work. Senator Button —Investment in what, Senator? Senator CRICHTON-BROWNE —Investment in a whole range of areas; investment, for instance, in buying new equipment and new premises, in purchasing assets which will create wealth; investment in the manufacturing sector, in the Minister's area of responsibility. In the recent Economic Planning Advisory Council paper titled `Business Investment and the Capital Stock', the Council indicated that there had been a marked decline in the rate of investment growth in Australia since the early 1970s. The growth in investment has slipped from around 6 per cent in the 1950s-this was under a conservative government, of course-to an average of only 2 per cent for the decade until 1985. The level of investment reached its lowest point during the life, period and times of this Government. The Council went on to indicate: . . . estimates that are available suggest that the deceleration in the growth of capital stock has significantly reduced the capacity of the Australian economy to employ fully the available labour force. The Council indicated that capital stock in Australia had to grow by 3.4 per cent each year-and I draw Senator Button's attention to this-to avoid increases in unemployment. The Council also said: Nevertheless the overall trend rise in unemployment over the past decade is closely related to the slowdown in capital accumulation. To the extent that this is so the unemployment problem will have to be addressed over the medium term by the development of an economic environment favourable to expanding levels of business investment. Not only has this Government been incapable of increasing capital expenditure but also it has pursued policies which have led to investment actually falling. This is a sure sign that Australia is heading into a recession. Yet the Government's response is to ignore advice which it has received from EPAC by failing to create an environment which is favourable to business investment. Instead, it is introducing taxes, such as the one before the Senate, which will have an effect opposite to that which the Australian economy needs at the present time. I have indicated that I believe that the sector most adversely affected by this tax will be the Australian small business, given that it employs the vast majority of the labour force. In another EPAC paper titled `Some Features of Small Business and its Policy Environment', EPAC indicated that small businesses could employ as much as 55 per cent of private sector employment. Thirty-four per cent of employment in small business occurs in wholesaling and retailing, and other significant proportions of employment occur in small manufacturing enterprises and storage. These are the types of industries which require considerable investment in fixed assets and which will be particularly susceptible to a capital gains tax. As I indicated, if many small entrepreneurs no longer see sufficient returns available to them after the imposition of this tax, the employment consequences for this country will be severe, to say the least. There is one aspect of this tax which I would like to raise, and that is the question of the Australian rate of capital gains taxation in relation to overseas rates, particularly that of the United States of America. The Hawke Government's capital gains tax legislation will result in the taxation at 49 per cent of capital gains made by companies and, despite tax averaging provisions, the 49 per cent rate will also apply in respect of many ordinary taxpayers. I raise that point because last night the modest number of senators from the other side of the House who contributed to this debate put to me that countries such as the United States had a capital gains tax and that it had been in place for many years. However, they did not point out that the level of company tax in the United States is a great deal lower than that in Australia. The present capital gains tax in the United States is of the order of 20 per cent-in fact, it is 20 per cent exactly-although there is some speculation that that rate is likely to rise to 27 per cent in the near future. But whatever it might be, it is certainly less than half the rate that the Government is seeking to inflict upon business in Australia. Senator Maguire —But we index the gains. We index the asset values for inflation. Senator CRICHTON-BROWNE —I accept that point that the inflation rate is indexed. But even if the gains are discounted, by any measure the level of capital gains tax and company tax under this Government is greater than that of the United States. I am running out of time. As much as I enjoy debating this point with the honourable senator, I must press on. The Treasurer (Mr Keating) in his second reading speech on this legislation said that the total tax payable by foreign investors under this legislation will only increase where tax crediting exists in the home country if the Australian tax liability is larger than the liability in the home country. The Australian rate for companies will be almost double the rate in the United States. Obviously, this will be a significant disincentive for investment from the United States. I simply ask the Government whether it has ever stopped to consider the enormous amount of development which has occurred in Australia through investment from the United States. This aspect of the tax also reveals another glaring inconsistency in the policies of this Government. In the recent rural package, one of the measures announced for the relief of the rural sector was an easing of the Foreign Investment Review Board guidelines for rural landholdings. This was presumably to encourage greater foreign investment. Now the Government is imposing a capital gains tax which will have precisely the opposite effect. I conclude by quoting from the National Australia Bank's Monthly Summary of November 1985. No doubt Senator Button will have read it with some dismay. The bank stated: Capital gains are seen as the mainspring of entrepreneurial incentive-a spur to innovation, investment and consequently real growth. Considering the relatively insignificant tax expected to be gained from it ($25 million in the fifth year of operation) and the likelihood of significant damage to business incentive, both real and psychological, the tax is hard to justify. I would go further than the National Australia Bank and say that, especially in the present economic climate, the tax is impossible to justify. It will make business nervous and apprehensive. I am quite sure we will see a continuing decline in capital investment in this country. This Government, of course, is again going on some type of ideological binge so as to placate those elements of the Labor Party which believe that anything which represents initiative and enterprise is fair game for any kind of taxation or regulation which it can impose. The capital gains tax, like many other aspects of the tax package, is the product of a weak government, a government which, despite its claims of seeking community support and consensus on tax changes, was prepared to hand over taxation responsibility for the changes it was going to make to the tax system to the Australian Council of Trade Unions. Under these circumstances the result is predictable. The tax changes have borne a consistently anti-enterprise theme. When taxes such as the fringe benefits tax and the capital gains tax have their inevitable effect and cause business to contract, the blame will lie with the weakness and failure of this Government to provide the leadership and strength in government that Australia so desperately needs. As I say, it is very regrettable that, at a time when we need capital investment, capital formation and stimulation of the private sector, this Government, as a result of its obsession and its ideological bent, its determination to screw the system and anybody who has the courage, fortitude, initiative and enterprise to invest so as to make this a great country, has missed an opportunity to make a positive contribution. Its contribution will be detrimental to the community as a whole. I really wonder how serious it is about stimulating the economy of this country. I will be curious to see what banal statements the Prime Minister chooses to make next week to explain how he can solve the problems of this country. The DEPUTY PRESIDENT —Order! The honourable senator's time has expired. Senator MICHAEL BAUME(New South Wales)(12.13) —The Senate should not forget that this capital gains tax is simply a piece of political window dressing which will raise very little money, but which will cause immense inconvenience and immense disturbance and is, as Senator Crichton-Browne pointed out, an inhibitor of activity in the private sector at a time when that activity must increase, particularly in the investment area. Senator Maguire —Why are they buying record numbers of shares at this moment? Why is the share market showing record highs week after week? Senator MICHAEL BAUME —That is a very interesting point, Senator Maguire. I will make certain that I respond, so that the honourable senator's lack of knowledge will be recorded. If Senator Maguire has any knowledge of what is a yield, he will know that when yields on government securities and other fixed interest securities fall, there is a concurrent fall in the yields available on other securities-that is, equities. In other words, prices rise. I am giving Senator Maguire a first year economics lesson. When yields on fixed interest securities fall, there is a tendency for them to fall also in regard to equities. Senator Maguire —In other words they are coming down. Senator MICHAEL BAUME —If Senator Maguire is incapable of understanding that proposition, I suggest that he cease interjecting. Given the reality that this is a political and not an economic piece of activity, we should consider what are the economic costs of this brand of politics. Let us recognise how this tax emerged. It was one of the package of nasties which was introduced at the National Taxation Summit last year by the Treasurer, Mr Keating, who has a fixation with summits. On that occasion, as in the case of his recent venture, he was rolled by his leader. On that occasion he introduced the concept of these tax nasties as a bribe-and no more than that-to encourage the union movement to put up with his very sensible attempts to reduce personal income tax rates by having an offsetting increase in indirect taxes. This was regarded by most thinking Australians-except, of course, the trade union movement, whose leadership is immediately disqualified on that ground-as an excellent and much needed reform. It was a reform, for example, which the previous Government had endeavoured to move towards until the Australian Labor Party and the Australian Democrats in this chamber defeated the first moves towards an expansion of the indirect tax base. This expansion, of course, is necessary if one is to reduce direct taxes. The Labor Party has maintained its consistent stupidity on this matter. When its Treasurer very sensibly endeavoured to move down the track of reducing personal income tax and increasing indirect tax-which, of course, has the advantage of being very difficult to avoid or evade-he got rolled by the Prime Minister (Mr Hawke), along with leaders of the union movement, in a back room deal in a local hotel. That is why all we have left now is the bribe without the reform. The Australian Labor Party or anyone else who keeps talking about these tax measures as being a great reform is forgetting what has really happened. These are the bribes for the reform. All we are doing is paying the bribe to the union movement without getting the reform. We have seen the consequences of the elements of the package that have so far been passed by the Senate. For example, today's headline in the Australian, following the passage of the fringe benefits element of the package yesterday, reads: `Fringe benefits: rents will soar in Victoria'. The article reads: The controversial fringe benefits tax has forced the Victorian Government to abandon its long-held policy of giving heavily subsidised housing to public sector employees. The story which appears next to that article has this headline: `Big rises in fares, charges in three States.' We will see consistently that the impact of this package-this bribe to the union movement-will be disastrous in terms of employment, in terms of investment, and in terms of economic development in Australia. We have further evidence in this morning's newspapers. There is an open letter. I do not refer to the very interesting open letter to Senator Chipp, which I hope he sticks on his wall and keeps looking at to remind him of his and his Party's perfidy to the people who have elected them. This open letter is an open letter of support to Mr Keating. That is why I want to make certain that it is clearly recorded in Hansard. It comes from a registered company liquidator. Naturally, he would be very keen to support Mr Keating. He is a registered trustee in bankruptcy. His open letter of support for Mr Keating is as follows: Dear Mr Keating I hope you take heart from this letter and press on with your sweeping tax reforms. People don't seem to realize that many new jobs will be created in the Public Service to police these taxes, and just think of the extra leisure time that small-business owners will now have! Many of these business owners have previously only dreamt of an early retirement. Your new taxes will make this a reality for them. Yes, Mr Keating, I'm on your side. I expect my own business to actually increase by at least 50% over the next financial year! yours sincerely, John H. Mann Registered Company Liquidator. Senator Button —Terrific stuff! Senator MICHAEL BAUME —I am glad that the Minister for Industry, Technology and Commerce interjects `good stuff' because I agree with him. It is very high quality stuff which reflects the concerns that this Government could not care less about and which it has refused to listen to. Those concerns come from the business community, particularly the small business community, which this Government does not want to talk to. It consistently talks with big business and big unions, but most Australians are employed in the small business sector. I see that the Minister yawns at the suggestion of small business and employment. Senator Sir John Carrick —It is getting smaller. Senator MICHAEL BAUME —As Senator Sir John Carrick says, it is getting smaller. We are now left with this package dealing with the capital gains tax. So far the Australian Labor Party has been able to put up only two senators who have been prepared to defend this absurd and damaging tax which we will repeal on election to office. There is one good thing about this tax; it will make even more certain the return of the coalition parties at the next election because there is wider and wider recognition that this tax package reflects an assault on those Australians with any initiative who are prepared to get off their tails. People who are employed by those Australians with initiative also will be at risk and threatened and under pressure from this kind of tax. What is the justification for this kind of tax? We have heard from only two Labor speakers. The Government has said consistently that it is wrong to allow revenue, for example, to be converted into capital if revenue is taxed and capital is not. The Government has admitted that section 25a of the Income Tax Assessment Act does tax gains made on assets when those gains are judged to be for the purpose of making a profit. What I find incredible about the Labor supporters of this tax is that they have failed to concede that section 25a, with the uncertainty that they point out exists in that section, will persist despite the passing of this legislation. There will still be uncertainty, except this time the uncertainty will be whether one is taxed at the marginal tax rate or on a capital gains tax basis which allows one to deduct the inflationary impact. In other words, people will be caught one way or another, but the uncertainty of the manner in which people will be caught will in no wit be changed by this proposed legislation. In my view, section 25a should be changed so that, instead of being simply part of this uncertainty and madness that is going on at present, it becomes a genuine speculative gains tax. I think everyone on both sides of the Senate would accept the proposition that speculative gains should be subjected to taxation. Speculative gains were taxed under the previous Government and they had been under this Government even before this tax measure came into place. For members of the Labor Party to pretend somehow that speculative gains are not taxed is absolute nonsense. The big question is: What is the best way to do it? I put very strongly the point that we could cope with both problems simply by changing the existing legislation so that section 25A would provide, for example, that if one acquires an asset and sells it within 12 months it should be subject to the marginal tax rate. If it is sold, say, between 12 months and two years after it was acquired, it should be subject to a slightly lower tax rate-say, 75 per cent of the marginal tax rate-and so on, wiping out at five years, so that if something was held for five years it would be deemed to have been an investment and that gain would not then be subject to a capital gains tax. I should imagine that this would have very little impact on revenue and it would be directed specifically at those people who are taking a speculative gain, whereas this tax will hit people who have no intention of taking speculative gains, those people who are seeking to build up an asset or a business and who-I know these are dreadful words for the Labor Party-reflect an incentive and reflect their own determination to do better for themselves. Those are all things which a government which seeks to encourage people to become dependent on it would find unattractive. Given that there is a need for a tax on speculative gains, let us see what this new capital gains tax, in conjunction with the fringe benefits tax, the negative gearing tax and so on, will do to our nation. We have heard from Senator Crichton-Browne and many others about the consequences of the capital gains tax in many areas. We know of the consequences it is having for example, on rural property values. It is all very well for the Government to say: `But look, it applies only to properties purchased after 19 September'. The fact is that the potential purchasers of those properties will be subjected to this tax, therefore, they will not be prepared to pay as much for those properties. In other words, the market for those properties will be diminished accordingly. Senator Crichton-Browne —They will discount the asset by that amount. Senator MICHAEL BAUME —As Senator Crichton-Browne says, they will discount the asset by that amount. One should combine that with all the other things that are happening to the rural sector, particularly as demonstrated by a feature article in the Australian newspaper today, which outlines the increase in the cost of a stationhand, for example, as a result of the fringe benefits tax element of this package. The article points out that the tax will increase the cost of a stationhand from about $309.10 per week to $340.22 per week, and this at a time when the rural sector is in serious distress. I turn now specifically, because time is running out, to deal with a couple of matters. I should say before passing on to them that it is extraordinary that the Australian Democrats are supporting the Labor Party in this case. It is extraordinary in intellectual terms but not extraordinary in terms of political integrity because one would expect the Australian Democrats to maintain the double dealing position they have adopted with the Labor Party in this case. Here is Australia, a capital hungry nation, having to import multi-millions of dollars a year in capital to provide the investment funds we need. Certainly we need investment funds if we are to expand our manufacturing capacity in order to replace imports which are now flooding in as a result of the Government's extraordinary economic policies, which have damaged almost irreparably, but I hope not entirely, our international status, our currency and our balance of payments on current account. The Australian Democrats have asked: What is so different about Australia? Why should we not have a capital gains tax when everywhere else in the world has a capital gains tax? Let us recognise this: The nations that the Australian Democrats were talking about are generally exporters of capital. We are importers of capital. We are so short of a capital base in this nation that we must import it. Senator Sir John Carrick —A very good point. Senator MICHAEL BAUME —I thank Senator Sir John Carrick for his interjection. Here we have a nation that is totally different from those that the Democrats point to as examples of the need for and the propriety of having a capital gains tax. It is absurd for a nation as dependent as ours on importing capital to diminish our own capital stock by taxing it and giving it to a government-particularly this Government-which is overjoyed at the thought of spending that money which it has taken from the private capital stock and spending it in the most extraordinary and reckless way. Let me remind the Senate that there would be no deficit whatsoever this year if this Government had not, in each of its three Budgets so far, added enormous new spending programs. In its first Budget the Government introduced new spending programs totalling $2.5 billion. In its second it introduced programs totalling about $1.3 billion and in its third it introduced programs which, in a full year, would add another $700m-odd. When one applies the full year impact and the inflation impact to those new programs introduced by this Government, it adds up to more than $5 billion and that is the deficit it is seeking. Had this Government been responsible, we would not have faced these problems. I wish to deal with a matter that has been raised with me by some accountants. This relates to the announcement by the Treasurer on 20 March concerning roll- over provisions which will apply in this capital gains tax legislation. The Treasurer said on that occasion: In my 19 September statement I indicated that the Government intended to give further consideration to the question of providing rollovers (i.e. deferral of capital gains tax liability) for asset ownership changes associated with certain types of business reorganisations. The Government has come to the view that rollovers can be justified in this area in certain situations where no change occurs in the underlying ownership of the asset concerned or where the underlying assets against which the taxpayer has a claim do not change. I make the point in passing that this was a fairly significant alteration made on 20 March to a law which did not exist, of course, but which was applying from 19 September 1985. That is the great way this Government runs this country. It tells people that they are not allowed to do something or that something will happen from 19 September. People do not know what the law is or whether they are meeting it. Six months later the Government changes this non-existent law anyway and changes the initial impact of the statement, then 10 months after that initial statement was made it comes out with the legislation which people were supposed to have been abiding by all that time. More specifically on this matter, the Treasurer said that it was proposed to provide rollovers in situations which he then outlined. My correspondent, who is an accountant, wrote this to me: It is submitted that the proposed rollover provisions should be extended to provide relief in the following circumstances:- Firstly, a distribution of property by a company in specie to individual shareholders who are 100% owners of the company; secondly, the distribution of property to the partners of a partnership upon the dissolution of the partnership; thirdly, the distribution of assets in specie by a trustee. In particular it is submitted that where an asset acquired prior to 20th September, 1985 is distributed in specie in the above circumstances it should retain its capital-gains-tex-exempt status in the hands of the transferee. In such situations there will have been no change in the ultimate ownership of the asset. Furthermore those situations bear a very close similarity to certain of the situations already covered in the Treasurer's 20th March, 1986 announcement. There are cases where solvent companies were placed in voluntary liquidation prior to 20th September, 1985 solely for the purpose of dispensing with the companies and distributing the company assets, in specie, to the beneficial owners i.e. the shareholders. In certain instances such voluntary liquidations had not been completed at 19th September, 1985-some of the assets had been distributed in specie to shareholders prior to 19th September, 1985 and other assets still remained to be distributed in specie to shareholders after 19th September, 1985. In those cases it is quite unacceptable that the remaining assets distributed in specie after 19th September, 1985 should lose their capital-gain-tax-exempt status. Clearly, the tax should provide rollover relief for distributions of property in specie in the same way as has already been proposed by the Treasurer for transfers of assets between companies in the same group, where such companies share 100% common ownership. Transitional provisions are most definitely required in the case of companies which were placed in voluntary liquidation prior to 19th September, 1985 and where the distributions of assets had not been completed at that date. This is just another example of the many confusions and messes that are involved in this kind of legislation. I hope that it is not too late for the Government at least to consider the merits of the point made in that letter relating to rollovers. After all the Government belatedly admitted that it has to look at the question of rollovers six months after it made its announcement, so perhaps now it will belatedly look at this question of fixing up what it has not yet properly fixed up. I turn to the question of goodwill and the handling of it which still causes a great deal of trouble. The Senate will remember that the word `goodwill' was not understood by the Minister for Finance (Senator Walsh) when this matter was first raised by the Opposition. We claimed that there would be an unfair impact of this tax on goodwill. It would be natural for Senator Walsh not to understand the meaning of the word `goodwill'. He certainly has none in this place. The reality is that goodwill is simply the difference between the net value of the assets of an operation or a business that are sold and the price paid for that business. There is no special definition involved. Goodwill is simply that difference between the value of the net assets and the price paid. In other words, on many occasions it is worth while for a purchaser to pay more than the value of the assets because the business is good. It might be a dry cleaning shop in a country town which, because it has provided a good service, is highly regarded and has an established clientele. Senator Crichton-Browne —And a growing clientele. Senator MICHAEL BAUME —Yes, and a growing clientele, as Senator Crichton-Browne said. It may be worth while for a purchaser to buy that business for more than the value of the dry cleaning equipment, the lease or even the freehold property because that business is a going concern which has proved its ability to earn money on those assets. If the purchaser had to start without a going concern-suppose he just bought a shop and put in the equipment-he would have no guarantee that people would want to use that equipment. This concept of goodwill is very meaningful. It was only as a result of pressure from the Opposition and a belated recognition by the Democrats that once again they had put their feet in their mouth, that the Government has conceded to a degree that goodwill must be treated in a special way. However, the way it has treated it is inadequate and absurd. I draw attention to the fact that six months later-once again-the Government has decided to exempt 20 per cent of the otherwise taxable capital gain on the sale of business goodwill wholly created by the taxpayer where the net value of the taxpayer's business interests-that is plural-is less than $1m. In other words, a small drycleaning business which is sold for less than $1m is subject to this exemption where that is the sole activity of the owner. If in fact the owner has another dry cleaning business in another town, and the combined value of those businesses is more than $1m, even though he wishes to sell only one of them, somehow that business is regarded as a bad dry cleaning business and will not receive the 20 per cent exemption. That is the same sort of principle that the Australian Labor Party applies to uranium-some uranium is good uranium and some uranium is bad uranium and must not be mined. A dry cleaning business in a town will, when sold, get a 20 per cent exemption on the otherwise taxable capital gains if that business is owned by a taxpayer who does not have another dry cleaning shop in another town, the net value of which results in that person's business interests adding up to less than $1m. Let us deal with the general question of the extent to which this measure is fair and proper. Let us recognise that this is of major moment to small business, even though it will get the 20 per cent exemption. When one starts a business with no goodwill one cannot get the benefit of this indexation which, according to the Labor Party's figures in this Bill, is supposed to protect people from the impact of inflation on their assets. If a person such as a dry cleaner in a country town starts a business by renting a shop and renting equipment-having done all that, there will be no goodwill-how can goodwill be indexed when there is none, in order to provide the basis for diminishing the sale price when that business is eventually sold and there is a capital profit? The reality is that that cannot be done. That is why the Government has had to introduce this 20 per cent concession. But this concession goes nowhere near meeting the basic problem, and the problem is that this Government is going to tax the rewards of hard work. It will tax success, tax the-- Senator Messner —Tax labour. Senator MICHAEL BAUME —Yes, it will tax labour. The reality is that if people have worked hard all their lives, have succeeded in building up a business and they want to sell that business because, say, they want to retire, when they retire the difference between the net value of the assets and the value of that business because of the way they worked it up, will be subject to this capital gains tax and most of it will not be indexed for inflation. Twenty per cent will be indexed, but the basic amount-80 per cent-will still be subject to taxation. This is simply one of the many instances where this tax-this bribe to the union movement to get a type of tax reform that did not come about-is a disaster. It is another of Mr Keating's summit pratfalls. The last time he had a summit-the National Taxation Summit-he got rolled by his Prime Minister (Mr Hawke). This time, when he tried to have another summit, he was rolled by his Prime Minister again. This tax is another of Mr Keating's disasters. Debate (on motion by Senator Sir John Carrick) adjourned. Motion (by Senator Button) agreed to: That, unless otherwise ordered, till 2 p.m. this day, matters of public interest may be discussed by senators, provided that no senator shall speak for more than 15 minutes. Senator PETER BAUME(New South Wales)(12.44) —In October 1984, the Minister for Health, Dr Neal Blewett, commissioned a review of the future development and promotion of public health education research in Australia. He commissioned an American, Dr Kerr L. White, to undertake that job as head of a review team. I rise today to say something about the outcome of that study and to suggest to honourable senators that a miscarriage of justice in relation to the School of Public Health and Tropical Medicine may take place as a result of the report. I want to deal with only one aspect of the report; that is, the recommendation that the School of Public Health and Tropical Medicine within the University of Sydney be replaced. It is proposed that it be replaced by a new multidisciplinary, independent national centre for epidemiology and population health at the Australian National University in Canberra and by the further development of existing health courses, particularly an initiative by the University of Sydney at Westmead Hospital, together with courses at the universities of Adelaide and Newcastle. I pause here to declare appropriate interest; that is, I was a student in the School of Public Health and Tropical Medicine some years ago, more than a quarter of a century ago, and I am presently on the Council of the Australian National University, which stands to be one of the beneficiaries of this recommendation. It is the recommendation that the School of Public Health and Tropical Medicine at the University of Sydney be closed that concerns me. I am told that it is likely that Dr Blewett will recommend to Cabinet that that be done. It is important to raise for the Senate my belief that it is based upon poor evidence and a biased approach. The recommendation arose from a scathing attack launched on the school by Dr Kerr White's committee. The committee reported as follows: . . . the School of Public Health and Tropical Medicine has outlived its usefulness. Multiple reviews over the past decade or more have been unable to help the school to define its mission, recruit permanent leadership, or have an observable impact on contemporary health affairs in the country. Dual masters for funding, leadership and performance, ambiguous organisational relationship, rapid turnover of faculty, conflicts between goal-oriented and investigator-initiated research, incompatible mixes of students, use of courses primarily for purposes of job advancement, unco-ordinated lectures by visiting office-holders, variable academic standards, inability to attract many young students, an uneven research output, uneasy tension with the medical faculty, limited administrative support from the medical faculty, discordance between school priorities and perceived national problems are among the many manifestations said to be associated with the widespread perception of inadequacy. It is a sad litany and there is no point in attempting to apportion blame. Honourable senators may gather that the review team was not impressed with the School of Public Health and Tropical Medicine. The only evidence, however, provided by the report to back up such an absolutely stinging and total condemnation of the School of Public Health and Tropical Medicine is the following introductory comment: The consensus of the great majority of submissions and opinions expressed during the interviews, and at the Sydney seminar . . . is that the School of Public Health and Tropical Medicine has outlived its usefulness. It is incumbent upon members of that review team, if they wish to make that recommendation and if they wish to condemn so roundly and with such extreme language the School of Public Health and Tropical Medicine, to produce some evidence to back up their findings. As neither the transcripts of the interviews to which they refer nor the submissions to which they refer are attached to the report, and as people cannot test the transcripts of evidence, the transcripts of interview or the submissions, there is no evidence available which can be tested to support the attack which has been made upon the School. We do not know who made the damning submissions. We do not know what weight should be attached to their contribution. We really do not know whether enough evidence has been adduced to support any attack upon the School of Public Health and Tropical Medicine. Really, I would say that much more evidence would have to be available to me before I, were I again the Minister for Health, would agree to close down an established school within an established university. Let us test the Kerr White report conclusions against such data as has been provided to me. This material casts serious doubt upon the report's conclusions and in many instances it leads to conclusions completely opposite to those which have been advanced criticising the School. Before I do that, I would like to look at Dr Kerr White's own background and his competence to be put forward by Dr Blewett as, to use Dr Blewett's words, an `independent expert'. My information indicates that Dr Kerr White approached the review with preconceived opinions. I am told that at a meeting on 1 March 1982 he already advocated the closure of the School in a meeting with the Vice-Chancellor and the Dean of the Faculty of Medicine at the University of Sydney. On 2 March, one day later, he met with senior Health bureaucrats to advocate the same approach. All this, I am told, occurred before he had any personal knowledge, any interviews or any submissions about the School of Public Health and Tropical Medicine. Dr Kerr White's bias against schools of public health should not come as a surprise. It is well known in the United States. It is said-and I believe it may well be true-that it is related to personal bitterness and envy. I have a letter from Jacob Brody, Dean of the Office of Public Health, University of Illinois, in which he offers the following reason for Dr White's bias. Dr Brody says: I suspect they stem- that is the bias- at least in some part, from the fact that he was fired from Johns Hopkins School of Hygiene and Public Health Faculty and harbours some bitterness about this. Or we could note the remarks of Dr Henderson, the Dean of the School of Hygiene and Public Health from the Johns Hopkins School. He said: You should know that for at least 10-15 years, Kerr White has publicly and vehemently asserted that school of public health should be abolished. Thus, he unquestionably concluded what the role of your school should be long before he arrived in Australia. I agree that clinical medicine has lacked a population perspective but this I believe has less to do with the schools of public health than with the public and political fascination with high technology and tertiary care medicine. It should be noted that in this country- that is, the United States- during recent years, departments of community medicine, social medicine, epidemiology, et cetera, et cetera, in medical schools have steadily diminished in number and quality. The tone of a comment on page 13 of the report about the history of public health research supports these comments. Without saying it directly, the report makes it clear that it has little confidence in the public health school approach to dealing with public health problems. Paragraph 2.5 of the report commences thus: Seventy years ago the Rockefeller Foundation, on the basis of a hastily drafted document, decided to embark on a new approach to training medical officers of health who would undertake strategies for the control of environmentally based diseases and for the immunisation of populations against selected communicable diseases . . . The history of both the intellectual and political basis for this decision has only recently been explored and is yet to be fully evaluated and published. The net effect of this seventy-year-old experiment has been that schools of medicine were deprived of the population-based perspective. To me the tone of these assertions indicates quite clearly a preconceived bias against schools of public health which Dr Kerr White had before he arrived and which he has allowed to pervade his report. Finally, in this area, I should refer to the words of Professor James Banta, Dean of the School of Public Health and Tropical Medicine at Tulane University in New Orleans, who wrote: The hubris of Dr White and his ilk of self-anointed prophets profane the discipline of public health. They arrogantly speak with great authority, but with rather sparse, biased appraisal of the data, both concerning needs and resources . . . You should be aware that for some reason unknown to me the present Medical Director of the Rockefeller Foundation is hostile to schools of public health. If Dr Kerr White was his emissary, then I am not surprised at his inability to be objective. In summary, Dr Blewett appointed to head a major inquiry into public health in Australia a man who was so bitter and so biased against schools of public health that he could not be objective. Dr Blewett must have known, or should have known, of Dr Kerr White's record. There seems little doubt that Dr Blewett has chosen Dr Kerr White deliberately and for good reason, to produce the kind of report that the Minister wanted; and no doubt Dr Blewett was looking to Dr Kerr White to manipulate the outcome of the inquiry. What of the conclusions themselves? Let us test them. The White report accused the School of having a high staff turnover, but figures made available to me show, firstly, that 90 per cent of the faculty present in 1985 had been at the School for four years or more; and, secondly, that apart from retirements and major promotions, that is, to professorships, staff turnover has been just under 5 per cent per year. These figures, quite contrary to the conclusions of the report, represent a model of stability. Why did Dr Kerr White say otherwise without giving any evidence? The White report questions the performance of the staff, but information provided to me shows, firstly, that the 21 academic staff members of the school published 43 articles in referred journals and four books, a publication rate of over two per year, which is considered reasonable by most academic standards. Dr Kerr White offered no evidence of his attack. I offer some evidence in defence. Next, the staff attracted grants totalling $4.2m for research into public health at an average of $200,000 per staff member. This record is far superior to that of most similar institutions. I have a letter here from past and current students of the School questioning Dr White's conclusions on fact and expressing support for the School. Finally, I have a work program for the School's 1985 year which to me is a model of order and discipline and does not at all suggest the conclusion of the White report that the School suffers from `conflicts between goal-oriented and investigator- oriented research', et cetera. Dr White's accusations are made without any evidence offered to back them up. They are accusations which may lead to the winding down of a school which has served Australia well over many decades. No evidence is offered to back up these accusations and there is plenty of evidence available to refute them and knock them over. In fact, all the evidence available is against Dr Kerr White, against his report and against his conclusions. I am not about to allow the School of Public Health and Tropical Medicine to be closed down on the basis of an inaccurate, biased report based upon the preconceptions of a bitter man who has been sacked from a similar job. I am not prepared to do that without a fight. I intend to find out what is going on and, if necessary, will use questions and freedom of information and the Estimates to try to get to the bottom of it. Dr Blewett has yet to obtain Cabinet support for the recommendations of Dr Kerr White's suggestions. I suggest to the Minister and his colleagues in the Cabinet that they demand some access to the evidence on which the recommendations are based if they wish to do justice and fairness to the academic community in Australia. Unless some very strong evidence can be produced to support the closure of the School of Public Health and Tropical Medicine and if the evidence in defence of the school can be verified-and indeed it can-I think the School should continue, and I hope that Dr Blewett would not obtain Cabinet support for any proposal to abolish it. Senator Sir JOHN CARRICK(New South Wales)(12.58) —I rise to comment upon the current relationship between Australia and our nearest northern neighbour, Indonesia. Like so many Australians, I am disturbed that, arising from a series of recent incidents, there appears to be a significant degeneration in that relationship. I am disturbed primarily not because of merits or otherwise of issues, but because I believe that the bonds that should unite Indonesia and Australia in a working co-partnership of near neighbours ought to be so much stronger than any incidents that should divide us. If indeed that is not so, it points to a fragility of the relationship which ought not to be-a fragility which reflects upon the failure of our Government in particular to build the bridges and to make an understanding that is vital to this country. I therefore believe that we should look at the problem very closely indeed. We ought to be seeking to put aside misunderstandings and to get on with the working relationship, because Australia and Indonesia are cast for eternity as next door neighbours in an exciting, growing and perilous area. We are cast together in a region of immense growth, immense opportunities and, indeed, dangers. Indonesia and Australia straddle two great oceans-the Indian Ocean to the west and the Pacific Ocean to the east. Indonesia itself provides the north-south gateway through the Malacca and Makassar straits to those oceans. We in Australia, in my judgment, have failed to orientate ourselves to a full understanding of the Asian area around us. Inevitably, because of our European origins, we judge virtually everything upon values which grow out of our Judeo-Christian origins, the background of Roman law and British common law and, of course, the Westminster system which has given us democracy. Those of us who do so make a fundamental mistake in believing that these are absolute values and that no other systems might be appropriate to other races, other cultures, other religions. That, I think, is our fundamental mistake. We have for too long looked through European eyes at Asian problems. More than that, I think we have not spent our time looking at the problems of Indonesia itself. Indonesia as a nation is less than 40 years old. Indonesia, by that name, was created out of a struggle for freedom in the post-war years; the struggle for what they call Merdeka, freedom, a natural struggle reflected throughout the colonial areas in the world; a struggle to put off the swaddling clothes, to get independence. Before then, the Dutch occupied what was then the Netherlands East Indies. I was privileged to view that scene. The Dutch were essentially reasonable colonisers but it would be fair to say that there was never there a structure of a public service, of a basic administration, that could endure through changes of war and peace and through cultural changes. The predominant public service was performed by the Dutch themselves and the Eurasians. When the war occurred and the Japanese invasion occurred, this was all destroyed. The Dutch, and indeed some Eurasians, were imprisoned-many Eurasians were imprisoned-and the Japanese installed a military administration. We make the terrible mistake of believing that, just because we have a public service that has evolved over the centuries, others have indeed been in the same fortunate circumstances. After the Sukarno uprising and the freedom of Indonesia, the Sukarno regime was forced, inevitably in the early stages, to employ the military as a rudimentary public service. This inevitably was inefficient. It contained many difficulties. It tended towards some elements of corruption, but it was what was necessary and available at the time. I do not make excuses for difficulties that could have been avoided, but I have to say that it is no bad journey indeed in 40 years for a country which had no basic public service and public administration to evolve and to build what is today a stable nationhood, a peaceful nationhood, and one which is progressing. I want to point out the immense difficulties that were faced. Here is a nation that was created by the accident of a papal decision in the early sixteenth century, a decision born of the view that the earth was flat and a decision born of the quarrels between the Portuguese, the Dutch and the Spanish. It was created simply because the Dutch East India Company came round the Cape of Good Hope and explored east to an island which was called Timor-meaning, in Malay, east. Of course, the voyage around Cape Horn by Magellan to the Philippines, his own death and then del Cano, his lieutenant, bringing the good ship Victoria to Timor resulted in the creation of a nation, which became the Netherlands Indies, the Dutch East Indies, and of an island, Timor, with division-Portuguese at one end and the Dutch at the other end. All this occurred in a period 300 years ago, and with the conflicts built in. Here is a nation, not 40 years old, which has inherited literally thousands of islands stretched over several thousand miles of sea. It is a nation totally heterogeneous in races, in religions, in cultures-a nation essentially, primarily, Islamic in Sumatra and Java, with Hindu cultures built into Bali and elsewhere, with Christian cultures in Flores, Ambon and elsewhere and with other religions and cultures in islands such as Timor, Sumba, Sumbawa and Lombok throughout the whole area. It is a nation created, as I say, by the accident of war, a nation which seemed almost impossible to govern and in which to achieve stability. Nevertheless, it is to the credit of the Suharto regime that it has achieved that measure of stability. It has a long way to go. I can only say, having visited Indonesia in the time of the Dutch, in the time of Sukarno and in the various times of Suharto, that I have seen very, very significant progress, and I wish the Indonesians continued progress for the future. Of course, there are difficulties; of course, there are mistakes; of course, there are errors to be pointed to. I simply stress that here is a country overcoming great obstacles in terms of its size and nature. It is a country too that is integrated with South East Asia in the Association of South East Asian Nations with other countries such as Malaysia and Singapore, a country playing its part in the stabilising of the region and in the peacekeeping of the region. It is sad when we seek to speculate in some hypothetical way whether at some time or other any one of our northern neighbours might become hostile or create enmities in our region. If those are the kinds of hypotheses, they are best left to the drawing boards. They do no good at a time when, in fact, it is perfectly clear that the Suharto regime is a peaceful regime, a non-communist regime, and one that wants to pursue its economic course. I want also to basically say that we ought not to continue the East Timor dispute as a basic obstacle between the two countries. Whatever may have been the reasons in the past, it would be disastrous if we continued. I speak with some very considerable sympathy for the East Timorese, having spent some little time of my life there, and with admiration for their bravery in the war years. The fact of the matter is that the Portuguese, who put in only a rudimentary colonial system with very little of the health systems support props or very little basic agriculture, left hastily and the world itself did not face up to what should happen in that regard. The region itself offered no solutions; the United Nations offered no solutions; and there was a takeover. Whether that takeover was the right thing or not is for history to adjudge. Certainly it has happened and certainly one cannot now, with hindsight, put forward other views. It has happened. Timor is there. What we basically need to be sure of is that the Indonesians understand that we have a warm sympathy for the Timorese people. If it is necessary, and if it is in the competence of the Indonesians for us to do so, we would like to move amongst them. We would like, if it is necessary, to bring supporting aid, in terms of medicines and foodstuffs, to them. Basically, the greatest assistance that we could bring to those 500,000 or more East Timorese would be medical assistance-immunisations which could fight against the diseases that the Europeans brought to them, specifically upper respiratory tract diseases, tuberculosis and so on. If we can indeed help them in bodily strength and health, they themselves can subsist on the minimal foodstuffs on the island. I know from some personal experience just how little nutriment one needs to stay alive if one has a healthy body. What does this add up to, Madam Acting Deputy President? I rose because I am disturbed that incidents appear to be perpetuating a degeneration. Mature people who are next door neighbours, mature nations which are adjacent to each other, ought to be able to have from time to time arguments or disputes about questions of fact and to ride over those because fundamentally, I repeat, the issues that unite us ought to be so much bigger than the issues that divide us. That must be so. We ought by now, after 40 years, to have a mature relationship. We ought to understand that the peoples of Indonesia have cultures, religions, languages and value judgments different from ours. We ought not, in the arrogance of our own Western ethos, our Westminster ethos, believe that only our values are right. We ought to understand that others have different views and that democracy itself, as we understand it, is not necessarily a universal concept that is more perfect than others. We must ourselves bring tolerance and understanding. There will always be faults on both sides. All I ask is: Let us get the mature relationship and let us journey together to keep a region which is an exciting but dangerous region a stable one for peace and good government in this world. Senator CRICHTON-BROWNE(Western Australia)(1.13) —I would like, if I might, in the short time I have to make some observations about what might be described as the pending gold tax. Amidst last year's taxation reform debate the Government dragged out the old issue of the taxation of gold. If there is one tax that has been recognised for over 60 years as detrimental to the welfare of the economy as a whole and a disaster to many regional towns in Australia, of course, it is a tax on gold. Should such a tax be introduced by this Government it would be a disaster for the gold mining industry and, as such, it would be a loss to the nation and particularly to the State of Western Australia. Let me examine why the gold mining industry is exempt from taxation now, why it should continue to be so and what will be the consequences if the Government takes the disastrous step of introducing this tax. Let me say, before I go any further, that the Liberal Party has made its position clear; that is, it will not introduce a tax on gold. For my part, I thoroughly endorse that and, in the event that this Government chooses to introduce one, I will use in my modest way whatever methods are available to me in this Parliament or in a legislative form to have it repealed. The Australian gold mining industry was first exempt from taxation in 1924. This occurred after a long period when the price of gold had been fixed while the costs associated with the mining industry were rising. Inevitably, this resulted in declining profitability in the industry and in 1922 the number of people in the industry fell by 15 per cent, tonnage by 30 per cent and yield by 16 per cent; and dividends also fell by 28 per cent. Gold mining operators moved to mining only high grade ores. Anybody who understands the mining industry will understand the disastrous consequences and effects of that. The long and short of it is that what would normally be economic deposits are left in the ground. In terms of deep mining, underground mining, once the pillars and the stopes are left there, they cannot be knocked out at a later date and the ore recovered. It is ore that is left in the ground-of value but lost forever. In 1922 the then Government responded to this depressing state of the industry by exempting gold mining and prospecting from taxation. The government of the day clearly recognised the connection between the return which gold miners and prospectors received for their money and efforts and the level of activity in the industry. The then Government, of course, must have also recognised the connection between the level of profit in the industry and the quality of ore which companies would mine. As profits are reduced, the industry, as I say, is forced to mine only the high grades and hence the more profitable ores. By the early 1930s the gold industry had returned to a healthy state. It was well that it did, for during the Depression, while the remainder of the country was economically stagnant, the gold industry played a major part towards relief of unemployment. Many people migrated to the goldfields both from within Australia and from overseas. Interestingly enough, so much was the migration from Europe that in 1934 rioting occurred generally in the Kalgoorlie area between European emigrants. Many of the traditional animosities, of course, were transplanted by the migrants from their many countries of origin to the goldfields area of Australia. There was an enormous amount of conflict at that time for a range of reasons. Not only did gold generate employment for the people employed in the industry directly during the Depression, but it also alleviated the difficulties of the times for many other associated industries. In his book Mining in Western Australia, written for the 150th anniversary celebrations in Western Australia, Rex Prider cited a Western Australian research economist, G. B. Snooks, who said: It is clear that the poor performance of the agricultural and pastoral industries in the 1930s would have been a greater disaster if it had not been for the existence of large deposits of gold bearing ore in Western Australia. Gold retained its exemption, of course, from taxation until the election of the Whitlam Government. In 1973, the Labor Government announced its intention to remove the exemption for gold mining and for prospecting. Mr Crean, the Treasurer at the time, when announcing that the Labor Government intended to withdraw the tax exemption for prospecting and the profits of gold mining companies, said that the Government believed that the original purpose for the tax concession had all but vanished. Mr Crean, on 28 August 1973, went on to say: I find it a little hard to believe that the taking away of half the profits of the industry- that is what the announced tax measure will mean- will bring the amount of desolation and destitution in that area that some people have suggested. On 12 September 1973, 30 men were promptly sacked from North Kalgurli Mines Ltd and this was attributed to the plans to introduce a gold tax. The Government wisely later reconsidered its decision to withdraw the exemption from gold mining companies. This proposal was abandoned, but the exemption for prospectors was withdrawn late in 1973. The exemption was reintroduced by the Fraser Government in 1977. The Hawke Government has again resurrected the proposal to withdraw the exemption from tax for the gold mining industry. It seems to me to make no sense to introduce a tax on gold. The most obvious effect it will have is to reduce the returns which investors and prospectors in the industry will receive for their efforts. In so doing it will frequently mean that they will simply not be making those investments in the future. The simple connection between the potential profit which can be derived from gold mining and the amount of exploration, investment and production which results is something which was recognised as long ago as 1924. Gold is currently a growing industry which is employing more people each year and which is building towns and opening up the remote areas of Australia. Direct employment in the gold mining industry has grown from 2,691 people in 1980-81 to 3,949 in 1983-84. Employment in the industry is currently estimated to be in excess of 5,000 people. In five years this represents a growth of nearly 100 per cent, or an average of 20 per cent per year; and, of course, the indicators are that the multiplier normally used in respect of the gold mining industry is 4:1. Gold production has increased from 18.2 tonnes in 1980 to 25.8 tonnes in 1983 and it is expected, in the very near future, to reach 100 tonnes annually. Exploration expenditure in the industry has increased from $68m in 1980-81 to $177m in 1984-85. This increase has been in the order of 150 per cent. What these figures mean can be summed up in one word, and that word, of course, is `growth'. The industry is not only growing at a rate which is faster than for many other Australian industries, but it is expected to be able to continue that growth-in the event that there is no tax on gold. The Australian Gold Mining Council believes that by the end of 1987 an extra 8,000 people could be employed in the industry directly and in supporting industries. The imposition of a tax on gold would effectively reduce the profitability of the industry by half and jeopardise the growth in the industry. To attack the industry in this way would be particularly discriminatory when the assistance which was given to other industries is considered. The Government estimates that the concession which is given to the gold mining industry is worth $100m per year. This, of course, pales into insignificance when it is compared with the amount of protection that is extended to two other industries. From 1977-78 protection in the clothing industry was increased by 35 per cent until in 1982-83 it had reached a massive $1,434,897,000. In the same period protection for the transport industry was increased by 31 per cent until in 1982-83 it had reached $1,262,847,000. So the Government is obviously prepared to extend increasing levels of protection to other industries to the point where the protection now costs almost $3,000m, or 30 times as much as the concession which it gives to the gold mining industry. This does not reveal the true absurdity of the present Government's proposal, however. While employment in the gold mining industry is growing, employment in other industries such as the clothing and transport industries has been declining. The Government is, therefore, in the rather unbelievable position that it is prepared to provide increasing assistance to industries which are dying and to reduce assistance to industries which are growing, such as the gold mining industry. Apart from the fact that to tax the gold mining industry would be to jeopardise its growth, there are other reasons which are peculiar to the industry and which lead to the conclusion that a tax on gold should not be imposed. One of these reasons is the way in which gold mining is financed. This should be compared with the financing of other mining operations such as coal, iron ore, other base metals and minerals. When a coal project, for instance, is started it is usual for a company involved to sign long term contracts to supply coal to an overseas consumer. There are a number of examples one could give in the coal mining industry, the iron ore industry, the bauxite industry, and in fact in most base metal industries, where long term contracts are able to be negotiated with the buyers. These contracts, of course, have fluctuating clauses which allow for renegotiation in the event that the economic circumstances in Australia vary one way or the other so as to impinge upon both the buyer or the seller. Of course, gold is not sold in that way. Nobody ever signs a 10-year contract to supply gold. Though there is a developing futures market for gold and an increasing use of gold loans, the majority of gold that is sold in Australia is sold on the spot market. This immediately exposes gold producers to the fluctuations in the price of gold, and perhaps I will say more about that shortly if time allows. Another implication of the industry being financed in this way is that, unlike the coal industry or other base metal industries, the prospective gold producer has no asset with which he can approach vendors and seek to borrow funds. Even the ultimate type of tenure, the type of title that is granted to a gold mining company, is quite separate and quite distinct from that which is granted to base metal and mineral mining companies. In Western Australia, for instance, in the iron ore industry, the State Government, by way of legislation, provides a special title for the iron ore companies so that they have security of tenure over the title and the deposit itself becomes an asset against which money can be borrowed and raised. That is not the case with gold mining companies. There have been a number of examples where gold mining companies, by accident, defaulted under the various State mining Acts and lost their leases. Inevitably this means that there is a high dependence on equity financing in the industry and, as I said earlier, if the investors who contribute the funds to these projects cannot see a sufficient return on their money, they will, of course, not invest. Despite the high reliance on equity finance in the industry, there is some debt financing. A characteristic of the debt financing for the gold mining industry is that it is typically, naturally, short term. In the absence of an asset, such as a long term contract or a security of tenure, lenders are not prepared to extend long term financing to an industry such as gold. Loans are typically in the order of only three years. To service and repay loans which are over such a short term, gold mining companies must maintain naturally very high cash flows. What, one might ask, will be the immediate impact of the introduction of a gold tax? Of course, it will be to reduce gold mining companies cash flows. In so doing, it will reduce the ability of the companies to service any debt commitments which they presently might have. What will be the response of the gold mining companies as they try to increase their levels of cash flows so as to meet their debt repayments? They must, of course, opt to mine only the high grade ore bodies and abandon the poorer grade ores even though these ores would otherwise have been profitable. This is an aspect of the introduction of a gold tax which few people outside the industry would consider. While many might recognise that reduced profitability through taxation might cause future investors to invest only in the higher grade mines, few would realise that it will have this impact on existing operations. It will do so as miners struggle to maintain higher cash flows to meet their debt commitments. Had time allowed I should have gone on to give further and better details in respect of this argument. Perhaps at a later time I will do so. Senator PARER(Queensland)(1.27) —I wish to speak briefly about compulsory unionism and individual rights. I would like to refer in particular to one case of a Mr Bob Weir who lives in suburban Brisbane. I want to talk about Bob Weir because he is just simply one of thousands who have become caught up in compulsory unionism, in what could be described, in fact, as an illegal type of compulsory unionism, but who have been sent broke simply because of the power of the union movement itself. Mr Bob Weir was a trucker. He had two trucks. He drove one himself and for the other one he employed a driver. He was a member of the Transport Workers Union for 25 years. He is a man with a wife and two or three small children. In 1981 Mr Justice Northrop, in the Federal Court of Australia, ruled, in a case brought on by the Industrial Relations Bureau, that independent contractor owner-drivers were not eligible for membership in the Transport Workers Union of Australia. Justice Northrop gave the TWU three months to alter rule 4 of its membership rules, which it was unable to do. Consequently, Justice Northrop ruled that the owner-drivers were not eligible for membership of the TWU. In October 1981 Bob Weir resigned from this union and, after attempts by certain factions within the TWU to have his resignation withdrawn, the Federal Council of the TWU ruled that the resignation was valid and must be accepted. Those factions then called on the Australian Council of Trade Unions for support against this-what they called-anti-unionist and his group who were attacking and could destroy the `very democracy of the trade union movement', to use their words. The ACTU agreed to support unions in their fight against these owner-drivers and many other small business personnel who dared to try to set up and conduct their businesses without paying the required protection money. That is all one could call it, because no longer were they supposed to be in the union anyway. Mr Weir had contracts. One of his contracts was with the Sunday Sun in Brisbane. When he arrived at 2 o'clock one Sunday morning to pick up the newspapers, he was met by an official of the TWU called Hughie Williams, with a bunch of other heavies, who said to him: `Are you or are you not going to rejoin the union?' He said: `No, I am not because of the Northrop decision in the Federal Court. I do not have to; in fact it is illegal if I do'. They said: `Please yourself, but if you do not you are going to lose this contract'. He did not believe that could happen. He believed that we lived in a free country, so he decided he would not rejoin the union, having been a member for 25 years. On the departure of the trade union officials, he was approached by the management of the publishing house of the Sunday Sun. The way he tells it, he pulled up at a loading dock of the publishing house and was told by the management of the Sunday Sun that they could not speak with him within the premises because if they did there was a good possibility that there would be industrial disputation and no papers would be delivered. So he was spoken to in the car park of the premises and he was told in no uncertain terms that, because he would not join a union that Judge Nothrop said he should not join, his five-year contract would be terminated unless he paid his union dues. He was in a dilemma and he really was not sure what to do. He was encouraged by others to stick to his guns and told that he would get support because he was legally correct in what he was doing. He did stick to his guns. The result is that Bob Weir has lost his business, has gone bankrupt, has lost both his trucks and cannot get a job-unless of course he goes back cap in hand and agrees to pay union dues to a union that he does not in fact need to join. We hear a lot about Amnesty International, which I believe is an excellent organisation. It looks at people that are oppressed in other countries. I suggest that what we need to do in Australia is look in our own back yard, because this is the sort of thing that should never be permitted to occur in Australia. If it does occur, if that sort of coercion, this sort of stand-over tactic, and this sort of blackmail, are allowed to go on without the people responsible for it being punished, there is something sadly wrong in Australia. Mr Weir has used every legal avenue open to him. He has not stooped to the same sorts of practices that were placed upon him. He has used every legal avenue. Because of the way in which industrial law and so on is set up in Australia, the ordinary little guy like Bob Weir cannot pursue his case because he does not have the money. Unions like the TWU have the money to allow these things to go on for years and years. Either they send the person bankrupt first or his wife and family get so disturbed that he is forced to pay this protection money. Is Mr Weir legally correct or is he not? Let me quote from an employment practices seminar held by the Trade Union Training Authority on 12 December 1984 in regard to this matter. The speaker was a Mr A. Boulton of the ACTU. A summary of his speech, which was entitled `Legal Implications', was as follows: Unions lack a National strategy to deal with the growing area of sub-contracting and must have a mechanism available to enrol these areas. There must be a regulation of rates, that is, a minimum standard which is enforceable by the Trade Union Movement. The previous Labor Government-- the Whitlam Government- amended section 132 of the Conciliation and Arbitration Act which allowed Unions to enrol non-employees, however, that Legislation was subsequently changed by the Fraser Government. Unions should pursue, through the ACTU for restoration of the previous provisions of section 132 of the Act. This is the important statement to determine whether Bob Weir is right or wrong: It was pointed out that the independent sub-contractors who were recruited into unions despite section 132 could lay open to challenge the result of union ballots if in fact these sub-contractors cast votes in the election. Quite simply, Mr Weir is correct but what he is subject to is blatant abuse of a monopoly power. Compulsory unionism is a brutal reality in Australia today. It cannot be enforced by law but it is widely practised nonetheless. It is implemented and maintained simply by monopoly power. Although one of the marks of a free society is supposedly the protection of the individual and minority rights, Australian workers and thousands of people like Bob Weir have little protection for their freedom to choose not to join a trade union. Peter Costello of the Victorian Bar has written an interesting article about this. To summarise his views, he indicates that the right to refuse to join a trade union is no less a basic and fundamental human right than is the right to join one. There are two sides to the coin. In each case the individual should be free to make his decision in exercise of his basic human right of freedom of association. This is a right contained in Article 20 of the Universal Declaration of Human Rights adopted by the United Nations, which provides: Everyone has the right to freedom of peaceful assembly and association. No one may be compelled to belong to an association. Australian workers, however, have no statutory protection of this basic human right in the work place. When they choose not to join a trade union they are subject to vilification and harassment and in many cases they lose their livelihood as a result, as happened with Bob Weir. The denial of the basic human right of freedom of association is the norm in Australian industry today. In the face of union coercion there are few who are able to exercise what should be their democratic birth right in Australia. Unions do not leave the question of membership to a matter of individual choice. They use the most brutal methods to enforce compulsory membership and thereby guarantee union income through membership fees and the continuance of a monopoly in the labour market which is no different from the monopoly in any other market. Trade unions run what amounts today to no more than a protection racket in Australian industry. The gentleman to whom I have referred, as I indicated at the beginning of this speech, is simply a symbol of thousands and thousands of people throughout Australia. His experience, which has been carried out in a most illegal and brutal way and for which he has no come-back, is a testimony to this. Senator ARCHER(Tasmania)(1.38) —I take the opportunity to raise the alarming state of affairs in the meteorology services. We have been going through a progressive reduction in services and staff, a deterioration of equipment, and a falling behind in the various technologies that go with the provision of these services. There are four particular factors that need to be taken into account in Australia as far as meteorology services are concerned: Firstly, the relative isolation in the world of the continent; secondly, the vast variety of climatic conditions and types that pertain from one end of the continent to the other; thirdly, the use of the services of the Bureau of Meteorology by industry, particularly primary industry; and, fourthly, the use of aerial transport in Australia, which is far higher than in any other country of the world. We used to have a service that was envied in most countries. We had very wide participation by people from all around the nation. That, because of cost, has had to be curtailed; and I accept that that is the case. But it has not been replaced with a system that is as good or as efficient, or is any better. The complaints that have been coming forward and the discussions that have been raised have not been as a result of some high pressure group working within the Bureau. They have not come from a group of public servants looking after their own ends or a union trying to do a bit of head hunting. They have come from a whole variety of areas, not the least of which, of course, is the Minister for Science (Mr Barry Jones), who is very well aware of the problem but does not seem to be able to muster the support to have anything done about it. In the annual report of the Bureau earlier this year the Director, Dr Zillman, made some very pertinent comments about the problems that he was suffering. In the last few days we have had a report from the Meteorology Policy Committee, which again is not stacked with Bureau officials but which comprises Dr Tegart, the Secretary to the Department of Science; Dr Zillman, the Director; Mr Hollings, the editor-in-chief of the Australian; Dr Smith, Chairman of the Accreditation Board of Advanced Education in Victoria; Mr Stuart of the Mount Newman mining iron ore project; and Mr Yates, Chief Executive of Qantas Airways Ltd. These people have the job of making recommendations as to meteorology policy and they have made some very alarming comments in their report. I believe that it signifies the state of affairs and the very urgent need to ensure that the country is adequately covered. The service is falling back and I think we should all realise that. We should be able to place enough importance on the safety aspects of this to see that we do not get into real trouble. We have had so many reports. I am not sure how many more we are going to have, but we do not need any more reports to tell us what is wrong. Doing nothing is not one of the options open to us. I know that to provide a service costs money, but I also know that not to supply the service will cost us even more. To have no information or wrong information is very expensive indeed. We only have to look at the report to which I have just referred to see that, on an annual basis, it is estimated that Australia loses $540m through cyclones, severe storms, floods or fires. The situation is worse than that because the Bureau of Meteorology has now started to issue qualified forecasts. With the services and resources available, it is no longer able to guarantee that the information it gives is correct. I had not really expected that we would ever reach that stage, but the equipment and the staff have been running down over many years. I am not saying that it has just suddenly happened, but we are finding that some of the equipment is now very old, is very run down and is being propped up and patched up in all sorts of ways. I remind the Senate that the Bureau has 64 radar systems, 23 of which are over 20 years old and 40 of which are over 15 years old. Sixteen of the automatic weather stations are now over 18 years old, and four of the satellite receiving stations, which are regarded as up to date equipment, are over 16 years old already. A program put down has indicated that it needs $33.5m over the next five years to get up to date-$25m for standard re-equipment and $8.5m for the re-equipment of the severe weather forecasting system, that to do with cyclones, particularly in the northern part of the country. The Policy Committee warned that, unless these resources were provided, a major breakdown in the Bureau's fragile infrastructure could occur, with serious implications for life and limb as a real possibility. I do not think that we have the capacity here to ignore statements such as that from an independent body whose job it is to advise on these matters. When I asked a question of Senator Button yesterday, he said yes, he was aware that the matter had been raised and that it would be viewed in a budgetary context. I believe that it is a matter that should be determined and automatically fitted into a Budget, if it is found that these claims and comments are justified. We have very severe weather conditions all round Australia. We have fires, floods, cyclones and severe storms and we need to make sure that the people in the areas of Australia where these occur are given a reasonable degree of forecasting and a reasonable opportunity to take the sorts of actions that are necessary. The keeping of records is not as good as it should be, to plan for the future. We need to be able to make sure that, as the need arises, so it can be met. I have had a considerable number of comments from people around Australia and I expect that a lot more would contact us if they realised the state of affairs as they now are. I am not soliciting comments and I do not wish to raise this as a matter of discontent against the Minister in any way because I believe that he is doing what he can, but I do make an appeal to the Government. I urge the Government to realise the absolute importance of upgrading. So much of the expendables used by the Bureau of Meteorology, of course, are imported. With the falling dollar, the cost of this equipment has already risen 50 per cent in the last three years. This has been met by cuts in staff or failure to replace equipment, and we cannot keep going in that direction. We need to encourage Australian industry to produce some of these expendables so that we do not have to buy them from overseas. The Budget is still quite a long way off when it comes to getting something started. If we are going to wait until the Budget comes down and then start to look at what we are going to do in the next five-year plan, it is going to take a lot longer and become even more expensive. I ask the Government for a statement of commitment, with a financial commitment to match it. I ask that that be proceeded with without delay. Sitting suspended from 1.48 to 2 p.m. Senator CHANEY —I address a question to the Leader of the Government in the Senate. I remind him that yesterday he nominated high interest rates and doubts about the currency as the reasons for the drop in private sector investment. Does he accept that wage costs and the level of expectations about future wage costs can also play an important part in investment decisions by business and industry? I ask him whether he agrees with the Treasurer's senior economic adviser, Dr Barry Hughes, that the gap between Australian and overseas wage outcomes has begun to open and, to quote Dr Hughes: If left unchecked, this gradual erosion of our competitive gains will threaten investment at a time when, unsettled by adverse twists of the terms of trade, we need it most. Will the Government take action to see that the gap narrows by ensuring further discounting of wages in the current wage case and beyond, as necessary? Senator BUTTON —I certainly nominated interest rates and the other thing in yesterday's Question Time as being factors which might inhibit investment. I think the factors which lead to investment decisions are basically questions of continuity and predictability-continuity in the sense that when the investment rewards are, hopefully, to be reaped there will be a good inflation rate, good wage outcomes and all those things in the Australia economy. I certainly agree that wage costs are a factor which is relevant to the question of investment. I agree entirely with what Dr Barry Hughes said. Insofar as the last part of the honourable senator's question is concerned, the Government is addressing those issues at present and I really do not feel free to make a statement about them at this stage. Senator ROBERTSON —I refer the Minister for Education to the article in today's Canberra Times concerning the Canberra College of Advanced Education. Can the Minister inform the Senate of the current situation concerning accreditation at the college? Is it a fact that the Minister is at loggerheads with the college over accreditation procedures, as expressed in the article? Senator RYAN —I am not at loggerheads with the Canberra College of Advanced Education, nor has my Department any disagreement with it, and there is no problem concerning accreditation of courses. Despite the various reports in the Canberra Times to the contrary, everything I have just said is the case. This matter was the subject of some questions yesterday at Question Time and further comments by Senator Teague. In response to Senator Teague, I undertook to have the allegations in the Canberra Times further investigated. I now have for the information of honourable senators a detailed statement on this matter and also a statement from Dr Parfitt, who is the Principal of the Canberra College of Advanced Education. I seek leave to incorporate these statements in Hansard. The PRESIDENT —Is leave granted? Senator Chaney —The Opposition is happy to grant leave if the documents can be tabled and also made available now because, in light of the fact that there were questions yesterday, we would like to see the statements now rather than in Hansard tomorrow. Leave granted. The statements read as follows- Statement by Minister for Education ACCREDITATION AT THE CCAE I undertook yesterday to provide a statement on matters relating to the accreditation of courses at the Canberra College of Advanced Education. Formal accreditation of courses at the CCAE is my responsibility. I am advised in this matter by a part-time Committee, the Commonwealth Institutions Accreditation Committee for Advanced Education. The Committee in turn appoints expert assessment panels to assess individual course accreditation proposals put by the College. The Committee has responsibility, not just for the CCAE but also for advanced education courses at the Australian Maritime College; Signadou College of Education; the Canberra School of Music; the Canberra School of Art; the Australian Film and Television School; the RAN College at Jervis Bay; the RAAF Academy at Point Cook; and HMAS Cerberus. The Committee and its panels are serviced by secretariat staff from my Department. There is a significant degree of interaction between the College, the Committee, panels and staff in the course of the processes. The accreditation process, which is the vital assurance of the quality of advanced education courses to the College, students, employers and the general community, is a cyclical process. Not only are new courses required to be submitted for accreditation but existing courses that are to be continued are reaccredited every five years. The processes applied in Commonwealth institutions are the same as those applied in State institutions under nationally agreed guidelines laid down by the Australian Council on Tertiary Awards. The only difference with the CCAE, which operates to its advantage in mounting courses, is that the College may begin to offer courses prior to their accreditation. The Committee and the College recognise that the accreditation process, properly and effectively carried out, will take 12 months. The CCAE has entered a cyclical phase where a very large number of courses are coming due for reaccreditation. The College has advised that 88 of its 115 courses are due for accreditation or reaccreditation before the end of 1987. This imposes a very heavy workload on the College and its staff, the Committee, its panels and its Secretariat. There have been delays in the accreditation processes; these delays have arisen from any large number of factors including the timeliness of accreditation submissions, the quality of submissions, the consideration of submissions by the Committee, the appointment of panels and arrangement of their visits to the College, the drafting of panel reports, the timing of their consideration by the College and the Committee and the making of recommendations for accreditation. I am advised that courses accredited to date in 1985-86 have taken on average, 15 months. It was in recognition of the complexity of these processes and the mounting pressure of the number of courses requiring consideration that action has been taken by the College, the Committee and the Department to facilitate the processes. The College has readjusted its internal handling of accreditation submissions to improve timeliness of submissions and their quality. The Committee has looked to streamlining its processes for the appointment of panels and receipt of their reports and for handling short-term extensions of accreditation. The Department has increased the resources available to the Committee by providing three secretariat staff instead of one as was the case in early 1985 and by seeking increased funding for establishment of panels through the budget processes. These matters were discussed by the College and the Committee at a meeting on 22 May. I am informed that the discussions were co-operative and fruitful and that agreement was reached on the measures adopted to enable accreditation to be completed within twelve months. The College, the committee and the Department have worked hard to ensure the successful resolution of accreditation matters and I regret the fact that certain unknown elements have sought to bring the processes into disrepute. This does them no credit, whatever their motives may be. It certainly does not call into question the whole process of accreditation. As I said yesterday, and I reiterate now, accreditation is an important assurance of quality to the College, community, students and employers. It is a nationally accepted process that will be maintained. While the accreditation process will continue, the means by which it is carried through may change. In this context I approved in April this year a revised set of procedures which will enable the College to eventually arrange its own assessment processes should it so wish. Those procedures will be available to the College after they have been considered by the Australian Council on Tertiary Awards at its June 1986 meeting. Again, this move is in line with similar developments in the States. All courses submitted by the College for accreditation or reaccreditation up to November 1985 have been assessed by panels. All courses received after that date and up till the end of May 1986 will be assessed by panels before the end of this year. If honourable Senators require further details a senior officer of my Department is available to assist. Statement by Dr Parfitt CANBERRA COLLEGE OF ADVANCED EDUCATION ACCREDITATION-REACCREDITATION OF COURSE In the editions of the Canberra Times of the 4th and 5th June 1986 there have been reports of problems regarding procedures for the accreditation and reaccreditation of courses at the Canberra College of Advanced Education. As far as the College is concerned this is not an issue of substance. There is no controversy between the College and the Department of Education on this issue. We are not at `loggerheads'. In a valuable discussion with the Minister for Education this afternoon I confirmed comments that I had made earlier. What few problems there were with accreditation procedures have been resolved by constructive discussions between the accrediting agency of the CIACAE, the Department of Education and the College. We are indeed most grateful for the manner in which the Minister's Department has assisted in rendering more effective and efficient the accreditation process. The accreditation procedure is an important facet of higher education, it helps maintain high and uniform standards across the country. Accreditation guarantees the high standing and quality of the Canberra College of Advanced Education's courses. I can confirm that no student has been disadvantaged by any delays there may have been in accreditation procedures. Dr R. T. Parfitt 5.6.86 Senator PUPLICK —My question is also directed to the Minister for Education. I ask the Minister whether she agrees with the following view expressed by the Minister for Industry, Technology and Commerce: Our education and training system has largely abstracted itself from the needs of industry and commerce, leaving much of its output without the necessary basic skills. But more significantly the vast majority leave school with only a mental void concerning industry and business. Does the Minister share Senator Button's reported concern about the enormous deficiencies in the education system-a system which, as Senator Button implies, fails to address the hard disciplines and has led to environmental studies, peace studies, women's studies and film appreciation being favoured as subjects over maths, English or physics? Senator RYAN —It is certainly true that I, like Senator Button and, I think, all other Ministers in this Government, am very well aware of the need for improvements and changes in education at all levels, not just at the school level, if education is to make a proper contribution to economic growth and development. That is a view which, I think, I first stated at the National Economic Summit shortly after we came into office and it was a view based on the gap between various education systems and the needs of the labour market and industry which was very apparent to us when we took over the administration of this country in 1983. Since that time I have taken a number of initiatives which I believe are starting to overcome that gap, and I have had the co-operation of my colleague Senator Button in these exercises. It would take up a great deal of the time of the Senate if I were to detail all those initiatives, but I point, for example, to a meeting I had with a committee of the Business Council of Australia two days ago at which the committee and I agreed on a number of new steps, such as regular liaison between the education committees of the Business Council of Australia and my Department and commissions, the appointment of more people from industry and more people with business backgrounds to various education committees, committees of review and inquiry, and regular consultation with the Business Council of Australia and other industry groups on major developments in education, such as the current Commonwealth review of tertiary and further education funding and the efficiency and effectiveness review of higher education which is nearing completion. I think these steps demonstrate the seriousness of our intention to bring schools, education institutions and industry closer together. I believe that we will see benefits from that in the near future. With regard to Senator Button's reported remark about the unpreparedness of many young people on leaving school for the world of work and their lack of knowledge about the world of work, there have been specific responses to that. The Curriculum Development Centre is developing curriculum material around the subject of the world of work and in several of the State systems, particularly in Victoria in response to the Blackburn report, a core subject for senior secondary students on the world of work is being developed. So I think Senator Puplick can be satisfied, as I know Senator Button is satisfied, that steps are being taken at the Commonwealth level but also at the State level to overcome these deficiencies. With regard to the last part of Senator Puplick's question, I do not think it is useful to get into a slanging match about the choices of subjects that students might take. I think it is perfectly possible, for example, for students to study physics, mathematics and environmental studies, should they wish. I think it is perfectly possible for the study of peace issues to be incorporated into traditional subjects, such as history or economics. I do not think it is useful to suggest that it is an either/or situation, that students must opt either for physics and mathematics and no subjects from the humanities or the reverse. What I would like to see is as broad an education as possible for all students, which would prepare them specifically for the work force and higher education but also to make a constructive contribution to living in a democratic society, to which some of those subjects pertain. Senator PUPLICK —Mr President, I ask a supplementary question. Let me put again the central part of my question: I ask the Minister whether she agrees with the following words in the text of Senator Button's statement: . . . the vast majority leave school with only a mental void concerning industry and business. Senator RYAN —I do not think I could agree that the vast majority do. I would need a better database than I have available to me to agree with that. Certainly too many students leave school not understanding the world of work and, for that reason, the Commonwealth is undertaking the measures that I have just described. Senator CROWLEY —Has the Minister representing the Treasurer seen the Australian Bureau of Statistics figures issued today on savings bank depositors' balances? If so, can he comment on these figures and can he say whether they indicate that the Government's interest rate strategy for home loans is working? Senator WALSH —The answer to the last part of the question is that certainly on the deposit side of savings banks it is working. The April figures show that savings bank deposits increased in seasonally adjusted terms by a massive $2,157m. Granted, about $400m could be attributed to an interest payment being credited to accounts in April rather than May, as would normally have been done. But at a net figure of, say, $1,700m, and looking back over the figures for the previous 14 or 15 months, in no other month over that period have deposits increased by more than $392m. So there has certainly been a massive increase in savings bank deposits in that month, almost certainly heavily related to the fact that interest rate ceilings for new lendings have been lifted and that savings banks have been able to offer more competitive interest rates to depositors. It is also true-while answering this question I think I should note this-that residential building approvals for the month of April have not yet turned up. That is not surprising because one would always expect a time lag of some duration, probably several months, between changes in the availability of finance and in building approvals. Senator MASON —I ask the Minister representing the Minister for Health: Did he see comments by Dr John Pierce of Sydney University that a survey had shown that 21 per cent of young people would use the drug cocaine if a friend offered it to them? Has the Government noticed Dr Pierce's comments that cocaine has been glamourised in films and television and that young people believe it is not addictive? Will the Government act immediately to inform the community about the rapid and inevitable addictivity of cocaine; the problems such as very severe depression that accompany withdrawal from the drug and the fact that higher doses can be lethal? Finally, will the Government now include cocaine in its national drugs offensive? Senator GRIMES —The Minister for Health has given me some information on the article in the survey on which that article was based which I think will assist Senator Mason and other senators. The survey was conducted and commented on by Drs Pierce and Levy in the Medical Journal of Australia in the last week or two. It was funded by the national campaign against drug abuse. It comprised a sample of 1,000 14 to 19-year-olds in Sydney. It confirmed that very few young Australians had ever tried or knew anybody who had tried cocaine. The article focused on the response to one question in which 7.8 per cent of the young people surveyed, rising to 21 per cent of the 19-year-olds, who numbered 123, said they might-I repeat they might, not that they would-try the drug if offered it by a trusted friend. From this survey the article suggests that there exists a potential demand for cocaine which would easily be taken up if increased supply of the drug became available. However, honourable senators should know that this is not the only information which we have from research which was commissioned as part of the national campaign. A survey of 2,800 people on attitudes to drug abuse conducted for the national campaign against drug abuse shows that cocaine is perceived by young people to be nearly as dangerous as heroin and the likelihood that a young person will experiment with it is within two percentage points of the result of Dr Pierce's survey for the likelihood of experimentation with heroin. The national survey showed that only 3 per cent of 14 to 19-year-olds would try cocaine if it were offered to them by a trusted friend. As well, most young people within that survey, some 90 per cent, see cocaine as a very dangerous drug. It should be noted that the 21 per cent figure that has been quoted relates only to 19-year-olds. To infer from the response of one age group that behaviour contrary to the behaviour reported from the whole of a sample would occur is to distort the results of that survey. Over the whole age population surveyed the figure is very much lower and Dr Pierce's survey actually shows that overall a very much smaller number of persons in the 14 to 19-year-old age group might try cocaine if offered it by a trusted friend. This is very similar to the data obtained from the national survey which gave a figure of 3 per cent for this age group. I am sure there will be continuing academic argument as to whether the results of one small survey in one metropolitan area should be used as a basis for general conclusions on national trends. However, left to the Minister for Health, honourable senators can be assured that the national policy on cocaine, including the use of the media to counter abuse of the drug, is currently being addressed by the Ministerial Council on Drug Strategy, the body which has the overall carriage of the whole national campaign, including the drug offensive. At its meeting on 2 May, the health and law enforcement Ministers from all States, Territories and the Commonwealth put in train measures to enable a national approach to cocaine abuse to be developed and implemented. Agreement was reached that the Commonwealth would be supplied with data from treatment agencies, hospitals and other sources within the States and Territories, no later than July 1986 on the real, not the surveyed, extent of problems of cocaine abuse in Australia. Statistical surveys like this do show trends and are useful in anticipating what national trends may be in the use of drugs such as cocaine. We do not need national surveys to tell us that cocaine is a dangerous drug; we do not need national surveys to tell us that there are the problems to which Senator Mason has referred such as depression-- Senator Chaney —Mr President, I raise a point of order. This answer is much more in the nature of a statement on a matter which is of great public concern. The Minister is well on to his second page of closely-typed material. I suggest that if the Government wishes to make a statement on this matter it should do so in the normal way and allow some opportunity for debate. The very lengthy answer to the question is quite inappropriate for Question Time. Senator Grimes —Mr President, on the point of order: I can assure Senator Chaney that I am not on to the second page of closely typewritten pages at all. At the moment I am finishing the answer to the question all on my own without reading anything from the paper. If I had read from the answer that was given to me I would be going on to a third page of closely typewritten material. All I am saying, as Senator Chaney says, is that it is an important question, that the drug does cause the problems that Senator Mason talks about such as depression, and problems with withdrawal that are lethal-- The PRESIDENT —Order! Is the Minister still referring to the point of order? Senator GRIMES —No. I am ignoring his point of order, Mr President. The PRESIDENT —I cannot ignore the point of order even though the Minister might want to. There is no point of order. As the Leader of the Opposition would know, the Chair has no discretion as to the time limit on questions or answers. If the Senate wants to impose time limits it should take the matter to the Standing Orders Committee. Senator GRIMES —Again I am aware of the problems and honourable senators should be aware of the problems associated with cocaine abuse that were alluded to by Senator Mason, including problems that he did not allude to, problems in the nasal area and nasofacial area. The fact that the Federal Minister and the State Ministers are bringing into train that part of the drug offensive to refer to cocaine should give Senator Mason and us all some heart. We have plenty of information, particularly from the United States of America, on the evils and dangers of the use of cocaine. I think cocaine will receive the prominence that Senator Mason wants it to achieve in the drug offensive in this country. Senator MASON —I ask a supplementary question. The Minister in his comprehensive answer, for which I thank him, did leave out one rather important point which I think is very valid. I asked for the Minister's comments on the fact that cocaine has been glamourised in film and television programs shown and telecast regularly in this country, which I personally think is an iniquitous situation. Senator GRIMES —I am not aware of the programs that Senator Mason knows about; I obviously do not watch enough television. Cocaine should not be glamourised in that way. I would have thought in more recent times the very real dangers of cocaine have also been broadcast on national television in this country. Prominent people such as actors and prominent American sportsmen who have got into difficulties with cocaine have been seen giving their stories. I think that more emphasis should be placed on this. I think that any attempt by the national media to use any material which glamourises cocaine is to be abhorred. I will refer that matter to the Minister for Health and, in fact, to the Minister for Communications. Senator VALLENTINE —My question is addressed to the Minister representing the Minister for Defence. I ask: Has the Minister seen recent reports in the Australian newspaper stating on the one hand that United States officials are claiming that the Hawke Government has been discouraging United States warship visits to Australia, and on the other hand the statement by a senior Pentagon official that the United States wants more warship visits to Australia and the South Pacific `if they will accept us'? As I come from Western Australia which gets around two-thirds of United States warship visits to this country, can the Minister say whether we will get fewer warships in the future or whether we are going to accede to the demands from the Pentagon and get more? Finally, may I ask the Minister whether he knows why the United States is increasing its warship activity in the Indian Ocean and wants more port calls to Australia when its own Department of Defense publication entitled Soviet Military Power concedes that the Soviet naval presence in the Indian Ocean actually has decreased in the last few years? Senator GARETH EVANS —I am aware of the newspaper articles to which Senator Vallentine referred. They were written by Peter Samuel-another right wing ideologue like David Barnett-whose indifference to the truth and willingness actively to perpetuate error, even when the truth is pointed out to him, is in exactly the same class as that gentleman who was entirely appropriately dealt with by my colleague Senator Walsh yesterday. Senator Peter Baume —Mr President, I rise on a point of order. Is there no standing order that will protect members of the public against this kind of attack under privilege? If there is not, is there any standard of good behaviour and reasoned conduct that should stop the Minister from behaving in this way? The PRESIDENT —Order! The Minister is not offending Standing Orders. Senator GARETH EVANS —Mr Richard Armitage, the Assistant Secretary for Defense in the United States, has told Australian officials that he said nothing of the sort represented by Peter Samuel in the article. Moreover, he had checked and no one else with any authority-- Senator Chaney —The failed Attorney-General. Senator GARETH EVANS —A failing leader and a sanctimonious little wimp to go with it. The PRESIDENT —Order! I ask the Minister to withdraw that remark. Senator GARETH EVANS —Mr President, I withdraw and continue the answer. Moreover, Mr Armitage has advised the Australian Government that he had checked and that no one else with any authority to speak on these matters had given Samuel advice of the sort he claimed to have had from the Pentagon. Senator Chaney —The failed Attorney-General. Senator Robert Ray —Mr President, I raise a point of order. Quite properly, Mr President, you have drawn the attention of the Senate to my behaviour on a lot of occasions. However, the Leader of the Opposition is continually interjecting. He really should have a better sense of his own responsibility. The PRESIDENT —Order! I hope that the Chair does not need any assistance in the control of conduct of honourable senators in this place. I ask Senator Chaney to restrict his interjections. Senator Chaney —Mr President, the failure of the Standing Orders to cover the incessant bloody rudeness of this Government and its attacks on people who are not protected by the Standing Orders make it very difficult to prevent interjections. I think there has been a most disgraceful use of the Parliament over the last two days. The PRESIDENT —Order! There is no point of order. Senator Grimes —Mr President, I wish to speak on the point of order. I make the point that I well remember the instance of this Parliament when that honourable gentleman and knight of the realm, Senator Sir John Carrick, stood in this place and for 15 minutes or so in Question Time abused Professor Manning Clark. I did not hear Senator Chaney, Senator Peter Baume or any of their colleagues rise to the defence of Professor Manning Clark at that time. I think that demonstrates their double standards and the reasons why you should ignore Senator Chaney's point of order. The PRESIDENT —Order! I have already ruled that there is no point of order. However, I ask honourable senators on both sides of the chamber to respect the dignity of this place and the decorum that should go with it. Senator GARETH EVANS —I repeat that Mr Armitage has advised the Australian Government that the Samuel article was incorrect in every particular and misleading. He further said that, as we would know, there had been no request from the Australian side for the reduction of ship visits and nor was any consideration being given to any such reduction. I add further, on behalf of the Minister for Defence, that the pattern and frequency of visits is primarily a function of operational factors. The Australian Government must, of course, individually approve each request for a foreign warship to visit its ports. As Mr Beazley said on 11 October last year, Australia and the United States are examining options for increasing the spread of United States ship visits to Australia-a proposal which the United States supports. The implementation of this proposal will, of course, be influenced by operational factors. There is no increasing trend in the United States of America warship activity in the Indian Ocean. Senator NEWMAN —I ask the Minister for Education whether she supports moves within the Labor Party to extend significantly the areas of accountability to increase greatly the detail required to be provided to the Government by non-government schools? More specifically, will she at next month's Australian Labor Party National Conference be supporting the proposed changes to Party policy which will require, among other things, schools to provide details on employment and exclusion policies, school policy making structures and the value of capital assets? Senator RYAN —Most of Senator Newman's question is out of order. It is not in order for her to ask the Minister for Education about Australian Labor Party matters. I certainly do not propose to inform Senator Newman, or any other Opposition senators in this place, about a Party matter. However, on the general point of improved accountability procedures I can say that there have been improved accountability procedures carried out and put in place for this year and for 1987. Those procedures were put in place after extensive consultation by the Commonwealth Schools Commission and the Commonwealth Department of Education with all relevant groups. Just yesterday I had a meeting with the National Council of Independent Schools representatives who said that they were not dissatisfied with the new procedures. After those procedures are in place for two years there will be further consideration given to further recommendations on accountability matters which were made in last year's Commonwealth Schools Commission report. The matter of accountability is a very important one. Our Government takes very seriously its responsibility to account for the use of Commonwealth funds. The area of education is no exception to this. I am pleased that accountability procedures have been strengthened and improved. I believe that they have been done so in a way that will benefit the non-government school sector and not be to its disbenefit in any way. Should there appear any difficulty with the new procedures the matters will be looked at again. Senator COLEMAN —My question is directed to the Minister representing the Treasurer. I ask: Has the Minister's attention been drawn to a full page advertisement in this morning's Sun newspaper regarding a protest meeting held in Melbourne at noon today protesting against the fringe benefits tax? In that advertisement it is stated: It is outrageous that this new tax is being imposed on business rather than employees. I ask: Does the Minister care to comment on that statement and its accuracy? Senator WALSH —I have seen the advertisement in question. It is headed `Tax revolt rally today' and is inserted by the Australian Small Business Association and the Australian Federation of Employers-which, if I remember correctly, is the organisation of which that former Sir Phillip Lynch staffer, Andrew Hay, is the President. Of course, similar calls have come in the last couple of weeks from the Premier of Queensland; the President of the National Farmers Federation, Ian McLachlan; Andrew Hay; Katharine West; and Des Keegan. Indeed, they have been coming from a range of political opinion from the rabid Right to the far Right. Often they have been backed up with calls to defy the law and not pay the tax. The most common and erroneous assertion concerns the question of whether the tax should be levied on the employer or on the employee and the alleged moral and administrative ramifications of that. As well as the rabid to the ratbag right, to which I have already referred, there are other more responsible business groups that have complained about the tax on that ground, completely unaware, obviously, of the fact that to impose the liability on the employee would increase the complexity of the tax because all of the valuation rules and substantiation procedures which are contained in the fringe benefits tax legislation would still be required if the Government had chosen to tax the employee under section 26 (e) of the Income Tax Assessment Act. There would, however, have been additional requirements on the employer to identify fringe benefits for each individual employee and to make PAYE deductions each fortnight, or even each week, rather than simply to pay quarterly as with the fringe benefits tax. All of that was detailed in the draft White Paper published just over a year ago on pages 88 and 89, if anyone wants to refer to it, but it appears to have been conveniently forgotten by the groups to which I have referred and the Opposition. PAYE is relevant to the general claim that the tax should be levied on the employee rather than the employer. If we taxed the PAYE employee, the employer would still be legally required to calculate, withhold and pay the fringe benefits tax as the employer is currently required to calculate, withhold and pay the income tax due on wages. Another claim is that the tax burden would be less on the employer if it was taxed through that route and not through the fringe benefits tax. There is probably some truth in that, but not very much. Under either approach, the actual outcome of who finally bears the cost depends very much on the extent to which the burden is shared between the employer and the employee. But it is ludicrous to assume that if the section 26 (e) route had been taken-that is, using the present Income Tax Assessment Act-that outcome would have been substantially different. In short, the choice between taxing the employee and the employer is not a choice between extremes other than in the very short term in its final distribution and cost. The fringe benefits tax has administrative advantages for all. A final point: It might be noted that it would be highly unlikely, if not impossible, to have been able to exempt charities had the Government chosen to tax the employee for the fringe benefits being received. The PRESIDENT —I draw the attention of honourable senators to the presence in the far gallery on my right of a former Deputy President of the Senate, Mr Ron Maunsell. On behalf of all honourable senators, I extend to Mr Maunsell a warm and hearty welcome upon his return to Canberra. Honourable senators-Hear, hear! Senator BJELKE-PETERSEN —Will the Minister for Education join with the Association of Classroom Teachers in the Australian Capital Territory in rejecting the call by the Australian Capital Territory Teachers Federation for an end to interest subsidies to non-government schools in the Territory? Senator RYAN —The Government has no plans to change funding arrangements for non-government schools in the Australian Capital Territory. Senator COOK —I direct my question to the Minister for Resources and Energy. Has the Minister seen reported comments of Dr Jackson of the Bond Corporation that the import parity pricing formula underprices Australian oil, to the detriment of Australian producers and the future of the Australian exploration industry? Does he agree that there is underpricing and that the formula needs revision? Senator GARETH EVANS —Yes, I have seen that report. Indeed, I have had quite a deal of correspondence from Dr Jackson on that subject. The situation is this: Since the cessation of spot trading of Arab light crude oil early this year, a proxy formula, based on the movement in spot prices for a basket of four Middle East crudes, namely Muscat, Oman, Dubai and Qatar, has been adopted for determining the import parity price for indigenous Australian crude oil. The most recent adjustment has been from 1 June. The Bass Strait IPP is currently $A20.04 per barrel, which is based on a price of that proxy for Arab light of $US12.45 per barrel. There have been various recent reports, including one from the International Energy Agency, that netback prices for Arab light crude oil were in the range of $US15 to $US16 per barrel. However, what has to be understood and what has been overlooked by people such as Dr Jackson who relied on this $US15 to $US16 figure that is in wide circulation is that netback prices cannot be calculated with any great degree of certainty owing to very wide fluctuations in product prices on which they are based and the variety of calculations which come into account. A particularly relevant consideration is that netback prices for a typical Saudi Arabian netback transaction involve a lag of 50 days in the date of lifting to product price assessments on which final payments are based. Some delay from the date of receipt of the data to publication is also common. So the actual prices quoted in early to mid-April for Saudi netback transactions therefore almost certainly refer to liftings which were made right back at the end of January or early February. A relevant comparison is between spot crude oil prices in January-February and netback prices quoted in April. What all of that means is that the relevant spot prices have, in fact, been above, or at least similar to, netback prices. It simply cannot be claimed that the import parity price, based on the basket of spot prices, is in any way undervaluing Australian crude oil. I wrote to Dr Jackson and some other producer representatives in these terms a few days ago, and I hope that this situation does not continue to be misunderstood, understandable though that misunderstanding, I acknowledge, is. Senator WALTERS —I direct my question to the Leader of the Government in the Senate. In view of the ludicrous proposal to take from the business sector some $400m-that is the Government's figure-as a result of the fringe benefits tax and $10m from the capital gains tax, can the Minister inform the Senate what is the anticipated amount the Government now intends to give back to the business sector under the subsidised interest rates for loans proposal which, according to a report in the Sydney Morning Herald, is designed to encourage business to invest and which was agreed to by the Prime Minister and business? Senator BUTTON —The Government has made no decision on the question of subsidised interest rates for anybody other than the heavy engineering industry, in respect of which a package of assistance has been agreed. As to the $400m which Senator Walters refers to as a gain from the fringe benefits tax, a wide range of benefits have been conferred on the business sector in alterations of taxation regimes which certainly equal that amount and probably exceed it. I refer, for example, to the cost of imputation which will be introduced, to the very substantial tax cuts which will be introduced for people in the higher income brackets and, more particularly, to the 150 per cent tax concession for research and development, which will be an expensive cost to revenue, just as the vastly improved depreciation regime is a-- Senator Walters —It is ineffectual for small business. Senator BUTTON —No, it is not ineffectual for small business. The honourable senator should not be so silly if she can help it. That will be of great cost to the revenue over a period. I must in all fairness say to the honourable senator that the Fraser Government proposed to introduce such a depreciation regime in its last year of office for the very same reasons as we have done so. If honourable senators ask me questions, I would find them more challenging if they were better informed. Senator RICHARDSON —The Minister for Veterans' Affairs will be aware of a recent change of policy in the State Rail Authority of New South Wales, which now has withdrawn credit facilities from the Commonwealth and refuses to accept Commonwealth travel warrants for travel in New South Wales. Will the Minister outline his reaction to this situation? Have alternative arrangements been negotiated which do not disadvantage veterans who normally travel on SRA services? Senator GIETZELT —It is true that the State Rail Authority of New South Wales has changed the system under which veterans with entitlements to visit repatriation hospitals or the Grace Building for the purpose of medical examinations and so on have been able to travel with the provision of a warrant by the Commonwealth Government through the Department of Veterans' Affairs. That system has been changed by the State Rail Authority and there have been a few hiccups in the implementation of the new system. I can advise Senator Richardson that the Department has now brought into force a new procedure whereby the veteran will be issued with a cheque by the Department made out to the State Rail Authority. The State Rail Authority has agreed to accept that arrangement for travel by rail or air, depending on the circumstances of each of the travel arrangements. The State Rail Authority has introduced this new system in an attempt to contain administrative costs and we can applaud that. We apologise to the people who have been affected by the new arrangements. However, I am sure that the new system will work to the advantage of veterans. Senator DURACK —I address my question to the Leader of the Government in the Senate. Is the Minister considering an Industries Assistance Commission inquiry into the problems of the mining and metals processing sector arising from government regulation and taxes? If so, will the reference to the IAC be a policy prescriptive one, similar to the IAC inquiry currently taking place on petroleum products, and thereby seek possible options to eliminate impediments to the competitiveness of the sector? Has the Minister or anyone else consulted with the mining and metal industries on the proposed inquiry? Is there anything holding up giving the reference? Senator BUTTON —The Government is considering a reference on the mining industry to the Industries Assistance Commission. This has been the subject of consultation between myself, senior officers of the Department of Resources and Energy, for which Senator Evans has responsibility, and the Industries Assistance Commission. It is not intended that it be a policy reference. It is essentially a reference which will establish a better information base in relation to the mining industry and the effects of particular policies on the mining industry. It is essentially in that term an information reference. That is the way the IAC would prefer to conduct such a reference. The honourable senator asked whether anyone has consulted with the mining industry. The answer to that question is, I believe, yes. Senator DURACK —I ask a supplementary question. Is anything holding up the reference? If so, when is the reference likely to be given? Senator BUTTON —I do not know what the honourable senator means by `holding up'. There are a few administrative procedures to be gone through between the decision to hold the reference and the ultimate referral of the matter to the IAC. That is happening at the present time. But I do not quite understand the expression `holding up'; I just do not understand that. I suppose it has been held up for about 50 years. But now that the decision has been made, it is not being held up. Senator BLACK —Has the Minister representing the Minister for Aviation seen reports to the effect that foreshadowed changes in the system of flight navigation charges will penalise regional air travellers relative to their capital city counterparts? Is there any substance to these charges? Senator GIETZELT —The Minister for Aviation has supplied me with Press cuttings which indicate that some representatives of the Queensland National Party have been exaggerating the problems and difficulties that have resulted from the Government's continuing policy of reducing the cost of maintaining the aviation industry. Those distortions obviously are designed to alarm people who use commuter services in Queensland. The Minister advises me that the Government has taken into account some of the difficulties that may flow from the recent decisions to apply the cost recovery program. I remind the Senate that the airline industry cost recovery policy has enjoyed bipartisan support for quite a considerable number of years. The policy is based on the proper concept that we should not rely upon the taxpayers in this country generally to subsidise an industry that now is capable of standing on its own feet. Honourable senators would be aware that approximately half of our national income comes from pay as you earn taxpayers-that is, wage and salary earners. It is costing the Commonwealth something like half a million dollars a day to subsidise the airline industry. Past governments have accepted the principle that that amount should be reduced each year until such time as the subsidisation can be phased out. To that extent, the Government has taken steps to provide that the airline industry shall pay for the maintenance of runways, air traffic control, airports, safety facilities and all of the other factors associated with the industry. Having regard to the specific problems faced by commuter industry passengers, the Government has agreed, at least in the first year of operation, to subsidise commuter airlines to the tune of $2m in order to ensure that there is some alleviation of the costs faced by airlines that use small and regional airports. If National Party members believe that these charges should not be imposed, one would suggest that the Queensland Government ought to accept some responsibility in this area and perhaps join with the Commonwealth and subsidise this industry on a dollar for dollar basis so that the difficulties that have been raised can be reduced even further. I would remind Senator Black that the problems associated with the airline industry are creating pressures on the Budget. As I have indicated, taxpayers of this country are subsidising commuter travellers to the tune of about half a million dollars a day or $180m a year. The Government is moving down exactly the same track as that followed by the previous Government to make the industry stand on its own feet. The PRESIDENT —I call Senator Alston. Honourable senators-Hear, hear! Senator ALSTON —Thank you, Mr President. My question is addressed to the Minister representing the Minister for Foreign Affairs. Has the Minister's attention been drawn to a report in today's Australian suggesting that wide differences have emerged between Australia and Papua New Guinea over the future of aid arrangements? The report suggests that Australian officials are more interested in supplying Australian aid for big high profile projects such as bridges and roads rather than meeting Papua New Guinea's request for widespread technical assistance. Is this the Government's real position? Does the Government acknowledge that village-based agricultural development, primary health care schemes and technical training assistance are more necessary and desirable than grandstanding infrastructure programs which are likely to exacerbate the chronic urbanisation problems already besetting Port Moresby and Lae? Senator GARETH EVANS —I congratulate Senator Alston on his maiden question and admire his interest, which I know has been a long-standing personal interest, in aid and related foreign affairs matters. There is no fundamental difference of opinion between Australia and Papua New Guinea on the present aid arrangements. I can speak with, I suppose, some personal insight on that matter since I was up there for 10 days just a couple of weeks ago. There are some teething problems associated with the transitional phase we are in with the Australian aid budget, this year being the first year in which a substantial slice of Australian aid moneys is to be made available on a tied basis rather than being by way of general revenue support. That means that there must be some quite extended discussions about the most efficient way in which such tied aid can be delivered and the most appropriate specific projects for the allocation of such aid. The focus has been on technical assistance and infrastructure support of a kind that can be effectively utilised to build more effective institutional and working arrangements in that country for the future, rather than just one-off projects which might have their own utility but will not operate in any more constructive or larger term sense. I will seek further information on the specifics of Senator Alston's question and see whether the Minister for Foreign Affairs wants to add anything to my answer. Basically, the position is that there is no particular difficulty in the present stage of the aid negotiations. It is just a matter of both sides agreeing to an acceptable set of projects which will meet the kinds of longer term aspirations to which I have referred. Senator FOREMAN —Did the Minister representing the Minister for Aviation see the report in the Australian of 2 June entitled `FAA orders probe into safety exits'? In that report United States authorities ordered an end to the unsafe practice of blocking wing exits on United States registered Boeing 747 jets. I ask: Firstly, are the wing exits on Qantas Airways Ltd 747 aircraft blocked in the manner described? Secondly, what can authorities do to encourage other airlines and airlines that use Australian airports to stop this unsafe practice? Senator GIETZELT —The Senate acknowledges, I am sure, that Australia enjoys the highest reputation for air safety in the world. It is the Government's intention to continue that objective. Consequently, it is always in the forefront of endeavours to make sure that the safety of passengers is ensured in every way. I did see the article in Monday's Australian and therefore am aware of the problem raised by Senator Foreman. The Minister has advised me that the basic Boeing 747 aircraft is fitted with 11 emergency exits to cater for up to 550 passengers. However, the situation is different in the United States, where certification of the configuration of 747s for international use-requiring the aircraft to carry only 440 passengers-permits a minimum of nine emergency exits. So our requirements provide for a different standard to that which applies in the United States. Having regard to this fact and our Government's determination to have the highest pos- sible standard, Boeing has offered a configuration whereby two over-wing exits are de-activated. Some airlines-British Airways, Thai Airways International, Cathay Pacific Airways Ltd and Qantas-have taken up that offer. The Federal Aviation Agency in the United States has asked United States airlines to retain additional emergency exits in their current Boeing 747 aircraft model and has extended this request to prevent the sale of the latest model which is yet to be produced unless there is an increase in the number of exits on the main deck. We are doing everything possible to have a uniform exit arrangement in respect of our Boeing aircraft. We hope that, with the co-operation of the manufacturer, a standardised approach will be taken to this matter throughout the international airline industry. Senator MICHAEL BAUME —My question is addressed to the Minister representing the Prime Minister. What costs have been incurred by the Commonwealth in supporting the activities of the party political rural task force appointed by the Prime Minister and made up entirely of Australian Labor Party parliamentarians, whose report has blamed farmers and the organisations-in other words, the victims-for the disastrous consequences of the Government's anti-rural tax and other measures that have served to worsen the rural recession? What travel, sustenance, wages or other costs have been incurred by the Commonwealth on behalf of members of the so-called rural task force or any ministerial-- Senator Walsh —Less than Neil Brown's car bill. Senator MICHAEL BAUME —Or other staff, including the National Media Liaison Service, assisting the committee in its round Australia political jaunts? Senator BUTTON —I am not able to answer all of the details of the question. I am assured by the Minister for Finance that the cost of that committee's total activities is less than the car bill of the Deputy Leader of the Opposition. But with regard to the details, I think the question appropriately should be placed on notice. Senator GILES —My question is directed to the Minister representing the Minister for Social Security. Has the Minister noted an accusation from the so-called `dole crusader', Peter Sawyer, that the Department of Social Security is reluctant to examine his allegations of huge rip-offs from the welfare system, and what also appears to be his disappointment that there is no sign of his own prosecution, following admissions that he had personally defrauded the system-this having been reported in the Western Australian Daily News of 3 June? Does the Department, in Mr Sawyer's words, `want it to be kept out of sight and forgotten'? Senator GRIMES —The Minister for Social Security has seen the allegations made by Mr Sawyer that the Minister and the Department are trying to throw a smokescreen over his claims of huge rip-offs from the welfare system. That is not true. Although the Minister for Social Security has pointed out that some of the claims made by Mr Sawyer are outrageous, what Mr Sawyer is doing-quite understandably, I suppose-is trying to drum up publicity for his book. When his credibility is questioned by the Minister for Social Security or by any of his ex-colleagues in the Department of Social Security, he gets rather annoyed. The Government does not approve, nor does the Department approve, of people ripping off the social security system. Since this Government came to power its actions have ensured that the amount of money that has been recovered from people who receive overpayments and who rip off the system has doubled. The Minister for Social Security and his Department, through the introduction of the new social security computer system, through new administrative methods, through the targeting of groups which are likely to be rorting the system, and through vigorous action in the courts, are acting against those who act illegally in the system. What the Department and the Government will not do is return to the days when the Department was requested by the previous Government to use blitzkrieg methods which picked up large numbers of people who were utterly innocent and which resulted in the ridiculous situation of some people losing the unemployment benefit, and 85 to 90 per cent of them having their benefits returned to them on appeal. Mr Sawyer will continue to make allegations of the type he is making in order to gain money out of the sale of his book. He wrote the book using knowledge and information which he received while working as an officer of the Department of Social Security. Whether or not that has been properly used, I suppose, is a matter of judgment. The case of Mr Sawyer himself ripping off the system is being investigated by the Department and by the Director of Public Prosecutions. Whether or not a prosecution will occur depends on the Director of Public Prosecutions, not on the Government, not on Mr Howe and not on the Department of Social Security. Mr Sawyer knows that. His present claims are merely an extension of the publicity campaign that he has been conducting for some time. Senator PARER —My question is directed to the Leader of the Government in the Senate. I refer the Minister to the Treasurer's Budget speech of last year in which he said: We- that is, the Government- have turned the economy around from deep recession to a rate of growth which is one of the fastest in the Western World. We have reduced inflation to levels not seen for a decade. Senator Peter Baume —Who said that? Senator PARER —The Treasurer. In the light of all recent economic statistics which show, among other similar figures, negative growth for the last two quarters and an inflation rate several times higher than those of our trading partners, how does the Minister now rate the performance of his Government in achieving its primary stated aim of non-inflationary growth? Senator BUTTON —Senator Parer is, as usual, lumbering behind the rest of the world in his understanding of the current situation. It must have been said a hundred times by Government spokesmen-- Senator Lewis —Things are crook. Senator BUTTON —No, no. Senator Lewis —You are saying they are not crook? Senator BUTTON —Let me start again. There is nothing that the Treasurer said in the Budget statement last year and which Senator Parer quoted which is not correct. There is nothing there which is not correct. It is perfectly true that since the Budget was given last year the Government has sought to slow the rate of growth in the economy quite deliberately and many people have been getting very excited about that. The rate of growth has slowed to almost the average of the last seven years of Liberal Government. Senator Peter Baume —This is deliberate recession? Is that what you are saying? Senator BUTTON —Yes, that is true. Senator Baume seems to be surprised that we have a deliberate recession. When the Opposition was in government it certainly blundered into a recession, it did not know what it was doing and that was the biggest recession since the Depression of 1930-31. The Opposition blundered into that. This Government has quite deliberately-this has been said by the Treasurer and other spokesmen-sought to slow the rate of growth in the Australian economy. We have done so because of the decline in the terms of trade. If Opposition senators want to rejoice in the fact that the terms of trade have turned against this country, that the price of coal sold on export markets has gone down by 23 per cent in the past year and by 14 per cent in the year before, that is up to them. But I would not rejoice in that if I were them because it is not a matter which has suddenly emerged in the last year or two. It is a result of silly policies put in place by conservative governments in 26 years of the past 30 during which this country has been going bad in relation to its terms of trade. Senator Parer must know that. He should ask Senator Boswell who sits in front of him. I wonder what Senator Boswell says about Jack McEwen now. Is he still a schoolboy fan of his? The PRESIDENT —Order! I would like you, Senator Button, to answer questions, not ask them. Senator BUTTON —I am sorry, Mr President, I should not ask Senator Boswell what he thinks because to start with he does not. Senator Boswell —On a point of order, Mr President: The Leader of the Government in the Senate challenged me on what I thought, then he made derogatory remarks about me. He has not given me a chance to respond to his challenge. I want to know when I will have the opportunity to answer him. The PRESIDENT —Order! The honourable senator may seek the leave of the Senate any time he wishes. Senator BUTTON —If I may return to the topic, we do not in any way retreat from the fact that there has been a further depreciation of the Australian dollar since the last Budget. There has been a turn in the terms of the trade against this country. We do not retreat from that. All we say is that we now have to grapple with the consequences of it. We will do that much better than the Opposition did in all its years in government. Senator PARER —I ask a supplementary question, Mr President. I ask how the Minister reconciles that reply with the remarks made by the Prime Minister at the time of the Budget when he said: There will be no unexpected recessions under this Government; there will not be an expected one either. Labor stands on its record, we can deliver on these things. Senator BUTTON —I do not seek to reconcile anything I said with what the Prime Minister said in the context of the last Budget. A lot of things have happened since then. I would not use expressions like `recession'. There has been a substantial slowing of growth in the economy, but I would not start cooking up recessions. I do not think that that is a profitable occupation for any of us. Senator RYAN —Yesterday at Question Time Senator Macklin raised matters concerning Malaysian students and their access to tertiary institutions. I have additional information for Senator Macklin and I seek leave to have it incorporated. Leave granted. The document read as follows- In November 1985 some students in Malaysia were advised by the Overseas Student Office (OSO) that their tertiary applications were not successful. This decision was based on examination results already provided to OSO and was part of the pre-selection process to ensure that country quotas were adhered to. As Senator Macklin may be aware, the number of Malaysian students wishing to study in Australia is far greater than the quota places available. The students involved included a large proportion who had recently sat the South Australian Matriculation Examination (SAME) for which results were not yet available. The intention to pre-select students was included in information material sent overseas. Nevertheless, because of some doubt that students sitting the SAME had understood this procedure and because of concern expressed about this decision it was reviewed by the OSO. As a result, in December 1985 the High Commission in Malaysia issued a press release announcing that the earlier decision had been reviewed and that all Malaysian students, including those who had sat for the SAME, who had submitted applications to OSO and passed the requisite English test would have their applications considered by the relevant tertiary institutions. It was also made clear by the AHC that institutions would take account of the results of the SAME. It was however, emphasised by the AHC that demand by Malaysian students for subsidised places at Australian tertiary institutions far exceeded the number of places available and that, in these circumstances, it would be inevitable that there would be students who passed the requisite English tests and who satisfied Matriculation standards of an Australian tertiary institution who would not be offered places by the OSO. There was never any doubt that local Malaysian examinations would also be accepted by tertiary institutions and I reiterated that to the Malaysian Minister for Education when I was in KL in January. I trust this explanation clarifies Senator Macklin's question. Senator RYAN —Yesterday in Question Time Senator Reynolds asked me what sort of assurances Mr Holding, the Minister for Aboriginal Affairs, had had from Mr Katter, the Queensland Minister for Northern Development and Aboriginal and Island Affairs concerning the extent of land at Yarrabah which will go under Aboriginal title. Mr Holding informs me that technically speaking Mr Katter has not provided him with written confirmation that no lands will be excised beyond those which would be normally acceptable for public purposes. Nevertheless, Mr Katter confirmed this orally at a meeting with Mr Holding on 24 February this year in respect of Yarrabah and reaffirmed this to the Yarrabah community at a public meeting on 4 March 1986. In addition, on 4 September 1985 Mr Katter in response to a question from Mr Paul Braddy MLA, in the Queensland Parliament said: It is the Government's policy to transfer the existing reserve areas to the Council of that Reserve. That is the recommendation I have put to my colleague, the Minister for Lands, Police and Forestry. Yarrabah is not the only community that has cause for concern, as mentioned in the Reverend Brennan's article. The Queensland Government seems also to be reneging on promises made to Woorabinda Aboriginal Council at various public meetings on 17 April 1984, 3 July 1984, 11 November 1984, 17 December 1985 and in discussions with Council on 11 March 1986. As recently as 22 May 1986 Mr Katter wrote to Mr Holding reaffirming his position in relation to Woorabinda. In summary, the record demonstrates that if Mr Katter can be taken at his word there can be no doubt that councils, communities and the Commonwealth had no reason to doubt that the integrity of reserve boundaries would be preserved and secure tenure provided by way of deed of grant in trust. Senator BOSWELL(Queensland) —Mr President, I claim to have been misrepresented and I seek leave to make a personal explanation. Leave granted. Senator BOSWELL —During Question Time Senator Button challenged me about what I thought about Mr McEwen, the former Leader of the National Party of Australia or the Country Party, as it was in those days, and whether his policies had worked. I would like to refer to some of the benefits that Australia received when Mr McEwen was deputy leader of the Government-- The PRESIDENT —Order! The honourable senator is out of order. He has received leave of the Senate to make a personal explanation, not an explanation in respect of any matter that happened some time ago. I suggest that he might seek leave to make a statement rather than a personal explanation. Senator BOSWELL —I seek leave to make a short statement. Leave not granted. The PRESIDENT —Order! On 11 March and again on 13 March this year I informed the Senate of an industrial dispute within the Parliamentary Catering Service. This dispute has been settled and on Tuesday of this week the final formal steps were taken to incorporate into an award of the Australian Conciliation and Arbitration Commission a simplified designation structure involving the concept of multi-skilling and new pay rates for catering staff in accordance with a judgment handed down on 30 April 1986 by the Commission. The date of effect of the new pay rates is 1 May 1986. As well as the new classification structure and pay rates, negotiations with the Federated Liquor and Allied Industries Employees' Union on this matter have led to agreement to revise certain working conditions and long-standing working arrangements. These changes will enable the Parliamentary Catering Service to operate more cost-effectively and will provide an improved working environment for staff. The multi-skilling concept and other new working arrangements are being introduced progressively. The union has indicated to the Conciliation and Arbitration Commission its intention to pursue a further salary claim in conjunction with the Australian Council of Trade Unions, based on the wage fixing principles dealing with anomalies and inequities. Senator BUTTON(Victoria-Minister for Industry, Technology and Commerce) —On 15 April 1986 the Prime Minister (Mr Hawke) informed the House of Representatives that he would table statements of private interests made to him by Ministers in 1985. For the information of honourable senators I now table those documents. The statements have been retyped for the purposes of tabling, but the only alterations made from the original documents relate to the deletion of private addresses which are not readily available to the public and money amounts of assets and liabilities which have not been made public. Senator Sir JOHN CARRICK(New South Wales)(3.12) —I move: That the Senate take note of the paper. As I read the agreement between the Government of Australia and the Government of the Swiss Confederation Concerning the Peaceful Uses of Nuclear Energy, it appears to be in line with the agreements that were developed under the Fraser Government and strictly in line with the Treaty on the Non-Proliferation of Nuclear Weapons. If there are any differences I would be grateful if the Government would point them out in due course. The Nuclear Non-Proliferation Treaty has set very stringent rules for the peaceful use of nuclear materials. What does concern me is the statement of the Minister for Foreign Affairs (Mr Hayden) that was tabled with the agreement. I shall read from a paragraph in which the Minister said: The decision to conclude this Agreement is consistent with the belief of the Government, stated in the context of its response to the ASTEC report, that Australia can make the most responsible possible contribution to the reduction of the risks and hazards associated with the use of nuclear materials and technologies by continuing to permit in a strictly regulated manner the mining and export of uranium subject to the most stringent nuclear non-proliferation conditions. There is no doubt in the world that that statement outlines precisely the recommendations of the Australian Science and Technology Council in its report on Australia's Role in the Nuclear Fuel Cycle. I hold a copy of that report in my hand. There is no doubt that it is totally at odds with what the Government is doing. I take the first main recommendation in the ASTEC report, which states: ASTEC recommends: That exports of Australian uranium should not be limited as a matter of principle but should be permitted subject to stringent conditions of supply designed to strengthen the non-proliferation regime. The world knows that the policy of the Government and of the Labor Party is not only to limit the mining and export of uranium as a whole but to limit it to a couple of mines and to phase it out ultimately. The Minister's statement that the Government policy was in line with what ASTEC said could not be more out of line. ASTEC went on to say: . . . Australian participation in stages of the nuclear fuel cycle in addition to uranium mining and milling should be permitted, where such participation promotes and strengthens the non-proliferation regime. That is absolutely contrary to Labor Party policy. So the Minister misrepresented the situation when he indicated in his tabling statement that he and his Government were continuing to permit in a strictly regulated manner the mining and export of uranium. The fact is that, under the Nuclear Non-Proliferation Treaty, it is an obligation of all signatory states to provide to other signatories uranium products upon demand and under the strictest safeguards. Although Australia is a signatory to that Treaty, this Government has broken that Treaty, because it has not complied with it. It will not do so. It is being compelled by its left wing to phase out uranium mining. The Nuclear Non-Proliferation Treaty, which some 130 nations of this world have signed and ratified, insists that the best way to stop proliferation of nuclear weapons is for member nations to observe precisely the terms of the Treaty and that if those nations have peacetime nuclear materials they should supply them under the Treaty restrictions so that people do not get those materials from other quarters. This Government pretends that it wants to enforce nuclear non-proliferation, but by breaching the Nuclear Non-Proliferation Treaty and through the misrepresentation in the tabling statement, it is doing the reverse. I regret very much indeed that the Minister for Foreign Affairs made a statement in his tabling statement which does not conform with the facts. I regret that we are not fully conforming with the Nuclear Non-Proliferation Treaty. Nothing is more important for Australia than to ensure throughout this world that there will be no proliferation of fissile materials to create nuclear weapons. This Government is not observing those rules. Senator CROWLEY(South Australia)(3.17) —While I was tempted to let this paper-the Agreement between the Government of Australia and the Government of the Swiss Confederation Concerning the Peaceful Uses of Nuclear Energy-pass, after Senator Sir John Carrick's words, I simply cannot. I find it fairly abhorrent that Senator Sir John Carrick should use the tabling statement of the Minister for Foreign Affairs (Mr Hayden) accompanying this agreement to suggest that the Minister has misled this Parliament. The honourable senator's comments were very stern. I inform Senator Sir John Carrick, through you, Mr Acting Deputy President, that I will draw his remarks to the attention of the Foreign Minister so that he will have the opportunity to refute what I think was a mischievous assertion and claim by the honourable senator. I must say it was a matter of some disappointment to me. Senator Sir John Carrick —Ha, ha. Senator CROWLEY —Senator Sir John Carrick may laugh but I wish to say again for the record, although it would be quite beyond Senator Walters's comprehension, that Senator Sir John Carrick's claims of misrepresentation are a matter of disappointment to me. We are talking about the Agreement between the Government of Australia and the Government of the Swiss Confederation Concerning the Peaceful Uses of Nuclear Energy. This agreement has been tabled in the Senate so that honourable senators have the opportunity to look at it and appreciate what is contained in it. I think it goes very much to the heart of the Government's policy in the whole area of opposition to the non-peaceful use of nuclear energy. It is commendable that we have the opportunity to see such an agreement. It certainly is true that agreements such as this are not what could be called sexy. They are matters to struggle with so that we can understand what exactly is meant by the words contained in them. It is not easy to sell to the Australian population the importance of these agreements or a detailed understanding of them, but they go very much to the preferred way this Government has chosen to act in the whole area of nuclear non-proliferation. The agreement and the details contained therein are very much in line with a paper tabled yesterday, `A Report of the Australian Delegation to the 1985 Session of the Conference on Disarmament' which was held in Geneva from 5 February to 30 August 1985. Again I quote from Mr Hayden's accompanying paper. Mr Hayden reported: . . . Australia was disappointed with the lack of progress in a number of key areas, particularly in the failure to agree on the mandate of an ad hoc committee to consider the nuclear test ban item. As a result, no substantive work could be done on the test ban. I comment that it is very hard to convey to the citizens of Australia how much work goes into even getting to a point where agreement about establishing a committee can be reached. When all the work is done but no agreement is reached, no committee is formed and no progress seemingly is made, there seems to be no measure of success. It is very difficult to explain to people that our representatives in Geneva-in particular, Ambassador Richard Butler-work very extensively on behalf of the Australian Government and its policies in this area. It is very difficult to report on these matters because there seem to be so few gains. That is why I take great heart from the agreement tabled today. We now have a bit of paper, a document, that we can take to members of the community and say; `This agreement has been reached. It is in line with the Australian Government's proposals for the peaceful use of nuclear and fissionable material'. I urge Senator Sir John Carrick to re-read the Minister's speech. When I read these words I did not come to the conclusion that Senator Sir John Carrick has. I express again my disappointment that Senator Sir John Carrick should come to the conclusion that he did and refer publicly in a negative way to the Minister. I will certainly pass his comments on to Mr Hayden. Question resolved in the affirmative. Senator HAMER(Victoria)(3.22) —I move: That the Senate take note of the paper. This is a most disappointing document. The United Nations Educational, Scientific and Cultural Organisation is in deep trouble, with the United States of America, Britain and Singapore having withdrawn from it for what seem to me to be very good reasons. The most serious defect of UNESCO is a strong and malignant anti-Western bias. This bias received most publicity in the field of communications because of UNESCO's efforts to create a new world communications and information order which, in fact, would have meant control of information by governments. UNESCO is also a highly inefficient organisation with 70 per cent of its Budget being spent in Paris. The activities of the more than 2,000 bureaucrats in Paris are described by the British newspaper The Guardian-scarcely a right wing or pro-Thatcher newspaper-in the following words: [In Paris] the United Nations Educational, Scientific and Cultural Organisation looks like one of the world's least necessary institutions. Diplomatic and bureaucratic fat cats may be observed floating in ostentatious limousines from one incestuous cocktail party to the next. Delegates from brutal regimes in impoverished countries plough a fur-lined furrow from luxury Parisian apartments to the Place de Fontenoy to make windy speeches about the iniquities of western capitalist imperialism, a burden they seem ready enough to share in their free time. They rail against western `monopolisation' of world news media and communications, secure in the knowledge that their living conditions will never be reported back home. The centre of the problem seems to be the Secretary-General of UNESCO, Mr M'Bow from Senegal. He has been described by someone who knows him well as being arrogant, biased, inefficient and confrontationist, so it is perhaps not surprising that our Ambassador to UNESCO, Mr Gough Whitlam, has a high regard for him. But these personal quirks of Mr Whitlam should not be allowed to colour our attitude to UNESCO. In the report there is a section-I suspect written by Mr Whitlam-which contains a scurrilous attack on the motives of the United States and Britain in withdrawing from UNESCO. What do we do about UNESCO? Looked at in purely selfish terms, it is probable that Australia gets more benefit, in terms of useful programs, than we pay for in our contribution of 1.64 per cent of the budget-a little over $6m. But we have wider responsibilities than that. What is wrong with UNESCO is that the executive board of more than 50 members is far too large to run the organisation, with the result that Mr M'Bow and his secretariat effectively run the organisation and manipulate it unscrupulously. A good example was the recent sacking of the British Auditor-General as UNESCO's external auditor, apparently because he was asking too many awkward questions. UNESCO rules state that only the general conference, that is, all member nations, can dismiss the auditor. Mr M'Bow and his secretariat wanted to get rid of him right away. The executive board bowed to the Secretary-General's wishes, out went the auditor and the rules were disregarded. What is badly needed is a major structural change in UNESCO to bring its governing board down to a manageable number of, say, 12 members who could take control of the organisation and make the Secretary-General work efficiently within proper controls. It was to be hoped that Mr M'Bow would be replaced at the end of his second six-year term in 1987 but the grim news is that he looks likely, if he wants it, to be elected for a third six-year term. There was apparently a move to set a two-term limit on all heads of United Nations agencies, but this would have had little chance of success for it would have meant depriving the United Nations of several efficient agency heads merely to get rid of Mr M'Bow. So it looks as though UNESCO will be stuck with Mr M'Bow and the present structure until 1993. One would like to think that the Australian delegation would have been working effectively with those who want to reform UNESCO from within rather than blackguarding countries such as the United States and Britain which have decided that they have had enough. I think this delegation's report is a very regrettable document. Question resolved in the affirmative. The ACTING DEPUTY PRESIDENT(Senator Jones) —In accordance with the provisions of the Audit Act, I present a report from the Auditor-General on an efficiency audit dated 1986. Senator ELSTOB(South Australia) —I present the thirteenth report of the Publications Committee. Report-by leave-adopted. Message received from the House of Representatives intimating that it had agreed to the amendments made by the Senate to this Bill. Debate resumed. Senator Sir JOHN CARRICK(New South Wales)(3.30) —The Senate is debating the Income Tax Assessment Amendment (Capital Gains) Bill and the Income Tax (Rates) Amendment (Capital Gains) Bill which aim to introduce a capital gains tax. In so doing the Government is making a major breach of an election promise to the people of Australia. It is important to understand that the Prime Minister (Mr Hawke) said in unequivocal terms that there would be no capital gains tax. Regrettably this legislation, which will affect the poor and a lot of unemployed people, will become law. It will become law because even though the Government knows that this was a breach of an election promise and even though the Australian Democrats' spurious plank was to keep the illegitimates honest they are going to make this legislation law. If taking part in a breach of an election promise is keeping the hybrids amongst us honest, language has no meaning. One can expect a Labor Party, socialist to its back teeth, to bring in a capital gains tax. I hope that everybody who is subjected to it in the future understands that the real reason that this will become law is that seven members of the Australian Democrats will decide by their weight of minority numbers that it becomes law. It is important to look at how this legislation will affect the community and the environment behind it. Only last week the people of Australia were told something that was very serious indeed: They were told that investment in manufacturing industry had declined. That is very bad news for those who are seeking jobs, but doubly so if there is to be any attempt to resist the flow of imports into Australia and to do some import replacement manufacturing. Indeed, it is one of the most serious factors. Honourable senators should bear in mind that the whole basis of this is that Australia is facing a serious crisis because there is a decline in investment. Yesterday the Prime Minister and others met with employers. If the papers are right, the Prime Minister is putting forward a suggestion. Of all the Alice in Wonderland suggestions I have ever heard, it must be the most remarkable. The suggestion is that the Government is considering subsidising interest rates. It will lower them so that they will be acceptable to manufacturers so that there will be investment. I want to put this in context because this Government, by its own deliberate action, has forced up interest rates in order to keep an absolutely unstable dollar slightly more stable. It has created the monster and it now has to reap the rewards. The fall in investment is clearly, on one account, because of high interest rates. But that is not the only reason. Why would a manufacturer be seduced by this kind of statement by a government: `Look, by an act of God, or by an act of mismanagement by the Hawke Government, we have given you another 30 per cent protection by devaluation. Hop in alongside it and manufacture because the costs of imports will have gone up by 30 per cent. Get in. Of course, you will have to borrow money'? Why would anybody do that when nobody can tell tomorrow, next week or the week after what the level of devaluation will be? There is the most terrible paradox that if a government is doing its job-God forbid that I should suggest this-the dollar will evaluate, so the very confidence trick that is being played on the manufacturing sector will be exposed. The Government will lift the protection. Why would any investor undertake this task? Against the summits and non-summits that we are either having or not going to have, the Government is bringing in a capital gains tax. What will a capital gains tax do? It will take away people's free investment capital. Yesterday we had the Government's pantomime to employers and to the people of Australia that the salvation of Australia will be to get more investment into manufacturing industry. I could not agree more that the manufacturing industry needs to be lifted up. Sadly, the major tragedy of the Hawke Government has been that over its years in office-this applies also to the Whitlam years-manufacturing industry declined. In one period of 18 months in the Whitlam years 110,000 people went out of manufacturing industry, and they have never been recovered. In that period wages were forced up 37 per cent. The monstrous paradox of what is being put before us must be demonstrated this way. The Government is saying: `We are frightened because our manufacturing industry is collapsing. We want more investment'. By this legislation the Government is going to take away free capital by taxing private industry and private people. Will it be invested in manufacturing industry? Not one little bit. In other words, the capital funds will be sterilised. There could not be a sillier concept than the Government on the one hand pleading for money for investment and on the other actually withdrawing the money out of industry and sterilising it. Today we have the ugliest unemployment rate in many years. Juvenile unemployment is running between a fifth and a quarter of all juveniles. The average unemployment period for a person who has been on the dole is more than a year and is increasing monthly. We know that over a period manufacturing, which used to be the major employer in Australia, is shedding labour. Against that situation this legislation is brought in. At Question Time the Leader of the Government in the Senate (Senator Button) was confronted with the fact that two quarters of the year have both shown negative growth. He said that that was not recession. I repeat and I will continue to repeat it-it is abundantly in Hansard-that the Labor Party when in opposition said the measure and test of recession is two quarters of negative growth. The Government cannot have it both ways; it cannot say it and now try to deny it. The country is going backwards and the Leader of the Government is trying to make some kind of a virtue from the fact that Australia is going in reverse gear. He says: `It happened because we slowed it down'. Institutes of economics are now predicting that for the next year, not the next month or so, growth will be, at the very best, one per cent. Is the Government going to take credit for that slowing down? Are all the young people looking for jobs going to look to the Government? Against this we have a decline in investment and an adverse trade balance. A confidence trick is being played. Every time we talk about this situation the Government Leader and others say: `You know what has caused it, don't you? It is because there has been a fall in commodity prices, a fall in wheat, meat and grains and indeed there is prospectively a fall in coal and iron ore'. They forget to say that that is true but the volume of output has increased a great deal not totally offsetting it. They forget to say also that a 30 per cent devaluation has added 30 per cent to export earnings. But what they are silent on is the fundamental situation. There are two sides to the balance sheet on trade balances. The main side is that we are importing far more goods and services than we earn in exports. Why are we doing that? It is because the manufacturing industry in Australia cannot manufacture and compete against the world even though with the 30 per cent protection from devaluation and the protection it had in the past, its costs are higher. Why are they higher? We have got a 9.2 per cent inflation rate, three times as much as most of our trading partners. In fact, the inflation rate of some of those countries has now moved to zero. We now have the greatest overseas debt that we have ever had. We have enormously high interest rates-higher than that of our trading partners. All of that is handicapping the creation of manufacturing and the getting of jobs. What happens? Against that background along comes the Government and says on the one hand `We want you to invest' and then on the other hand says: `We will bring in legislation which will remove free investment capital from you'. What will that do? That is a stupidity in itself. I cannot think of a time in Australia's history when to do those kinds of things would do more damage. In the last week or two here we have had the introduction of the fringe benefits tax legislation. We have demonstrated that a fringe benefits tax will not hurt the affluent, the businessman with the Mercedes-Benz car and the lunches. He can bargain with his employer and the employer will pay his extra tax. What the fringe benefits tax will do is hurt the fellow who will be sacked because the employer cannot carry on. In fact, it will hurt all those people, including pensioners, who find that costs have been passed on by employers. None of the big people of this world will be hurt. This is a Government which pretends to help the little people against the big people. However it has brought in a fringe benefits tax which, in an ugly way, will do exactly the reverse of that. It will do a terrible harm in that it will put up costs and destroy employment. Why is the Government doing this? It knows what is right; however, it is doing what is wrong. The Government set up what it called the National Taxation Summit. I have to say that it, like all the summit meetings that the Government sets up, is a device to enable the Government to pretend that it is consulting with the community and getting a consensus. However, it enables secret deals to be undertaken behind the high chair in the other place-or is it in a motel bedroom? It is a secret deal made by the Government with the Australian Council of Trade Unions and in confrontation with the rest. There is no consensus by this Government at all. Indeed, if one looks at the paper prepared by Mr Charles Fitzgibbon-a very respected labour leader in his day-and sent to the Economic Planning Advisory Council one sees that he points out that the accord is an accord between two, the Government of the day and the ACTU, and that it has nothing at all to do with the community. He sees detriment in that. His whole message throughout his paper to EPAC is that the only way the Government will get us out of this situation is to increase productivity and the Government will do that in the first place by full co-operation between employer and employee, with the Government off its back with freer wage systems. That is the man who was the General Secretary of the Waterside Workers Federation of Australia and the Vice-President of the ACTU. He is now able to talk freely. But this was a fix and a fiddle. It was an ugly thing. The same can be said of the first National Taxation Summit. The now bruised and battered employers understand this. The Taxation Summit was yet another gross deceit on the Australian people. Option C was to be the thing. The Treasurer (Mr Keating)-now is it not the best Treasurer in the Third World or, to use his own words, a banana republic-was putting forward a particular pattern which I think Treasury also put forward. What happened? The ACTU would not wear a bar of it. Where did consensus go? Where did accord go? The Prime Minister went back to a motel room without telling his Treasurer and without consulting in any way. He made a bargain in a motel room with the ACTU. He came back and forced that on a tax summit and on the Treasurer. The Treasurer must now be the greatest all-time loser that this country has ever seen. These are the kinds of things that are being forced on us. The ACTU has said to the Government: `You will not do anything at all that will spread this load. What you will do is impose things that will punish the boss'. That is the kind of ugly class conflict which this Government lives and breathes. It is the kind of class conflict that Mr Charles Fitzgibbon says is crippling and killing this country. It is the kind of class conflict that, while I have breath in my body, I will try to rid this country of. What are we doing? We are bringing in a package which we are pretending will hit the boss. All the way through it will hit the worker. The Government does not care whether it hits the boss or the worker. The Government wants one thing and one thing only-more money for itself. It is prepared to take investment capital out of the community. This is capital that would be invested in manufacturing, in growth and in creating jobs. The Government will put that money into its silly-season socialist ventures which, of course, create nothing and which destroy. That is the background. How can we have a situation with a country which is facing a crisis-that is true, on any definition by the Labor Party-and which above everything at this moment needs no extra burden of costs? What it needs is encouragement for private investment. However, the attack is on private investment. What is the Government's test in regard to this? Again, like the fringe benefits tax, the Government says: `Listen, you people the electors, go along with us because we want to tell you that we will hit the big fellow-the tax dodger. Isn't that good fun and good sport?' It would be if it were true; however, it is not true. What will the capital gains tax do? Let us not measure it in terms of the present scale because this is a toe in the door. If this Government were left to go on and on the capital gains tax would go up. Let us look at it in terms of principle. What is the Government aiming to do? If somebody makes a capital gain which can be measured above the increase in the consumer price index, that capital gain, or a substantial amount of it, should be taken away from that person. In the eyes of the Government making a profit is an evil thing. The truth of the matter is that no business can succeed unless it can make a profit because out of profit comes investment capital. Out of investment capital comes expansion and jobs. This is the thesis. I would never have believed that in the 1980s I would have had to face a Labor Party which; like some people in the late nineteenth century, talked about profit being an evil and which grasped profit into its own hands. Let me give a demonstration of this. I saw a report in a newspaper today that it is said that in the Victorian Parliament the Government will have to do something to disengage itself from rent subsidies because the capital gains tax will put up rents. Who pays rents? Do the rich pay rents or do the poor pay rents? If the rich have money, they buy houses. Who pays rent? The little people pay rents. How will such a thing happen? It is a very simple situation. Everybody knows that in almost every case today there is no day to day profit in buying a home and leasing it. In fact, the return on capital is perhaps five or six per cent whereas one can go out and get 15, 16 or 17 per cent from other investments. Of course, nobody invests in purchasing a house and renting it out as a landlord for the sake of the rental return. The only hope such people have got is that if they sit it out and take their low earnings now they will get a capital gain in the future. This is just as, for example, people sat it out on the shares such as Broken Hill Proprietary Co. Ltd and others. Over a period they were prepared to take a low yield in order to get a capital gain. That was regarded as a virtue. However, it has now become a vice and an ugly thing. What we are going to do is to pass all this cost on to the little people. What will the landlord do? Either he will not invest any more and therefore there will be a scarcity of rental housing and rents will go up or he will put a true economic rent on his dwelling. That means he will include in his rent the amount that he will be taxed in the long run. So little people will pay all along the line. Clearly, the capital gains tax is a tax on incentive. It is a wicked tax on incentive. It is really an indirect death tax. What a horrible thing it is that I am able to say that in the case of bequests the estate of the deceased will have to pay capital gains tax on gifts to churches and charities. This will draw on the other assets of the estate. That is a pretty ugly kind of thing to have to say, is it not? The Government is picking on the churches and charities. What will happen is that, just as the fringe benefits tax hits charities, people will give less to churches and charities. The Government has said that this tax is good because it will be hard to avoid. I say to the Government that there can be no simpler method of tax avoidance than this because all that has to happen is for a person or persons not to realise the capital-that is the simple situation. They will just hang on to their assets. We will have a freezing of assets in the community. The Government is laughing and saying that these people are rich. The Government, in fact, is destroying the money which becomes the investment capital which becomes the jobs. All it is doing is destroying job-making in the community. What an ugly thing to do. The main thing this tax does is what the socialists take glee in, that is transfer capital from the private sector to the public sector, to government. It takes away the main flow of investment capital which people might freely have used. Because time is short, I simply say that the Government cannot have it both ways. It is telling us now by all the indices that we are completely out of competition with the rest of the world, that we have a terrible adverse trade balance, that we have an awful overseas debt, that we have had two quarters of negative growth, and that investment in industry is declining and therefore we have a likelihood of increased unemployment. The Government is saying that we need to put more money into manufacturing in order to stop this, but at the same time it is raiding the till. The fringe benefits tax, the capital gains tax and all the other things are raiding the till. This is utterly destructive. We must, wherever we can, put aside the horrible concept that has been put before the people of Australia in the past by socialist governments when they say: `Put us in office and we will get our hands on the big fellow. We hate profits. We want to destroy profits. We want to take the money from them'. They do not give it to the people; they take it for themselves. They say: `The big fellow has got it and he is getting his way, but we will sort it out and give it to you'. Exactly the reverse is happening. Under the fringe benefit tax legislation, the employer pays the big fellow's benefits and so he escapes. He goes on tax dodging and the little person pays. The little person will pay for this, whether it is through a charity or a business which needs investment for employment. The Australian Democrats cannot escape blame for this situation. They, like the limpet fish which swims alongside the shark, are now the pale shadow of the Labor Party. They pretend they are not, but virtually everything they do reflects the left wing of the Labor Party. An extraordinary thing has happened to the Democrats which people must understand. They took some virtue in saying: `We got some benefit improvement out of this fringe benefits tax; we have had some minor gain in the car industry'. Some newspapers have reported that the Democrats said that they will support the Government in deferring income tax cuts from September to December. What a quaint sort of situation we have. They are saying: `We will try to get some very minor bargain for a few people and we will then make sure that for three months all the taxpaying employees of Australia do not get their tax cuts'. If this Government fails on 1 September to deliver the tax cuts to the ordinary people, it will be failing in ordinary natural justice, in wage justice. It cannot on the one hand say that it wants to help the ordinary families of Australia because inflation is beating them, and then say on the other hand that it will not give them the tax cuts for three months. Nothing has happened to remove the volume of money which was in the Budget and earmarked for tax cuts. Nothing has changed at all except that there has been some kind of bargain which looks metaphysical to those of us looking on. If the Government wants to say to the ordinary employed people `We will ask you to be responsible in matters such as deferring superannuation and deferring productivity gains and to come along with us in the discounting of wages for the devaluation', the Government has to show first that it will act in good faith by saying: `On 1 September we will give the full tax cuts which we promised and we will go on doing that in the future'. I have been watching in recent days a return to the ugly false propaganda of the late nineteenth century and early twentieth century, the stirring up of the ugly class consciousness, the pretence that the big fellow is being hit when in fact the little fellow is being hit. Everything the Government does under its range of taxation measures will compound the problems of ordinary families, ordinary people. It will destroy jobs, it will destroy incentive and, indeed, it will put this Government out and the Australian Democrats out. It is only because of the Democrats that this tax legislation will be carried. Senator WALTERS(Tasmania)(3.57) —Today we are debating the capital gains tax legislation which the Hawke Government has foisted upon this community. I begin my speech by quoting the Prime Minister (Mr Hawke) in his policy speech on capital gains tax. He said: And here let me make one point so that even our opponents can understand it; and let me make it beyond all their powers of misrepresentation and distortion. There will be no capital gains tax. So much for that broken promise. The young people in the gallery today should take full notice of what is being debated here because it will not affect us older people so much as we have already been able to acquire some assets and the tax does not apply to those who have held assets before 19 September last year, but it applies to all those people who acquire assets after that date. It applies to all you young people in the gallery. The DEPUTY PRESIDENT —Senator Walters, you should address your remarks to the Chair, not to the gallery. Senator WALTERS —Through you, Mr Deputy President, I say that it applies to all the young people in the gallery who are starting out in life, trying to gather unto themselves a few assets. The promise which the Prime Minister made was made before the big summit was held in this Parliament. This tax resulted from a meeting which he held with the unions in a motel room without the Treasurer (Mr Keating) knowing. The unions said to him: `We have got to have a capital gains tax'. Mr Hawke threw out the window the promise which he made to the electorate and gave in to the unions. He made a deliberate decision to do away with the promise which he made in his election policy speech, and he gave in to the unions. Senator Gareth Evans —You are telling ter- rible fibs. You will get struck down by a bolt of lightning if you keep this up. Senator WALTERS —Let Senator Gareth Evans tell me that the Prime Minister had not made that promise, and I know who will be struck down by lightning. It certainly will not be me. Let us look at the present situation. I am quite sure that the young people in the gallery will be very interested in our present situation. At the moment Australia has the highest inflation rate of any of our major trading partners. It is 9.2 per cent in Australia. It is 1.1 per cent in Japan, 2.3 per cent in the United States of America, 0.1 per cent in West Germany and 4.2 per cent in the United Kingdom. Also, we have the highest interest rates of all those countries. According to the April figures of the Organisation for Economic Co-operation and Development-the most recent figures available-Australia's rate is 18.5 per cent, Japan has 6.4 per cent, the United States has 8.8 per cent and West Germany has 8.7 per cent. Remember that Australia's rate was 18.5 per cent. Australia has enormous labour costs. Our labour costs are so great that we cannot compete on overseas markets. We have an horrific corporate tax rate. In addition, as honourable senators have heard, the balance of payments figures are so disastrous that the Treasurer says that we are turning into a banana republic. Because of all these factors, we cannot compete on overseas markets. At a time when this country is in such a difficult situation, the bright lot on the other side of the chamber have decided to introduce a capital gains tax and a fringe benefits tax on business. We are told that only $10m will be collected in the second year of the operation of the capital gains tax. This is because it will apply only to assets that have been gained after 19 September 1985. The amount of capital gains tax collected will be much greater than that when the children who are sitting in the public gallery at the moment are gathering their assets. The Governments FBT is imposing a tax on the extra benefits that an employer pays to his employee. This tax will be met by the employer. The tax will be levied in respect of a farm employee who has the use of a rent free cottage on the property on which he works. That tax will not be paid by the employee but by the farmer. This lot on the other side of the chamber have put two extra taxes on the business community at a time when Australia needs business to expand. This might seem to be an extraordinary situation; it certainly is to us. I believe that the Government belatedly is beginning to realise what it has done. This morning's Sydney Morning Herald reports that Mr Hawke met with business representatives yesterday, that he understands the problems that he has created and that he is now offering to subsidise interest rates on business loans. The Government is proposing to collect $400m through the fringe benefits tax and further revenue through the capital gains tax. The Prime Minister has now decided to give some of that money back to business by subsidising their interest rates. Has anyone ever heard anything so ludicrous as that? Senator Gareth Evans —I take a point of order. Mr Deputy President, we are experiencing a show of amateur theatrics in which eyes are cast to the gallery and your earlier ruling that the honourable senator must address her remarks through the Chair is being ignored. Perhaps she is being profoundly insulting in referring to you as being ignorant of all of these matters. However, I do not think she is referring to you; I think she is referring to the people in the gallery. The DEPUTY PRESIDENT —There is no point of order. I have been listening to Senator Walters. Her remarks are compatible with being addressed to me. Senator WALTERS —Of course there is no point of order. Mr Deputy President, as you know only too well, the honourable senator who raised the point of order always resorts to that ruse. He knows it reduces my speaking time. He is also trying to take attention away from what I am saying. Mr Deputy President, the Government still tries to tell us that it is in control, that it knows just what it is doing. A little earlier in my speech I told the Senate that the Government is trying to increase investment by lending money at a lower rate of interest. However, today at Question Time Senator Button told us that the Government had deliberately slowed down growth and investment. He said that all this was a very deliberate move on the part of the Government. It was so deliberate that the Prime Minister had a meeting yesterday and told business: `Please invest, and if you do, I will subsidise interest rates for you'. So that is the sort of shemozzle the Government is in. We all remember the trilogy. Honourable senators opposite might remember that the Government promised three things. Mr Hawke said that the overall level of taxation as a proportion of gross domestic product will not be increased; that the Government's deficit-that is what the Government owes-will not be increased as a proportion of gross domestic product; and that the Government's spending would not increase. When the Prime Minister was asked whether he would like to qualify what he had said about the tax, he said: `No, I do not want to put any qualification on that'. He also said: There will be no unexpected recessions under this Government. There won't be an expected one either . . . He said: `We will not have any deliberate slowing down; we will not have any unexpected ones either'. Yet, we had Senator Button tell us in the chamber today that the Government had deliberately slowed it down. Mr Hawke also said: . . . I have deliberately avoided resort to extravagant claims about Australia's future . . . I have been very careful not to make any claims about which I cannot be absolutely certain. He said that there will be no recession. Well, we are in the middle of a recession brought about by deliberate policies of this Government. I do not believe that the Government has any credibility. I do not believe that anyone in the public gallery could possibly believe that the Government has any credibility after hearing me explain what sort of schemozzle this Government has got us into. However, not everybody believes that the Government is wrong. I would like to read a letter printed in today's Sydney Morning Herald that was written by a person who deals with liquidation and bankruptcy matters. The letter states: Dear Mr Keating, I hope you take heart from this letter and press on with your sweeping tax reforms. People don't seem to realise that many new jobs will be created in the Public Service to police these taxes, and just think of the extra leisure time that small-business owners will now have! Many of these business owners have previously only dreamt of an early retirement. Your new taxes will make this a reality for them. In other words, Mr Keating is making these businessmen go broke and forcing them to retire. The advertisement continues: Yes, Mr Keating, I'm on your side. I expect my own business to actually increase by at least 50 per cent over the next financial year! Yours sincerely John H. Mann This person, who handles bankruptcies, knows that his business will increase and that he will handle many more bankruptcies as a result of this Government's tax measures. It is not just the Government that should take the blame because we have to understand that the Government does not have the numbers in this place to put this legislation through. It must have the support of the Democrats, who are not even interested enough to have one of their members present at the moment. Seven of them have joined with the Government to ensure that this legislation is passed. Therefore, they must take full responsibility, along with the Government, for this legislation being passed. Members of the Opposition are the only ones who are voting against it. Let me also read to the Senate a letter which appeared in the Australian today. It is pretty good, too. It is a further open letter to Senator Chipp. It reads: Sir, I must apologise- by the way, this bloke wrote Senate Chipp a letter a little earlier in the week- for not writing to you again sooner as I have been extremely busy answering the flood of mail from those electors offering both moral, as well as financial, support. Since my last letter, interviewers both on radio and television, as well as the print media, have asked me why I am attacking the Democrats and not the Labor Party who after all, introduced the Fringe Benefits Tax Bill. Well, Senator . . . Firstly, it is no use me writing to `the world's best Treasurer'. Do honourable senators remember when everyone said that Mr Keating was the best Treasurer in the whole wide world? At least that is what the Prime Minister (Mr Hawke) said. But look what he has done to Australia now. The letter continues: Firstly, it is no use me writing to `the world's best Treasurer'. Why should he take any notice of me when he doesn't even take any notice of his own Prime Minister!! Secondly, as you have seen fit to do a deal with the Government- that is just what the Democrats have done; they have done a deal with the Government- on just a small section of the proposed legislation without due regard for the massive administration costs to both the Public and the Private sectors . . . . . . . You said in the Sunday Telegraph, 1/6/86, quote: `Now is the time to do unpopular things because the Australian memory is such that by the end of 1987, when the next election will be held, people will forget this. Senator Chipp certainly said: `Do the unpopular things now because by the next election, the Australian people will have forgotten all about it and they will vote for us'. The letter continues: Well, now that's a coincidence. You see, I have already allowed for that . . . I have planned to place a full page advertisement in the National Press every quarter, when the employers are filling out their quarterly Fringe Benefits Tax forms . . . These advertisements will list the names of Companies and individual Businesses who have had to lay off employees-- he is referring to employees who have had to be sacked during that last quarter- . . . as well as the number of employees dismissed. The letter then states that all of those companies that have gone broke because of this legislation that the Government and the Democrats will pass will also be listed. The fringe benefits tax and the capital gains tax will kill all incentive. There is no doubt about it: The capital gains tax will create tremendous problems for the youth of today. They will find that when they try to acquire some assets so that they will be able to have a productive life in Australia, the capital gains tax will mean that the incentive will be lost, particularly to that generation. Senator LEWIS(Victoria)(4.15) —The Senate is debating two Bills-the Income Tax Assessment Amendment (Capital Gains) Bill 1986 and the Income Tax (Rates) Amendment (Capital Gains) Bill 1986-which introduce a capital gains tax for Australia, which, as has been pointed out repeatedly in this place, breaks a solemn undertaking which the Prime Minister (Mr Hawke) gave to the people of Australia. The economy of Australia at present is in serious trouble. This year we will be spending about $13,000m more than we will be earning from our imports. As Government Ministers keep repeating during Question Time and at every opportunity, about $3,000m of that deficit has been made up by weak export prices. The deficit for the year will be $13,000m, so about $10,000m has not been made up by weak export prices, but by mismanagement of the economy by this Government. Australia would still have a deficit in excess of $9,000m, about $10,000m, even if the overseas prices of our grain and mineral exports recovered-which at this stage seems to be most unlikely. Our total foreign debt would still be more than $75,000m. There is every indication that that total debt will fairly soon reach a figure of about $100,000m. Mr Hawke and the Treasurer (Mr Keating) have tried to con the people of Australia that the internal economy is quite okay; the only problem is the external prices problem, and that is beyond their control. That, of course, is absolute nonsense, as I have made clear. The external prices problem is a problem of about $3,000m. I have interjected repeatedly during Question Time: What about the other $9,000m or $10,000m? Ministers have ignored those interjections. The Ministers continue to answer questions as if the only cause of the deficit is the external prices problem. That is rather like the old man saying to mum, `I can afford to buy this new motor car on hire purchase', and subsequently she discovers there was a very large Bankcard debt that he had not bothered to tell her about. I will extend that story. If that couple were to borrow, say, $50,000 this year, no doubt they could extend the house and put in new floor coverings and curtains. If they were to borrow another $50,000 the next year, they could buy a new motor car and perhaps even a new boat. The following year, if they borrowed another $50,000, they might be able to put in a swimming pool and no doubt by then they would have new clothes and all the neighbours would be saying: `That couple is doing extremely well'. They would be able to employ a gardener and housekeeper. The neighbours would remark on how well they are doing. As honourable senators know, they would have to meet the interest payments on their debt. Of course, in a domestic situation they might ultimately have to meet the capital, but let us forget about the capital for the moment. They have to meet the interest payments on the debt. The moment that their income starts to fall-if, for example, the mother got pregnant and could not continue to work, so that the family's income started to fall-the amount of money that they had borrowed would become a millstone around their necks. Is that not exactly what has happened to Australia under this Government? This Government has increased Australia's debt in the three years that it has been in government by $40,000m. Unfortunately, at the same time-- Senator Gietzelt —You know that is not the truth. You know that the bulk of that has been by the private sector. Now tell the truth. Senator LEWIS —Senator Gietzelt is quite a nice bloke in his own way, but unfortunately he does not really understand the economy of this nation. The nation is spending this amount of money and it does not matter whether it comes from the private or the public sector; the trouble is the country cannot pay its debts. This Government has increased the national debt by $40,000m; that is the way it has been allowed to go. That is the economic situation. Senator Gietzelt —Are you suggesting-- Senator LEWIS —Certainly I understand what Senator Gietzelt is trying to interject; that it has not been all public borrowing. I acknowledged that, but the Government has mismanaged the economy in such a way that the international debt has increased by $40,000m. At the same time our income has fallen and our ability to pay the interest on this debt has fallen dramatically because of the fall in prices of our overseas products and our lack of international competitiveness. We are unable to meet our commitments and on top of that, as a result of the Government's mismanagement the value of the Australian dollar has fallen so that the interest payments have become a millstone around the neck of this nation. This Government has been boasting of having created 600,000 new jobs. The truth is that it is now clear that those 600,000 new jobs have been created not because of any economic recovery but by way of borrowing $40,000m overseas. Except insofar as there was a partial recovery brought about by the Fraser Government's wage freeze and the breaking of the drought, there has been no economic recovery under the Hawke Government. It is clear that those so-called new jobs have been brought by this Government putting the nation into hock. The simple fact is that the 600,000 jobs have been bought with phoney money. Total unemployment continues at 600,000 people and that is after having seen rises in four of the past five months. The people of Australia will pay a very heavy penalty for the dubious pleasure of having another three years of an Australian Labor Party Government. It has been estimated that all of us should take a 10 per cent cut in our living standards in order to cope with this problem, but of course that will not happen. Not all of us will suffer a 10 per cent cut in our living standards because some people have the ability to avoid that cut. In particular, two-income families with security of tenure will be able to avoid that cut. A family, for instance, where one person is employed in the Federal Public Service and the other person is employed as a teacher may be able to avoid that cut, but the rest of us will have to suffer. There will not be across the board equality in the cut, so the problem will really affect those who are at the lower end of the economic scale. I wish that some of the members of the Australian Labor Party would recognise that people in a two-income family with security of tenure have become the wealthy people in this community, not the small businessmen who the ALP seems to think are some bottomless well from which it can permanently draw taxes. What is needed from this Government is leadership and an immediate and sustained cut in spending. The Government should be looking at a significant, indeed a substantial cut in all expenditure right across the board. This would be the first step in demonstrating to the world that Australia will not become a banana republic. We need then to free up the business world so that entrepreneurs are given an opportunity to establish successful businesses. Australians still have the talents, but those talents are being stifled by disincentives. As soon as the Government can after that, it needs to reduce taxes fairly and without causing high interest rates. Instead of this sort of leadership that I have suggested, we have total disarray on the part of the Government; confusion, public disagreement among Government Ministers and between Government Ministers and the minders of the Prime Minister (Mr Hawke). This Prime Minister was chosen by the ALP to win elections, not to run the country, but his minders have decided that he should have a high profile in leadership, so now he will take over the reins of management. We all know that he is quite incapable of taking over the reins of management. Look at what he did to ACTU-Solo Enterprises Pty Ltd, that very competent little petrol company. He took over the reins of that and destroyed it. He took over Bourkes store, a very competent business in Melbourne, when he was the President of the Australian Council of Trade Unions, and destroyed that store. If the Ministers allow him to take over the reins of government we will be in even worse trouble. The world should recognise that Mr Hawke was selected by the ALP as its leader to win elections and to continue to win elections, not to run the Government. Senator Gietzelt —I raise a point of order, Mr Deputy President. I draw your attention to the fact that not once has Senator Lewis referred to the legislation we are supposed to be debating. We are not debating the economy; we are debating income tax legislation. I do not think that he has mentioned the words `capital gains' once in his contribution. I draw his attention to the matter before the Chair. The DEPUTY PRESIDENT —Order! There is no point of order. Senator Lewis is entitled to paint an economic background, but he will have to bring his remarks around in due course to the capital gains tax. Senator Crichton-Browne —Just give us what you have been saying for the last 10 minutes again. Senator LEWIS —Senator Crichton-Browne wants me to give that serve again. If the Ministers allow Mr Hawke to take over the running of the country, they are quite cranky, because it is quite obvious that he has no ability to run anything, but he has an ability to communicate. I understand that when he goes out and smiles at young people and tells them the sorts of things they might want to hear, they might think he is great, but the truth of the matter is that as a Prime Minister he is a disaster. The bailiff is knocking at the door of this Government, but meanwhile what do we have? We have Cabinet Ministers hurling personal abuse and vilification all around the place. They keep blaming all and sundry and seem to be waiting and hoping that the problem will go away. In this chamber in particular Ministers have increasingly resorted to personal abuse and invective in answers to questions and in debates as they seek to cover up their ineptitudes, instead of facing reality and entering rational debate on ways of overcoming the present crisis. I refer in particular to Senator Button, the Leader of the Government in the Senate. He appears to be on the verge of some sort of breakdown as his utterances become increasingly irrational and he resorts more and more to personal abuse. Yesterday he extended that abuse to cover the Public Service and the teaching profession. I might say that I find that very disappointing in Senator Button. I have always thought that he had more in him, but it is a clear indication of what is happening inside the Cabinet as he comes under pressure. We know as we sit in this chamber that we can expect abuse from Senator Grimes, Senator Walsh and Senator Gareth Evans who sits alongside Senator Gietzelt. I specifically exclude Senator Gietzelt from this because we do not get personal abuse from Senator Gietzelt, but we do from Senator Grimes, Senator Walsh and Senator Evans. Until now Senator Button has managed to keep his very strong silver tongue in check, but he is under such pressure now that he keeps personally vilifying people on this side of the chamber in personal attacks on them-not attacks on our policies or what we might say, but attacks on our intelligence, size, shape or something personal about us. The DEPUTY PRESIDENT —Order! Senator Lewis, when I ruled on Senator Gietzelt's point of order earlier, I did say that you should bring your remarks around to the Bills before the Senate. Senator LEWIS —I am coming to that. I am merely pointing out that under the pressure of introducing this legislation-a capital gains tax and a fringe benefits tax to try to raise the revenue to meet the expenditure of this Government-Senator Button is cracking up. In fact, all the Ministers are cracking up. Senator Grimes has a philosophy. He has told us repeatedly: `If you can't stand the heat, get out of the kitchen'. Senator Grimes cannot stand the heat any longer because, as honourable senators will see, the headline on the front page of the Launceston Examiner for Tuesday, 3 June, is `Senator may quit'. Clearly, Senator Grimes cannot stand the heat in the kitchen any longer and he is looking for a quick exit. Senator Jones —On a point of order, Mr Deputy President: Senator Lewis is ranging very wide in relation to the subject that is before the Senate. I think he is being a bit personal in attacking Senator Grimes rather than confining his remarks to the Bill. The DEPUTY PRESIDENT —I have already ruled on that point of order, as raised by Senator Gietzelt. Senator Lewis is bringing his remarks around to the Bill before the Senate, I hope. Senator LEWIS —Of course I am. Today Maximilian Walsh made it clear in the Sydney Morning Herald that the Treasurer, Mr Keating, may be looking for an exit too. I can see Senator Gietzelt saying that he will not be offered a job, that is for sure, so he will be stuck in this chamber arguing from the Opposition benches against me in the fairly near future. He will have lost Senator Grimes and perhaps he will lose Mr Keating because as Maximilian Walsh points out: For a man now at home with the antique dealers of Europe, the US and the UK, Canberra must be increasingly a sentence. It is clear that those two Ministers will benefit from three years of Australian Labor Party government. They will get some sort of job and shoot through. In a climate like this Australia needs a capital gains tax like it needs a hole in the head. What this country needs is an incentive. A capital gains tax will force people to ask: `What is the good of working to make a profit in our business? What is the point of pouring stock back into our business and trying to increase our turnover? What is the point of trying to employ more people in order to make a little extra money?' Why would anybody do that when this Government introduces a fringe benefits tax and a capital gains tax? These taxes are a total disincentive to any sort of business activity. As I said, we need a capital gains tax like we need a hole in the head. What we need-- Senator Gietzelt —Why do they have it in the United States? Senator LEWIS —Senator Gietzelt asks why there is a capital gains tax in the United States. That is a very naive question. There is a capital gains tax in the United States because the rate of taxation there is 19 per cent, not 49 per cent as it is here. If the Government dropped our tax rate to 19 per cent, we would welcome a capital gains tax-of course we would. In the United States in addition to personal income tax at 19 per cent there is a tax on the cost of goods sold. This ranges from about 7 per cent in some States to as much as 10 per cent in others. But that is a broad tax and the Government is not talking about a broad tax. It is talking about introducing a fringe benefits tax and a capital gains tax on top of the highest personal taxes in the world. The Government cannot keep ripping it out of the people; there must be an opportunity for people to make a quid. If people do not have the opportunity to make a quid, they will stop making it and find some other way of pocketing the money. Senator Gietzelt —Quids went out with elastic-sided boots. We have dollars now. Senator LEWIS —Quids are what I am interested in. Don't you worry about dollars; I would rather be interested in quids. I am about to bring my remarks to a close, so poor old Senator Gietzelt can relax. What we need is a climate which will produce an incentive for businessmen and the work force to get together to produce Australian goods at internationally competitive prices. If we were to deregulate a number of the areas of the community business people in Australia would be able to get together with their work force and produce goods which would be internationally competitive. Even Senator Gietzelt knows this is true because there is a company called Lincoln Electric Co. (Aust) Pty Ltd in his State which has done it and there is a company in South Australia, Mitsubishi Australia Ltd, which has also done it. There are other companies around Australia which have shown that Australians have the initiative to enter into arrangements with their work forces to produce goods at internationally competitive prices. We need those incentives. These taxes are disincentives. Taxes such as the fringe benefits tax and the capital gains tax are disincentives to that sort of initiative. We need to say to the work force and the business people of Australia: `Get together and make the product; there are profits in it for all'. I know that `profit' is an ugly word to members of the Australian Labor Party but profits are what it is all about. A capital gains tax is simply another millstone around the necks of Australians. It is just like the married couple who borrow beyond their ability to pay-their repayments are simply millstones. Time is running out; the Australian Labor Party left us this sort of mess in 1975 and we had to fix it up. It looks as if we will have to fix it up again. Senator NEWMAN(Tasmania)(4.37) —After those stirring tones I rise to support previous Opposition speakers in dealing with this dreadful tax which is only one in a huge package of taxation measures which will drive this country further and further into the mire. In the second reading speech, the Minister for Industry, Technology and Commerce (Senator Button) claimed that this tax legislation would make the tax system much more efficient by encouraging investment that would generate growth and jobs. Few would quibble with the need to have an efficient but fair tax system. If that were the situation here I would not be opposing the Income Tax Assessment Amendment (Capital Gains) Bill and the Income Tax (Rates) Amendment (Capital Gains) Bill. The fact is that these Bills are not fair and are not efficient. As is the case in so many situations where government intervenes, these Bills will distort the market-place and discourage investment, growth and jobs-and all for little revenue gain. The Minister displayed his terrible prejudice towards the free enterprise system when he complained that decisions to invest had been determined not only by the overall yield of a project, but also by the composition of that yield as between tax free capital gains and assessable income. He claimed that this had produced an inappropriate pattern of investment, preventing Australia from achieving the best possible economic growth rates. What rubbish! This Government made such a fanfare of its intention to improve the Australian taxation system that the nation waited with bated breath. Yet what transpired? A backroom deal with the new generation of faceless men in a motel room while the back of the Treasurer (Mr Keating) was turned. What has been the end result? We have added to the 1,100 pages of taxation legislation prior to 19 September last year another 625 pages with this new tax package. That is an increase of 57 per cent in volume of tax legislation in less than a year. So much for a reform of the system. The Minister would claim that this is all to catch the tax cheats, the artful dodgers. If the Minister were really successful I would be very happy. If he thinks he has done it with the fringe benefits tax and the capital gains tax, he is very much mistaken. Option C might have achieved that, but we know that the Treasurer-the world's greatest Treasurer-was rolled and that option was unacceptable to our masters in the Australian Council of Trade Unions. The people who will be caught and burdened by this taxation are much more numerous than the Minister would care to admit. Again, it is the mass of small businessmen and small farmers who will be especially hurt. The so-called landed gentry, who always seem to bring out Senator Walsh's shoulder chip so clearly, are less likely to be bothered by this tax than the small farmer. It is much more likely that the big properties are in the hands of family companies and therefore are less vulnerable to a capital gains tax as they are unlikely to be sold as the generations change. On the small family farms where partnerships are so much more common, the sons presently farming with their fathers will be caught by the capital gains tax if they want to sell the property either to divide the proceeds among the family or to upgrade their holdings by transfer to a bigger property after their father's death. As the Government should know, if it cared at all about small farmers, there are two main reasons for these farms being sold. First of all, they are sold on the death of a farmer so that distribution can be made to the family or, secondly, on the retirement of the farmer so that his capital investment can be turned into a more substantial income to see him through his aging years. With this tax the Government is stealthily reintroducing death duties and I say: Shame on it. In addition, it is penalising again the men and women who have worked so long and so hard on their farms, frequently for poor or variable returns, and who have looked to their retirement to reap the reward for their hard work to keep them in some degree of comfort in their old age. One must also draw attention to the fact that the Government has sneakily introduced an element of retrospectivity by providing that, even though a property is purchased prior to 19 September of last year, if it is sold after the death of the taxpayer, capital gains tax will be payable. This will catch most farms in time. As the cities have grown and expanded to the country, farms have been increasingly forced to the sale room due to high council rates based on sub-divisional potential. These farms are not owned by farmers who plan to make a quick buck; yet the capital gains they make will attract the tax. The Minister for Finance expressed concern at the misallocation of capital. I draw his attention to a phenomenon which is already occurring as a direct result of his announcement of a capital gains tax. In the big cities of Australia wealthy people are already putting huge sums of money into luxurious homes which they will be able to buy and sell with relative freedom from a capital gains tax. So much for the Minister's opinion that `the lack of a capital gains tax has also distorted investment choices towards less productive uses'. If anything has distorted investment choices towards less productive uses, it is this legislation. If this legislation also causes farm prices to fall, we must fear for those farmers who are already in difficulties with low commodity prices and high interest rates. Their equities will be reduced by that drop in values. Surely this is no way to encourage the best use of capital in the nation. It is interesting to remember that on 23 October 1984 the Minister for Primary Industry (Mr Kerin) told a farmers meeting at Horsham that he would oppose any new capital gains tax and death duties in the strongest terms. Senator Townley —That is what they say. What do they do? Senator NEWMAN —That is what the Government says but what does it do? One has to read the fine print to see what it does. It is long on promises. On 9 April 1984 the Minister for Primary Industry was quoted in the Australian as saying: My objection to a capital gains tax is the same as probate in that it has the effect of rendering the rural sector in the long term less viable. The family has to sell part of the property to pay probate or capital gains tax. In April this year the Minister told the Parliament that capital gains tax was in the farmers' long term interests. Big Brother knows best! What rubbish and what a conversion. Saul on the road to Damascus has nothing on Minister Kerin. The Government claimed that its tax would have negligible impact on primary producers as it would be paid only on real gains and would be subject to notional averaging over five years. However, figures produced by the Valuer-General's Department of New South Wales tend to indicate otherwise. I seek leave to have incorporated in Hansard a table which compares indexed price movements of the consumer price index with the movements in four categories of farms in New South Wales between the years 1976 and 1984. Leave granted. The table read as follows- The following table compares indexed price movements of the CPI with the movements in four categories of farms in NSW between the years 1976 and 1984. 1976 1984 CPI... 100 213.9 Grazing Properties (a) Western lands... 100 334.3 (b) Other... 100 280.4 Wheat/Sheep Farms... 100 322.5 Dairy Farms... 100 272.1 Although these figures only apply to NSW farm price movements between 1976 and 1984, and that price movements will no doubt vary in intensity from State to State, this is a clear indication that adjusting the cost base of a capital asset for farmers by CPI is not as appropriate as it may be for other holders of capital assets. Senator NEWMAN —I thank the Senate. Clearly, the use of the CPI for assessing real gains for farmers is unreliable. The seasonal fluctuations of drought, floods, changes to export market prices and growth of cities all distort the values of farm properties. Before passing on to other difficulties posed by the Bill on small businesses in Australia, I draw attention to the sneaky method by which the one per cent Medicare levy will be assessed, not just on income as at present but also on the capital gains included in the taxable income. Of course, it is clear that the cost of Medicare has long ago grown beyond the range of the one per cent levy, but the Government has been unwilling to reveal its real cost. Now it suddenly has a heaven sent opportunity to bring in more money under the one per cent levy rather than having to raise the rate of the levy. That is disgraceful. Another group of small businesses that stands to suffer under this legislation are the small tourist enterprises. The proprietors of these enterprises work a 70- to 80-hour week, with their sleeves rolled up, dealing with the whims of the travelling public. I declare my interest. As one who has rolled up her sleeves while working in that industry, I know how those people put in heavy hours and put up with the disadvantages of their job, with the incentive of building up a business so that they can sell the freehold for capital gain and sell the goodwill that they have worked so hard to achieve. If the impact on their industry is similar to what happened to the home rental market after the negative gearing announcement, the probable effect on values of motels will be a reduction in the number of motel units being built and an increase in tariffs. This is an industry that we are trying to encourage to compete on an international market. Senator Townley —They have already had the fringe benefits tax put on them. Senator NEWMAN —They have already had the burden of the fringe benefits put on them. They will bend under this measure as well. They are typical of people involved in small business everywhere. We know that the achievement at the end makes it all worthwhile for them. This Government is treating them as tax cheats and fat cats who, because they own property, should be denied the full results of their labour. The hours they work, if costed at union rates, with overtime and penalty rates entitlements, would prevent them from making their business viable in the long term. Through their hard work and the long hours they spend ploughing in their wages they try to build a business which, with luck, will get into the black and give them a chance for profit-that filthy word. They can eventually decide to sell up, pay off the bank and take their reward-a reward for their risk and for their enterprise. It is that risk-taking and that enterprise that the Government is taxing with the introduction of this legislation. These are the sorts of people who have built this country. The goodwill which they have built from nothing in their businesses will contain an inflationary element over time. Where there is no base to commence with, how can one index the base? In the case of tour operators the goodwill is practically all they have to sell. Mr Tony Stolarek, a tax partner with Arthur Andersen and Co., was quoted in the Australian Financial Review of 30 May as saying that the legislation was a record-keeping nightmare. The article stated: ``Everyone down to the smallest taxpayer will have to keep detailed accounts of their affairs'', he said. ``The complexities are enormous and affect so many transactions that before doing anything financial, virtually everyone will have to stop and think if there are any capital gains consequences'', he said. The national director of taxes for the accountants Ernst and Whinney, Mr Ian Phillips, also drew attention recently to the important issues of record-keeping requirements. He said: The revenue yields cannot possibly match the cost of properly administering the legislation, a cost which, like the fringe benefits provisions, falls primarily upon the business community. I remind the Senate that the Minister claimed in his second reading speech that this legislation would make the tax system much more efficient by encouraging investment that would generate growth and jobs. The Institute of Chartered Accountants in Australia, which we would have thought would have had a vested interest in a confused tax system, has criticised the tax, saying that, even allowing for the indexation of tax thresholds, the tax would seriously hamper development and limit growth. The Institute urged the Government to work towards a fundamental reform of the tax system rather than continue on the course of further piecemeal amendments to current legislation. I join the Institute in its plea. I say to the Government: For goodness sake, cut government expenditure and leave the real wealth creators of this nation alone. Without them this country will not just find itself in a recession; it will be doomed. Senator TOWNLEY(Tasmania)(4.49) —The Senate is debating the Income Tax Assessment Amendment (Capital Gains) Bill 1986 and the Income Tax (Rates) Amendment (Capital Gains) Bill 1986. At the outset I wish to read a quote that, most probably, all honourable sen- ators have heard before. It was attributed to Abraham Lincoln over a century ago. He said: You cannot bring about prosperity by discouraging thrift, You cannot strengthen the weak by weakening the strong, You cannot help the wage earner by pulling down the wage payer, You cannot further the brotherhood of man by encouraging class hatred, You cannot establish sound security on borrowed money alone, You cannot build character and courage by taking away man's initiative and independence, You cannot help man permanently by doing for him that which he can, and should do for himself. I think this Government is doing just about everything it can contrary to what Abraham Lincoln said in those few lines. Once again we see this Government in its anti-business role bringing in an anti-business tax. Those people who have managed to work during their lives and do a little better than average are to be taxed once again. We have just heard an excellent speech from Senator Newman about some of the people who will be hit by this tax. We see this Government bringing in another tax-at a time when taxes should be coming down. The United States of America has managed to promote its economy by reducing taxes and that is what this country should be doing. The Prime Minister (Mr Hawke) has been shown to have broken another promise. He is always asking the people of this country to trust him. I would not trust him with my pencil and certainly not my fountain pen. He promised the elderly that there would be no assets test on their pensions. What happened there? He broke his word. He promised that there would be no capital gains tax. What do we have before us this afternoon? We just cannot trust that man to tell the truth. I believe that eventually the people of Australia will realise how they are being conned and take no notice of anything that he says. His political promises are certainly ones that go in one year and out the next. What should be happening in this country? I believe that we should be trying to increase investment. In a week when the Australian dollar is again on the slide the Government is pushing through the fringe benefits tax which we know will affect so many industries. It will not affect government organisation one iota but it certainly will affect the private sector-the businesses that employ most of the people around this country. Now we see this capital gains tax being pushed through. I repeat that that is again something that the Prime Minister said would not happen. What we need in this country is people to take economic risks. With risks in investment come jobs, and increased employment helps our young people in particular who are most damaged at the moment by having such a big percentage out of work. With investment and risk there will be a chance that they will find it easier to get a job. Of course, at the moment we have extremely high interest rates. They are there to try to prop up the dollar although it has not been working too well lately. I believe that the prime rate in Australia is somewhere around 18 per cent, in Japan around 7 per cent, in West Germany about 9 per cent, in France 10 1/2 per cent, in the United Kingdom 12 1/2 per cent and in the United States of America somewhere around 9 1/2 per cent. In most other countries interest rates are coming down. The overspending of this Labor Government has resulted in high interest rates to try to prop up the dollar by encouraging people outside this country to invest their money in Australia. Another reason why I believe people will not invest is that the interest rates that they have to pay to borrow money for investment are simply too high. Of course, no new investment simply means that there will be no new jobs. Part 3 of the economic report in the Age of Monday 2 June pointed out that our inflation rate is way in excess of the inflation rate of a lot of other countries. This year, our inflation rate is nearly 8 per cent, in the United States it is somewhat less than 3 per cent, in the United Kingdom 4 per cent, in West Germany zero per cent, in France nearly 3 per cent, in Japan 0.5 per cent and in Canada 3.5 per cent. Australia is winning in the inflation stakes right down the road. It is just not good enough. This country is going down the economic slide to becoming a banana republic. Let us look at the indebtedness of this country. I have just received a new list of selected countries. The Minister for Finance (Senator Walsh) is always telling me that we are not very much in debt. The list I have, which was prepared by the Parliamentary Library, is headed `Per Capita Net External Debt of Selected Countries'. This list shows the per capita figures for 1984 which are the latest figures available for most countries. The most indebted country per capita is Canada with an external debt of nearly $7,000. The next is Norway with $6,500, followed by Denmark with $5,800, New Zealand with $3,666, Finland with $3,200 and Australia, which is seventh on the list, with an external debt of $2,600. I have said before that that is way in excess of countries such as Argentina, Mexico and Brazil. Argentina's net external debt per capita is only $1,600, Mexico $1,280 and Brazil $800-which is about one-third of the indebtedness of Australia. I advise the Senate that this list shows the 1985 per capita figures for Australia as $3,200, which is up from $2,600 the previous year. That is a very serious situation. I seek leave to incorporate in Hansard that table. Leave granted. The table read as follows- PER CAPITA NET EXTERNAL DEBT OF SELECTED COUNTRIES 1984 1985 Per capita Per capita ($US) ($US) 1. Canada... 6,9220 2. Norway... 6,500 3. Denmark... 5,800 4. Sweden... 4,500 5. New Zealand... 3,666 3,833 6. Finland... 3,200 7. Australia... 2,600 3,200 8. Venezuela... 2,059 9. Belgium... 1,800 10. Argentina... 1,600 11. Mexico... 1,280 1,280 12. Germany... 1,279 13. U.K.... 1,250 14. Italy... 1,193 15. Japan... 1,134 16. S. Korea... 1,075 1,138 17. France... 945 18. Spain... 816 19. U.S.A.... 800 20. Brazil... 800 Notes: 1. Australia's current position (Sept. 1985) Net External debt=A$52.6 bill. (converted to US $ at conversion rate of: A$1.00 = US$0.72) = US$72.9 bill = US$ 4,700 per capita (approx.) 2. Eastern European countries are not included in the ranking. 3. 1985 figures are only available for the countries shown in the table. 1. Harrick, M. Australia's external debt. The Australian banker, Dec. 1985: 230-234. 2. First world debt. Lloyds Bank international financial outlook, 7 August 1985: 1. 3. Tingle, L. Australia's debt crisis: when will the plug be pulled. Business review weekly, 4 October 1985: 40+ (8p.) 4. World Bank. World development report 1985. Washington D.C.: The World Bank, 1985. 5. Australian Bureau of Statistics. Foreign Investment, Australia, September quarter 1985. ABS Cat. No. 5306.0. Senator TOWNLEY —I thank the Senate. Honourable senators can see what a mess this country is in. Of course, everybody has pointed out just how much a capital gains tax will stop people from building things such as rental homes. Of course, if there are no homes we will have a rental shortage. If we have a shortage up will go the prices and the rents, and that will affect all those people whom this dishonest Government purports to assist. As Senator Sir John Carrick said earlier, a capital gains tax will not stop the bosses from having a house but it will stop the people at the lower end of the economic scale renting at a reasonable price. A capital gains tax will stop people from buying or investing in farms. Our main export earner-our farmers-will be locked into their present assets. As Senator Newman said a moment ago, even the farmers will be attacked when they die. As I see it, this capital gains tax definitely has an element of retrospectivity. We need to be increasing and improving our exports both in the farm sector and in industry otherwise our borrowing requirements, which are already horrendous, as I pointed out a moment ago, will continue to increase. This Government will keep interest rates high; it needs to in order to keep the dollar up. That will have all the side effects that everybody in this country knows about. I refer to farmers, small businesses, home owners and home renters. Senator Watson was right when he said that this was just the thin edge of the wedge. I agree entirely with that. The home is now exempt from a capital gains tax but, on the performance of this Government over the last few years, I believe that eventually the home will be included as a capital gain. If Labor stays in office I believe that, after the next election or at some time for some reason, it will dream up an excuse to impose a capital gains tax on the family home. If the Government ever gets full control of this Senate I do not think for a minute that this capital gains tax will be dated from the day this legislation comes into effect; it will be made retrospective as far back as this Government can make it. This Government has shown its attitude to things like that before, and I believe that it will do so again. We have seen so much waste recently which is costing this country hundreds of millions of dollars yet the Prime Minister, in his 1983 policy speech, said that Labor was committed to: . . . cutting away extravagance and self indulgence in Public office. What are we seeing this Government do? I do not have time to detail all of the areas of waste, but let me give a few examples. Let us look at government advertising. Prior to the 1984 election, Labor had engaged in massive public advertising campaigns, including promotions for the prices and incomes accord. In August 1984 it advertised about the Sex Discrimination Act and Medicare was advertised to May 1984. These are not small amounts. The advertising bill for the prices and incomes accord was $750,000. The cost regarding the Sex Discrimination Act was just over $250,000 and for Medicare it was nearly $3m. The cost of electoral enrolment to September 1984 was over $2m and the community employment program to September 1985 cost $560,000. These are not peanuts. The Government spends money like a drunken sailor. I have always reckoned that the people who do not have to earn money, and have never had to earn it, could not run a fair. These are the people who spend their money most rapidly. This Government is a perfect example of that. In October 1985 the claim was made that of the Government's $57m advertising budget more than $6m was spent on politically-motivated projects to enhance the support of the Labor Party. That claim was made in the Australian on 11 October 1985. One of those programs was Priority One. I do not know whether any honourable senators have seen any of those advertisements. I have been associated with advertising for a reasonable length of time and I could not understand what they were getting at. It was a pathetic program. Senator Amanda Vanstone made a very good speech about that in the Senate to which people could refer. Included in these costs were the production costs of the Prime Minister's speech of $54,000. I do not know who is getting all this money. I can assure the Senate that there was not this wastage when the Liberal-National Party coalition Government was in power. Senator Newman —There is plenty of room for cuts. Senator TOWNLEY —There is a stack of room for cuts. Altogether, if honourable senators went through all the things that have been done they will see that it comes to some hundreds of millions of dollars. I have just enumerated these costs from the first page of this document; it goes for nine pages. Pamphlets were printed for things such as the Australia Card, fringe benefits and capital gains tax. The booklet that the Government sent out on fringe benefits tax was not even accurate. I do not know what the exact figure is but that, in itself, would have been some hundreds of thousands of dollars. Senator Newman —They don't know either. Senator TOWNLEY —I think we will find out in the Estimates, but that will be a little further down the track. We should be looking at where to cut spending and waste. Honourable senators should remember that this tax will bring in only $5m in the first year and $10m in the second. Let us see what it costs for overseas trips. To June 1985 the Hawke Ministry has taken a total of 125 overseas trips at a total cost of $6.1m. That is more than it is going to get from capital gains tax in the first year. I will not go into the details of the people who travelled most. I do not want to do that. That is available to anybody who wants to look up the records. The Hawke Government enlarged the Parliament. At the last election the Parliament was enlarged to 220 members and senators. The Budget allocation was $18m. The elections cost $30m and public funding, yet another Labor initiative, cost $7.8m. These are just a few examples of the way this Government is wasting money and putting this country in debt. The Government, to try to fund its waste, is trying to scrape from people's piggy banks what they have saved all their lives. We all know about the waste that is going on in bodies such as the Australian Bicentennial Authority, the Human Rights Commission and the Pipeline Authority. Some people say that the Australia Card will make money, but I do not believe it will. It is easy to see that this Government has not fulfilled its promises to have a scandal-free administration or to cut away extravagance and self-indulgence. If 125 overseas trips by Ministers of this Government are not extravagance and self-indulgence, I do not know what is. A new tax is coming in. I am sure that a lot of the money that is collected will be wasted in the way that the previous dollars that have been collected by other new taxes by this Government have been wasted. The Government always calls them initiatives. Why is a new tax an initiative? I think it is a penalty. It is just one of those clever little words that the Labor Party tries to use. In no way should tax be called an initiative. Any tax, particularly this new tax is a penalty on the workers of this country who try to save a little in their lives. This tax will stop investment and, therefore, attacks the young. It attacks the poor by lowering the amount of rental ability and yet it is promoted as attacking the wealthy. But in reality it hits the little bloke; it hits the battler. I believe the Government does not really care, it is just trying to disguise what in fact does happen. Incentive to invest will decrease with this tax; the incentive to work will decrease; the incentive to work hard, to save and provide for oneself and one's family will be removed. I am sure that a lot of the left wingers and the socialists of the Government will be extremely happy. In economic terms, the Government will get peanuts from this tax-only $5m in the first year and $10m in the second. Senator McIntosh —Hear, hear! Senator TOWNLEY —I am glad that Senator McIntosh said `Hear, hear!' when I said that the socialists will be happy that the incentive to work hard and provide for oneself and one's family will go. He said `Hear, hear!' when I said that the socialists and left wingers would be happy. I am glad he said that. I believe that really does indicate just what this Government is about. The reasons for this tax were outlined by Peter Costigan in an article in the Melbourne Herald of 23 May this year. He said: The real reasons for the new tax are threefold. The unions wanted it as part of their agreement to go along with the now shaky accord mark 2. The bureaucracy wanted it because few bureaucrats acquire capital outside their homes and their tax-payer funded superannuation scheme, both of which escape scot free from this and all other current tax changes. Perhaps the bureaucrats who come and live in Canberra, buy a house here and have to pay tax on the capital gain will not be too happy. I can see why most of the bureaucrats around the country will be happy. The article continues: Mr Keating wanted to placate those in the Labor Party, especially the left who are ideologically convinced that accumulated capital is evil unless controlled by governments. I believe the Government should be promoting an environment where people look after themselves. It needs to encourage enterprise and self-reliance. This tax does entirely the opposite. We all know that under this Government Australians' living standards are falling. I believe they will fall a lot further yet. In part, in an article in the Age of 2 June headed `We really are living beyond our means'-there is an emphasis on the word `are'-Terry McCrann states: Four months ago I wrote that Australia was on the brink of its gravest economic crisis since the 1930s Depression at a time when the Government was still selling the line that all was rosy in the garden. That propaganda has only recently been shelved. Mr Keating's `banana republic' comment of three weeks ago marked the symbolic turning point. Despite the fact that we are heading for a banana republic there is no encouragement. We still have new taxes such as this capital gains tax. Further on in the article Mr McCrann states: . . . our total debt is heading inexorably towards $100,000 million, and points higher. In short-and the cliche has never been more appropriate-we as a country are living beyond our means. We are taking more from the rest of the world than we are selling to it. And this has only been possible because the rest of the world has been prepared to lend us the money to do so. I expect that any day soon we are going to lose our triple A rating around the world. I think members of the International Monetary Fund will have to tell this country how to manage its affairs within a few years. In the case of New Zealand we saw that once the amount of interest it had to pay on borrowings to finance its deficit rose to 11 per cent it lost its triple A rating in international financial circles. That is one of the dangers that we face not so far down the track. A little further on in the McCrann article it is stated: But increasingly, in recent times it was the combination of our fallen dollar and increasingly high interest rates. He means that this is stopping investment in this country. Further on Mr McCrann said: The Government has two choices: it can impose the very harsh medicine required-broadly again, that requires as I wrote-- meaning Mr McCrann-- four months ago something like a 10 per cent cut in the living standards of every Australian-or it can ride the economy and the country over the cataract and hope something turns up before we hit the rocks below. I do not believe that a 10 per cent cut in living standards for us is enough now. I believe that it would be more than that. Mr McCrann continued: Projections of private investment, also released last week, showed that business has not increased its spending plans for the coming 1986-87 financial year over the past three months. Again, the only other time this has happened in the last 10 or so years was in 1982-83. . . . . Whether the Government likes it or not, it-we-is now going to pay a very heavy price for the past three years of phoney prosperity, that `growth' which did nothing to build our manufacturing base to replace imports or to generate the export earnings of the future. Mr McCrann continued: What then is the solution? We have to promote the private investment that will create the industries that will (1) compete with imports (2) earn export income to pay for them, and service the existing debt, and (3) of course create jobs and keep the economy moving ahead. How do we get private investment? We dismantle or modify all the things that have been built up over the past 20 years as a disincentive-trade unions and their restrictive job practices- Senator Newman, being in the tourist industry, would know all about the high penalty rates during weekends and things of that type- business regulation, punitive taxes such as the proposed capital gains and fringe benefits taxes, costs imposed by government (including interest rates) etc, etc. In short: provide some confidence that an investor could (a) get a plant built, (b) operate it efficiently and market its output without union bully-boys pulling the plug and (c) be able to earn a fair and reasonable profit on the investment and its risks. Surely, that is what those on this side of the House have been saying over the last few hours of this debate. I am only sorry that we are debating this legislation towards the end of the session. No doubt some people will say that we are filibustering on this legislation. However, it is a very important matter. As Senator Watson said earlier, the legislation will have a long term profound effect on investment. It will have the effect of making it more difficult for a lot of the poor, the less well off in the community, the battlers, to get places to live at a reasonable price. As Mr McCrann concluded: Time is not on our side and we really do not have a choice. We take the hard decisions or we learn to live with inflation and unemployment in the high teens (in a good year), grinding poverty across much of the community-and Third World-style obscene pockets of stupendous wealth-and consequent social and political upheaval. That is what a lot of the people away from the ivory towers of Canberra realise is happening in this country. We are heading in a very dangerous direction. As was stated in the Australian newspaper of 3 June in the editorial headed `New directions are essential': Those who would seek to play down the crisis in our balance of payments, in which the terms of trade have turned against us so dramatically, are wrong to do so. The drop in Australia's income and the consequent squeeze on our economy and living standards makes it imperative that we examine how we can make Australia more competitive and successful. Further on the editorial stated: But for a business in difficulties higher costs, for whatever reason, may add up to a terminal situation. It is the timing of the reform measures that is critical. Changes in negative gearing, along with capital gains taxes, are not only making rental accommodation expensive but also scarce, and are contributing to higher inflation . . Overall reform of the tax system to restore incentive to work and to earn is vital . . . we must look seriously at what incentive there is for an employer to stay in business. I am sure that there are lots of people around this country who are getting sick of all the imposts that the Government is putting on them. No doubt, that would please a lot of the socialists and left wingers of this Government. They are recent statements that I have just quoted. However, we have been warned over the last year or so by many people. John Leard and other writers have pointed to the dangerous situation that this country is in. In my opinion we have to become more pro-business. Of course, fringe benefits and capital gains taxes are diametrically opposed to that. We have to become pro-family. We need to stop financing alternative lifestyles. We need to become pro-youth. With 20 to 25 per cent of our youth not working, we need policies that will help in that area. We need to be pro-self-help. This world does not owe Australia a living. Australians should not rely on the mad socialist policies which have been proven elsewhere in the world not to work. It has been proven that eventually they damage the people that they are said to aim to help-the battlers in the community. We should not rely on those policies. I believe that this tax should be abandoned. I am pleased to belong to the Party that says that it would repeal such a tax. I would even go so far as to say that I would make that repeal retrospective, as much as I am against retrospective tax. Senator Crichton-Browne —Give us all a refund. Senator TOWNLEY —Exactly. I would almost be prepared, if I were leading the Liberal Party, to say that we would give back the money that this dishonest Government proposes to take from the hard workers of this country. Senator WALSH(Western Australia-Minister for Finance)(5.17) —After 12 years in politics one should become accustomed to cant and humbug but I do think that we have had some spectacular examples tonight of cant and humbug in the speeches of the last two honourable senators who have spoken in this debate, who both represent the mendicant state of Tasmania, which pulls about $250m more out of the Commonwealth Government than it would get on the basis of a per capita distribution. Those honourable senators have been saying how easy it is to cut expenditure. I think that is a particularly striking example of cant and humbug. There have been, I think, 18 Opposition speakers in this debate on the Income Tax Assessment Amendment (Capital Gains) Bill 1986 and the Income Tax (Rates) Amendment (Capital Gains) Bill 1986. However, there have not been 18 speeches; one speech has been repeated 17 times. A theme common to those speeches is the mutually exclusive proposition that a capital gains tax will raise negligible amounts of money but will bankrupt business. That proposition is supported by a number of false assertions, chief amongst which is the assertion that this is the highest capital gains tax in the world. It is true that in the United Kingdom the taxation base is indexed, as it will be in Australia, and a flat rate of tax-I think of something like 20 per cent-will be levied. However, the indexation introduced by the Thatcher Government is a very recent proposition. I have not noticed any particular improvements in the economy of Great Britain because of that. With unemployment above 13 per cent and rising, the Thatcher Government is presiding over Great Britain's decline to Third World country status. Also, in the United States there is a flat rate of taxation which is not indexed. Of course, that makes it a relatively easy matter for the effective marginal rate of tax to be in excess of 100 per cent compared to the Australian system because in our system the tax base will be indexed and in the United States it will not. In the majority of the Organisation for Economic Co-operation and Development countries the base is non-indexed and the marginal rate is applied usually without any provision for averaging. So compared to the tax which is levied in most of the OECD countries this is highly concessional. Incidentally, capital gains taxes are not an attribute of banana republics; indeed capital gains taxes are rare in banana republics. They are found in virtually every OECD country-I think I could go further than that and say in every OECD country-the performance of which has put ours to shame over many decades. Australia has had no general capital gains tax before. For many years it had no inheritance tax. During the last 30 years or so-nearly all of those years under Liberal-Country Party governments; incompetent and cowardly tory government-we have seen Australia slide steadily behind not only the rest of the OECD countries but behind the rest of the world. There are many reasons for that. I am not saying that this is the only one, but one of the reasons for that is that in Australia for far too long the ethos of capitalism has been a comprador ethos, effortlessly skimming off the cream without making any serious attempt to do the hard work which is required for true economic growth. The fervent attachment to a capital tax-free system is one of the powerful symptoms of that comprador ethos. We have heard the usual nonsense about how this will kill off the cockies. I have been trying to tell the galahs opposite for a long time now that the major reason that many Australian farmers are currently in financial trouble is that they paid too much for land in the early 1980s. A major reason they paid too much for land was the absence of a capital gains tax and the expectation, at some time in the future, of untaxed capital gains. Of course, the capital gains appeared to be there-illusory though they turned out to be-because the price of land was steadily rising. The reason the price of land was steadily rising, supplementing the expectation of untaxed capital gain, was the speculatory feedback. We saw it happen with Poseidon shares and we saw it happen with land in Melbourne in particular in the late 1880s and early 1890s. When we have that type of speculative boom going we can sustain increases in prices for a period. In the end, there is always a crash as there must be. We cannot entirely eliminate that tendency for speculation which is always in the background of markets for assets. But at least if we tax the capital gains, we will hose it down to some extent. Far from being damaged by a capital gains tax, if there had been a decent capital gains tax such as this in Australia for decades, many of the farmers who are currently insolvent would not be insolvent because they would either not have bought the overpriced land at all or they would not have bought it at such excessive prices. We got the customary refrain from most of the speakers that we should not be taxing, that we should be cutting spending. The Opposition has yet to nominate one substantial expenditure cut. I have invited it to on numerous occasions. Various Opposition front benchers say that spending should be cut by $4 billion, $5 billion-name your own figure-but they have yet to nominate one substantial area where expenditure should be cut. The Waste Watch Committee produces a list of trivia, half of which, one finds out on closer investigation, relates to the Fraser years and not to the years of this Government at all. The other half adds up probably to less than Neil Brown's annual car bill. Moreover, not only has the Opposition failed to nominate one substantial expenditure cut but it has also run around the country promising to add $2 billion to expenditure while failing to nominate one significant cut. I guess there are two possible reasons for the fervent objection from Opposition members to this tax. The first and the more charitable one is that they do not really understand it, and they cannot accurately assess the effects it will have. That is the charitable interpretation. The less charitable one is that there are a huge number of people in the Liberal Party who are notorious tax evaders. Half of the former members of the Western Australian Liberal Party Finance Committee are now on trial. Probably the other half should be. The reason this tax must be applied at the marginal rate to be effective-- Senator Walters —I raise a point of order, Madam Acting Deputy President. We have the situation where one of the Labor Ministers was in one of the bottom of the harbour schemes. I do not think that Senator Walsh has any justification at all in saying anything about Liberal Party members. He has absolutely no factual knowledge. The ACTING DEPUTY PRESIDENT(Senator Haines) —There is no point of order. Senator WALSH —It is a fact that one Ronald Woss of the Liberal Party Finance Committee in Western Australia in 1979 is currently on trial. It is a fact that half of the members of the Liberal Party Finance Committee at that time have been named in various official reports as having been directors who arranged the sale of companies to Brian Maher or his agents, who then sunk them to the bottom of the harbour. In a less spectacular way there is a wide-spread affinity for tax avoidance or evasion. In most instances, except in the pedantic legalistic sense-I do not believe that there is any real point in distinguishing between the two-Liberals have a propensity to get involved in that sort of activity. At the bottom of most tax avoidance-evasion schemes has been the conversion of what would have been taxable as income into a gain as capital which was not in the past taxable. I know that there are some people in the Opposition who argue-and some of them probably even believe it-that part 4A amendments passed in the autumn of 1981 have removed the possibility of that sort of thing happening. I am not sure that that actually stands up and that that can be asserted with absolute confidence, even with the present High Court of Australia. Who can guarantee that some High Court in the future might not adopt the permissive attitude to tax evasion which the Barwick court adopted throughout the 1970s. One thing of which we can be sure is that if a real capital gain-which is the tax base for this legislation-is taxed at the marginal income tax rate, people will not be able to get away with tax avoidance or evasion in the traditional way. I have not been here for the whole debate, but I understand that there have been a number of assertions that no deduction will be allowed for capital losses. That is not correct; losses are deductible against capital gains in the current year and may be carried forward indefinitely to set against future gains. It was also said that bequests to charities would be subject to the capital gains tax. Bequests to charities are usually paid in cash, so the question would not arise. Perhaps, very rarely, substantial assets are donated to charities, but this practice is so rare that it is hardly significant. Certainly, none of us is sidetracked or diverted by the red herring the Liberal Party throws in about pretending to be concerned about what happens to charities. What the Liberal Party is really concerned about is that when this tax comes in there will be no opportunity for tax avoidance and evasion of the type which was so popular and so destructive in Australia in the 1970s and the early 1980s. Question put: That the Bills be now read a second time. The Senate divided. (The President-Senator the Hon. Douglas McClelland) Ayes . . . . . . . . . . . 34 Noes . . . . . . . . . . . 28 —— Majority . . . . . . . . . 6 —— Aulich, T. McClelland, DouglasBlack, J. R. McIntosh, G. D. (Teller)Childs, B. K. McKiernan, J. P. Chipp, D. L. Macklin, M. J. Coates, J. Maguire, G. R. Coleman, R. N. Mason, C. V. J. Colston, M. A. Morris, J. Cook, P. F. S. Ray, RobertCrowley, R. A. Reynolds, M. Devlin, R. Richardson, G. F. Elstob, R. C. Robertson, E. A. Foreman, D. J. Sanders, N. K. Gietzelt, A. T. Sibraa, K. W. Giles, P. J. Tate, M. C. Grimes, D. J. Vigor, D. B. Haines, J. Walsh, P. A. Jones, G. N. Zakharov, A. O. Alston, R. K. R. Knowles, S. C. Archer, B. R. Lewis, A. W. R. Baume, Michael MacGibbon, D. J. Baume, Peter Messner, A. J. Bjelke-Petersen, F. I. Newman, J. M. Boswell, R. L. D. Parer, W. R. Brownhill, D. G. C. Puplick, C. J. G. Carrick, Sir John Reid, M. E. (Teller)Collard, S. J. Sheil, G. Crichton-Browne, N. A. Teague, B. C. Durack, P. D. Townley, M. Guilfoyle, Dame Margaret Walters, M. S. Hamer, D. J. Watson, J. O. W. Hill, R. Withers, R. G. Cooney, B. Kilgariff,B. F. Evans, Gareth Jessop, D. S. Siddons, J. R. Short, J. R. Ryan, S. M. Vanstone, A. E. Button, J. N. Chaney, F. M. Question so resolved in the affirmative. Bills read a second time. The Bills. Senator MESSNER(South Australia)(5.37) —I would like to refer to a few matters that require answering in light of what the Minister for Finance (Senator Walsh) said when replying to the second reading debate. First of all I would like to return to the nine principles laid down by the Hawke-- Senator Walsh —Are we having a second reading debate in the Committee stage? Senator MESSNER —No. I will draw the Minister's attention to several detailed matters. Firstly, I refer to three of the nine principles which were laid down by the Prime Minister (Mr Hawke) at last year's Tax Summit. The first of the three principles that are of relevance to this matter is that any reform must simplify the system. Clearly, this very complex piece of legislation does not do that. I doubt whether Labor members have actually read the legislation. Had they done so, I am sure that they would have been horrified by the language that is used. Clearly, it is not a simple piece of legislation. The second principle is that any reform must provide the best possible climate for investment, growth and employment. Quite clearly, this new tax is going to destroy employment, it is going to restrict investment and it is going to be a major disincentive for industry to develop. The third principle is that any part of the reform package must have widespread community support. Clearly, the capital gains tax does not have widespread community support. In fact, there is widespread opposition to it and to the very concept of it. The Government has totally ignored its own set of principles, as it has done in regard to every other piece of legislation that we have debated over the last week. The Minister and members of the Australian Labor Party generally have always sought to confuse the two issues associated with capital gains. They make the point that capital gains taxes are about restricting speculative activity upon which tax is charged. That is a lie. It is quite clear that there are two separate and distinct classes of capital gains. Certainly, there are those speculative gains which are earned, say, on the stock market or in some real estate deal or whatever, that bring relatively short term gains to the operator. But there are others which are, of course, associated with investment and the legitimate long term development of industry and business in the country. The Minister would have us believe that somehow we need to have the capital gains tax in order to tax those speculative gains, in order to stop the rorts in speculative gains. Nothing could be further from the truth. in fact, short term speculative gains are already taxable under the present income tax law. Section 25a, for instance, catches all those kinds of profit-making schemes and deals which are perpetrated by some people in this community. Even shorter term gains, such as those made within a 12- month period, are caught under section 26aaa of the income tax law. Again, speculative gains are caught in that way. It is not necessary to have a separate capital gains tax to catch them. What is the purpose of the capital gains tax? One can only draw conclusions based on the assumption that the Government basically is about some kind of ideological witch hunt, that its commitment to the trade union movement is part and parcel of its needing to keep face with it and to keep the accord in place. That can be the only conclusion which we have in mind. I think the Government in its quieter moments would admit to itself that that is the only reason for implementing it, because when one tries to find the logic in what it is doing, one cannot understand what is happening. Firstly, the situation is that the economy is running down and we are seeking to impose a tax at a time when we need more investment. This tax will mean that there will be less investment. Secondly, a vast amount of confusion is about to be created in the public's mind as to what are the Government's real intentions in the area of investment. Clearly, that will restrict the development of the economy generally. Let us look at one or two of the real problems that are associated with the detailed operation of this legislation. First and foremost, there is the question of goodwill. There can be no activity that is closer to the heart of what Australia is all about than that of small businessmen setting up their own little businesses, working hard to build up a reputation so that finally they can sell the business and receive a capital sum on the basis of that goodwill. Let me reiterate the case that has been mentioned previously of a corner delicatessen which builds up goodwill over 20 or 30 years. Now, that amount of capital that has been built up over that time will be taxed in one year, subject only to one factor; that is, the discounting of 20 per cent which will be regarded as exempt. The Minister has just told us that this capital gains tax is not among the highest rated capital gains taxes in the world. I ask the Minister to tell me what country imposes a capital gains tax at the highest possible marginal rate-at the moment, 61 per cent-on capital gains made through the gain associated with goodwill. Of course, it is the highest rated tax in the world, and it is imposed on those who can least afford to pay it and on those who are striving through their own labour and effort to build up a nest egg for the future. It is absolutely incongruous that the Government should see it in the light in which it does, and for it to impose a tax in that way. Let us take another case-the case of a business which employs a person for a long period. That person builds up a particular level of skill and becomes an important part of that business's operation. When that person reaches retirement age and goes out on his superannuation, but then receives an extra amount to recognise the value of his skill to the firm over a long period of years, he is asked to sign a covenant which restricts his future business activity and the use of that skill in some other business. When that person retires, that whole capital sum is subject to taxation. Not only will capitalists be taxed in the way that I have just described in relation to goodwill; these ordinary employees who enter into restrictive covenants when they retire from the employment of firms will also find themselves paying tax at the highest possible rate. In both of those cases indexation, of course, will not apply because there is no cost base from which to work. One cannot apply an index factor of nil. One would not get any result other than nil. So no reduction of the value of the goodwill or of the restrictive covenant will be taken into account. This is the way in which little people will be affected by this capital gains tax. On top of that, of course, numerous matters have not been brought to the attention of the people before the legislation was introduced in this place about 10 days ago. Those matters were not contained in the original statement by the Treasurer (Mr Keating) in September last year. For instance, the grant of an option to purchase an asset which was held prior to 20 September 1985 in consideration of an option fee would not in normal circumstances produce a capital gain in the hands of the granter of the option. But for the purposes of this legislation, apparently that will now be taxable. The grant of a lease of an asset which was held prior to 20 September last year in consideration of a premium would not in normal circumstances have been thought to have given rise to a taxable gain, but now it will be caught. The forfeiture of a deposit received in connection with the prospective sale of an asset held prior to 20 September, which does not proceed, would not in the normal way produce a taxable capital gain in the hands of the recipient, but apparently it will be caught. There are numerous other points, such as the one which the Minister mentioned regarding charities, and the gifts being made to charities being now subject to tax. Clearly, that will restrict people's intentions to assist charities by making bequests of assets to them in their wills. For these reasons the Opposition will maintain its position of opposition to this tax. We believe that not only is it basically wrong in principle, for all the reasons we have outlined during the second reading debate, but also we are very concerned about some of the detailed measures, some of which I have just mentioned. Indeed, some cases and circumstances will be caught by this tax, which perhaps was not the intention of the Government. Nevertheless, the Government intends to proceed with it. For those reasons we will continue to oppose the Bill during the Committee stage. Senator HAINES(South Australia)(5.49) —The Australian Democrats, as Senator Siddons would have indicated in his speech during the second reading debate, certainly applaud the actions of this Government in finally introducing a capital gains tax and bringing us, as the Minister for Finance (Senator Walsh) indicated, into step with most countries of the Western world. This fact makes it all the more surprising, of course, that the Opposition in the Senate and in another place is attempting to frighten people generally about a capital gains tax, which is so mild that it will raise only about $5m in the first year and $10m in the second year. Yet, if one listens to the Opposition, it will be the end of the Western world as we know it. The absence of a capital gains tax has been one of the greatest causes of tax avoidance in this country. I suspect that it is because the capital gains tax strikes at the entrenched interests of the wealthy and powerful, who are supported by the Opposition parties, that the Opposition parties are mounting this campaign in the hysterical manner they are. Most tax avoidance measures-including the infamous bottom of the harbour schemes, which the previous Liberal Government took some 10 years to do something about and which caused the average Australian taxpayer to make up the difference by paying higher taxes-relied on converting income to capital in order to reduce the tax payable. It would appear from listening to Liberal senators' speeches in the chamber today that the only people who are supposed to pay taxes are those who earn their income by working for a wage or salary. Speculators, so-called risk takers, gamblers and people who make windfall gains are all supposed to be exempt from paying tax on the profit they generate from those activities. People who sell their labour or capacity to work, as far as the Opposition is concerned, must pay tax on their income, but people who sell assets are tax exempt, even if those assets are in the form of real estate and in the process of making a capital gain by speculating, gambling or risk taking, as some senators would have it, the cost of real estate generally is pushed up for those people on wages and salaries who pay tax. If this is stopped, presumably more people will be in a position to own their own homes and buy their own land, because the prices will not be pushed up by speculators. Senator Townley's concern for those people who cannot get hold of rental property in the private rental market will not be necessary any more because more of those people will be able to own their own homes. Why should someone who works hard for an income of, say, $20,000 be expected to pay tax on that, while a person who makes a $20,000 gain from the sale of a piece of real estate, having done nothing in the process, be exempt, as he or she currently is, if the land, house or whatever is held for more than 12 months? The Democrats believe that, on the grounds of tax equity alone, there should be a general capital gains tax. People who derive their income from capital gains should not be exempt from tax when the average pay as you earn taxpayers cannot avoid paying tax on their salaries. The fact of the matter is that everybody in this chamber, and I would imagine everybody in Australia, believes that this country needs more productive private investment. Exempting capital gains for tax simply distorts investment decision by encouraging investment in assets offering tax free returns in the form of capital gains, even when this is not necessarily the most productive form of investment. We have seen some of that recently in attempts by people to take over other companies. They have been borrowing the money from overseas, paying the interest out of this country, deducting that interest from their Australian tax return and expecting that if they sell the company they have taken over-if it has not been a particularly productive take- over-for a profit, they will not need to pay any form of capital gains tax on it at all. People are using the tax system as it stands in order to have a bit each way. A capital gains tax will encourage productive investment and reduce a lot of the speculative investment in land, shares and takeovers; the sort of speculation with which Senator Michael Baume is quite familiar. The Australian Democrats have, and have had since our inception, a policy which supports a capital gains tax. The fact that the Hawke machine at some stage during an election campaign promised that it would not introduce a capital gains tax is irrelevant as far as our policy decisions are concerned. Since 1977, on the grounds of tax equity, the Democrats' taxation policy has argued for a capital gains tax. For that reason, if for no other, we will certainly be supporting the legislation. In doing so we have ensured that only realised gains are to be taxed; capital losses are to be deductible against gains; the family home is exempt; capital gains are indexed for inflation, so that only real gains are taxed; the tax is not applied retrospectively; death is not deemed to be realisation of an asset; and we have included, for small business in particular, some generous five-year averaging provisions. Finally, there is an exemption of 20 per cent of the goodwill component from capital gains for businesses worth less than $1m. The legislation provides, however, for the exemption of 20 per cent of any taxable capital gain on the goodwill component of the proceeds of the sale of a business, provided the net business interests of a taxpayer are less than $1m and that the business sold is an original or new business. The amendment that has been circulated in the name of the Australian Democrats will delete the latter condition, so that all taxable capital gains in respect of goodwill, where the taxpayer has net business assets of less than $1m, will be subject to a 20 per cent exemption, giving those people effectively a lump sum superannuation payment as a consequence of the work they have put in. Goodwill generally arises where an enterprise establishes a good name or some other advantage for the identifiable products or services it offers for sale. When this amendment is carried, any business which has net assets below $1m will be able to have exempted 20 per cent of the tax payable on the goodwill component of the value of the sale. This will extend across the board and will include any person-primary producer or otherwise-where there is a goodwill component in the valuation of the assets; for example, in areas where a reputation for quality is involved, and that includes a number of areas in the primary sector. I seek leave to move together the two amendments circulated in my name. Leave granted. Senator HAINES —I move: (1) Page 96, clause 19, proposed new paragraphs 160zzr (1) (d) and (e), lines 10 to 27, leave out the proposed new paragrahs. (2) Page 97, clause 19, proposed new sub-sections 160zzr (3) and (4), lines 7 to 17, leave out the proposed new sub-sections. I repeat that the amendments will extend the goodwill provision across the board to all businesses, not just to original or new businesses, as is inserted in the Bill before us. Senator MICHAEL BAUME(New South Wales)(5.59) —Until I heard Senator Haines just now, I had thought that the Australian Democrats' position in support of the Income Tax Assessment Amendment (Capital Gains) Bill and the Income Tax (Rates) Amendment (Capital Gains) Bill was taken simply because they had done some kind of dishonourable deal with the Government in exchange for something else. Having listened to Senator Haines, it is now evident that, in addition to that proposition, she simply does not understand what on earth this is all about. Senator Haines —Like you understand share trading? Senator MICHAEL BAUME —It was an incredible speech. Apart from her endeavour to insult me by saying that I know more about something than she does, I suggest she might extend that over a great range of activities and she would be equally accurate. Just listen to some of the comments Senator Haines made. She said that according to the Opposition speculative risk takers are all supposed to be exempt from tax. The CHAIRMAN —Order! The debate should be confined to the matter that is before the Chair at the moment-that is, the Australian Democrats' amendments to clause 19. When we have dealt with those we can return to the debate on the Bill. Senator MICHAEL BAUME —Thank you, Mr Chairman, I will reserve my remarks until then. Senator WALSH(Western Australia-Minister for Finance)(6.01) —I just wish to indicate that the Government will not oppose the amendments. Senator MESSNER(South Australia)(6.01) —This debate has thrown some new light on the matter. Naturally enough the Opposition has been drawing attention to the problem of goodwill and we are very interested in the point that has been raised by Senator Haines in her amendments. However, we believe that this matter requires a little more thought. Therefore we will seek to have the Committee report progress at this stage so that we can examine the matter further. We would like to take it to our party room so that we can consider it in detail. Therefore I move: That the Chairman of Committees report progress and ask for leave to sit again. Senator HAINES(South Australia)(6.02) —I understood that whether or not the Opposition understood or accepted the amendments, the Government would still accept them anyway. Therefore I do not see that there is any need for us to report progress. The CHAIRMAN —Order! The question to report progress is not open to debate. Senator MESSNER(South Australia)(6.02) —I am sorry, Mr Chairman, I was distracted by the toing and froing immediately preceding this discussion. I checked with the Minister for Finance (Senator Walsh) and I understood him as saying he would not support these amendments. Is he now saying something else? If he is, I think we should take time to look at the amendments and consider them appropriately. Senator WALTERS(Tasmania)(6.03) —That is hardly the point. The Democrats have said that it doesn't really matter-- Senator Walsh —On a point of order, Mr Chairman: Is the motion to report progress before the Committee or not? The CHAIRMAN —That is what I am trying to clear up. If the motion to report progress is before the Committee it means there can be no debate on it. I must put the question without debate. I was only trying to clarify whether Senator Messner wished to pursue the motion. If he does I will put the question. Question put: That the motion (Senator Messner's) be agreed to. The Committee divided. (The Chairman-Senator D. J. Hamer) Ayes . . . . . . . . . . . 28 Noes . . . . . . . . . . . 35 —— Majority . . . . . . . . . 7 —— Alston, R. K. R. Hill, R. Archer, B. R. Knowles, S. C. Baume, Michael MacGibbon, D. J. Baume, Peter Messner, A. J. Bjelke-Petersen, F. I. Newman, J. M. Boswell, R. L. D. Parer, W. R. Brownhill, D. G. C. Puplick, C. J. G. Carrick, Sir John Reid, M. E. (Teller)Chaney, F. M. Sheil, G. Collard, S. J. Teague, B. C. Crichton-Browne, N. A. Townley, M. Durack, P. D. Walters, M. S. Guilfoyle, Dame Margaret Watson, J. O. W. Hamer, D. J. Withers, R. G. Aulich, T. McIntosh, G. D. Black, J. R. McKiernan, J. P. Childs, B. K. Macklin, M. J. Chipp, D. L. Maguire, G. R. Coates, J. Mason, C. V. J. Coleman, R. N. Morris, J. Colston, M. A. Ray, RobertCook, P. F. S. Reynolds, M. Crowley, R. A. Richardson, G. F. Devlin, R. Robertson, E. A. (Teller)Elstob, R. C. Ryan, S. M. Foreman, D. J. Sanders, N. K. Gietzelt, A. T. Sibraa, K. W. Giles, P. J. Tate, M. C. Grimes, D. J. Vigor, D. B. Haines, J. Walsh, P. A. Jones, G. N. Zakharov, A. O. McClelland, Douglas Kilgariff, B. F. Cooney, B. Jessop, D. S. Evans, GarethShort, J. R. Bolkus, N. Vanstone, A. E. Siddons, J. R. Lewis, A. W. R. Button, J. N. Question so resolved in the negative. The CHAIRMAN —The question is: That Senator Haines's amendments to clause 19 of the Income Tax Assessment (Capital Gains) Bill 1986 be agreed to. Senator MESSNER(South Australia)(6.09) —During the division Senator Haines did me the courtesy of apologising for not providing us with a copy of the amendments that she proposed at the last moment. I thank her for that. Nevertheless, I believe we must draw attention to the fact that these issues need to be properly considered and discussed by the Opposition when it raises such severe principles as those raised by these amendments. The Opposition will not oppose these amendments, notwithstanding that in principle we object wholeheartedly to the tax. In light of the fact that we cannot stop the progress of the Committee stage of the debate on the Bill in order to give full consideration to the matter, we will have to accept the amendments. Given that relief will be provided to taxpayers through a most iniquitous and unfair tax such as the capital gains tax, ours was a reasonable proposition, and our opposition to the Bill in principle stands. Nevertheless, let me make it quite clear that the Opposition will not oppose the Australian Democrats' amendments. Senator HAINES(South Australia)(6.11) —I thank Senator Messner for expressing the Opposition's support for the amendments. I again apologise to him for what was in fact an oversight. My colleague Senator Siddons, who would normally have been dealing with this legislation, whizzed off to a board meeting of his own company and overlooked the small matter of circulating the amendments. I accept Senator Messner's support and I am most pleased that I have not upset him for all time because of that oversight. Senator WALTERS(Tasmania)(6.12) —I was rather surprised and horrified to hear Senator Haines tell us that what we thought did not really matter as long as the Government and she were in agreement. I can assure Senator Haines that, despite the fact that she, siding with the Government, or the Government siding with the Australian Democrats, may have views on this subject, our views matter very much to our Party. For Senator Haines to tell us so arrogantly that our views are neither here nor there because she happens to have the numbers on this issue is quite reprehensible, and she should apologise to us on that account. Amendments agreed to. Senator MICHAEL BAUME(New South Wales)(6.13) —I mentioned that Senator Haines appeared to have some difficulty understanding what this legislation is all about. I must say, however, by way of concession, that it was she who, in moving the amendments to which we have just agreed, explained to the Minister for Finance (Senator Walsh) what the word `goodwill' means. I congratulate her because the Minister had no idea of the meaning of that word. Naturally, one would expect that. So to that extent, I congratulate Senator Haines, if indeed it was her effort. It may well have been that of Senator Siddons who has left to attend to something he obviously considers much more important; that is, looking after his company and settling its affairs before it gets hit with this tax. The matter I particularly wanted to raise with regard to Senator Haines was her comment that, according to the Opposition, speculative risk takers are all supposed to be exempt from tax. That is just arrant nonsense. There is a tax on capital gain of a speculative nature. It has existed for many years. It exists now. That tax, which is at the marginal rate and which is probably the highest tax on speculative capital gains in the world, is not being changed in any way by this Government. For Senator Haines to pretend that the Opposition, in opposing this capital gains tax, is opposing the concept of tax on speculative gains is deceptive nonsense. It is a pity that Senator Haines was not prepared to stay in the chamber and receive a modest amount of instruction on a matter about which she clearly knows absolutely nothing. Senator Haines made the point that if what she called this rip-off of speculative gains were stopped, more people would be able to buy their own homes because the price of homes would fall. She forgets that under this package, the number of homes being built will diminish enormously because it will simply not be worth while for investors to build homes. Senator Haines cannot grasp the concept that in order for one to buy or sell a home, that home has to be built at some stage. The impact of this tax package will be to diminish significantly the incentives for people to build new homes. In general Senator Haines attacked the Opposition in such a ludicrous way that it is hardly worth while continuing to point out examples. One of the things that she said was that people who derived their income from capital gains should pay tax. Of course they do, because they are professionals in this area. Under the rules that exist now, people who make their income from this kind of gain are deemed by the Commissioner of Taxation to be traders, and as a result, they pay income tax at the income tax rate on that kind of gain. Senator Crichton-Browne —It does not have to be shares. It could be hotels. It could be shops or it could be businesses. Senator MICHAEL BAUME —As the honourable senator says, it could be any asset. It could be a house. It could be any capital gain. Perhaps Senator Haines did not understand that point when she made the ludicrous allegation that people who derive their income from capital gains should pay tax and that we are somehow objecting to it. If she does not know what the tax law is, for heavens sake, I plead with the Australian Democrats not to allow her to come into the chamber and lead for her Party on this matter and try to lecture us in a nonsensical way. I wish to move very quickly to a couple of comments that Senator Walsh made. I noticed that when he was busily saying `wrong, wrong, wrong' to the various points that had been raised, he carefully avoided responding to any interjection which related to a matter of fact. I remind the honourable senator that our complaint with regard to losses related to their not being indexed. It is good enough to index gains, but the loss which is carried forward is carried forward unindexed, so it diminishes as inflation rises. Under this Government inflation is now at a record level relative to the rest of the world. As it continues to rise, under this Government and under this unreasonable proposition the value of that loss will diminish. Let the Minister address his responses to the points which we actually make in opposition instead of inventing them and blowing over aunt sallys. Finally, I wish to say this: Senator Walsh, in talking about the Waste Watch Committee, repeated a totally incorrect piece of nonsense which he has been perpetuating ever since he became desperate to find some reason for denigrating the efforts of the Waste Watch Committee. I understand why he has done that. I have already explained to Senator Walsh that I understand that he regrets the fact that he cannot say and do the same things to his colleagues that he has seen the Waste Watch Committee do, because his interests are exactly those of the Waste Watch Committee, and he knows it. It is just his frustration and his incompetence within this Government that prevent him from doing so, just as his incompetence and that of his Department prevented the Australian Broadcasting Corporation from saving $12m on foreign exchange dealings. Senator Walsh repeated a deliberate untruth about the Waste Watch Committee when he said that half of what the Waste Watch Committee has exposed relates to what happened under Fraser. That is total nonsense. The Minister knows it is total nonsense, but he is only too happy to repeat it. The Minister has this kind of intellect-- The CHAIRMAN —Order! Senator Baume, your remarks are very wide of what is allowed in the Committee stage of the debate on this Bill. I ask you to relate your remarks to the Bill. Senator MICHAEL BAUME —I am responding, Mr Chairman, to-- Senator Walsh —I take a point of order, Mr Chairman. What clause of the Bill is Senator Baume addressing? The CHAIRMAN —I am dealing with that matter at the moment. The honourable senator must be relevant to either of the Bills before the Committee. Senator MICHAEL BAUME —This relates to the generality of the legislation in the Committee stage. The alternative to this legislation, which is what the Minister raised, is a cutting of government expenditure. The CHAIRMAN —Order! I cannot let the honourable senator speak about cutting government expenditure in this debate. He has to be relevant to the Bills before us in the Committee stage. Senator MICHAEL BAUME —All I can say then is that, in the present tax crisis, of which this legislation is one of the instruments, it has certainly been asserted that this kind of law-we have the specific instances here-could well be replaced by this saving of government money. It will have exactly the same impact. This tax is aimed at raising $5m, that is all, in the next year. It would be very easy indeed-in fact, the Waste Watch Committee has established this very clearly-for the Government to save the $5m which is to be raised in the specific clauses in this legislation. That is a self-evident truth. The point clearly is that we have established the manner in which the kind of money that is to be raised in these specific areas-$5m this year-can be raised by the savings that have been pointed out by the Waste Watch Committee, not one of which relates to anything that was done by the previous Government. The CHAIRMAN —Order! The honourable senator must remain relevant to this debate. Senator BROWNHILL(New South Wales)(6.21) —I wish to ask the Minister two very quick questions. I think I am on record as saying what I think about this tax and how it will knock incentive out of the community; so I do not think I will go on any further about it. It appears that the capital gains tax could apply to plant and machinery which are subject to depreciation. Under existing legislation, where the selling price exceeds the cost, the difference is not liable to tax, so obviously plant registers will have to be kept. Would that be a correct assumption? My other question is in regard to leases. When machinery is leased and that lease is paid out, is the capital gains tax paid on the difference between the residual and the realised price on the resale of that asset or not? Could I have that on record? Senator WALSH(Western Australia-Minister for Finance)(6.22) —I am getting a note on the second question. In regard to the first question, under the existing income tax law, if the plant is depreciated and then sold for an amount greater than the depreciated balance, the difference between the two is taxable as income already, unless it exceeds 100 per cent, which would have to be seen as a perversity, I would have thought, in the law. Under the capital gains tax, in the event of plant being depreciated over several years and then sold for a price in excess of 100 per cent of the original price, indexed to the consumer price index, any figure in excess of that will be taxable. Senator Messner —Indexed from when? Senator WALSH —From the date of purchase. Senator Messner —That is the day on which the lease is paid out? Senator WALSH —No. I said I was getting a note on the second question. This just relates to a purchase. It is highly unlikely, of course. Indeed, I cannot imagine it ever happening. If ever anyone were lucky enough to have that happen that person should be happy to pay 50 per cent of it in tax. I am getting a note on the second question. Senator MESSNER(South Australia)(6.23) —I seek leave to have the two Bills before the Committee treated separately. The CHAIRMAN —That is, put to a vote separately? Senator MESSNER —Put to a vote separately. Leave granted. The CHAIRMAN —What will happen is that we will debate both Bills concurrently and, at the end of the debate, I will put the two Bills separately to be voted on by the Committee, if that is what is required. Senator WALSH(Western Australia-Minister for Finance)(6.24) —Apparently the answer to Senator Brownhill's second question is a bit complicated; so I will supply it to the honourable senator in writing later. Senator Brownhill —I ask that it be incorporated in Hansard at that stage. Senator CRICHTON-BROWNE(Western Australia)(6.25) —I wish to ask the Minister a question in respect of Division 18. I am sure that this is clear to the Minister and to his advisers but it is not thoroughly clear to me. The definition of `principal residence' refers to somebody required to depart temporarily from his residence for a period not greater than four years being able to claim the residence as the principal residence providing he provides instructions and information to the Commissioner of Taxation in writing. Notwithstanding the fact that that person might want to rent it out-- Senator Walsh —What page is that on? Senator CRICHTON-BROWNE —It is on page 87, at line 40. There is an exemption for a temporary absence from a residence which, by definition, is normally held to be the principal or sole residence. It seems to me, on a quick reading of the legislation, that it refers to the residence being able to be claimed as the principal residence for a period of absence not exceeding four years. I am asking what would normally happen if a diplomat, a civil servant or a bank officer is required to be away from that residence for a period greater than four years? In the meantime that person is required to rent that property. He does not purchase another but he has to rent another for his own purposes. Does it still remain the principal private residence for a period greater than four years? Senator Walsh —I will have to seek some advice. Senator Brownhill —Mr Chairman, I am quite happy for the reply to my question to be given later in the evening, as long as it can be incorporated in Hansard. The CHAIRMAN —I will be suspending the sitting of the Senate in about two minutes; so I doubt whether business will be completed on these two Bills. Perhaps the answer could be given after 8 o'clock. Senator WALSH(Western Australia-Minister for Finance)(6.26) —I hope that I have this right. I think the interpretation given to me is what Senator Crichton-Browne thought has been confirmed. If a person is away from that principal residence for more than four years, it will be deemed to be no longer the principal residence. Senator Crichton-Browne —That is notwithstanding the fact that he may not purchase another one but he is just required, because of his duties, to be away. Senator WALSH —As I understand it, it is irrespective of whether that person purchases another residence in that time. Senator MESSNER(South Australia)(6.27) —I am sorry, it looks as though we will not be able to complete the business by 6.30. Where a property is held and the fourth year runs out and that property continues to be held but, obviously, after that date is not designated a principal residence, what is the value of the house for the purposes of any future capital gains tax that would be incurred in respect of that residence? Will it run from the date of the original purchase or will it run from the date at which the four years run out? Senator WALSH(Western Australia-Minister for Finance)(6.28) —As for other assets, in the event of a subsequent sale, it having been deemed at some point no longer to be the principal residence, the taxable proportion of any real gain will be determined by the total period between 19 September and the day of sale, less whatever portion of that time it was the principal residence of the taxpayer. Senator Messner —So you just apportion it? Senator WALSH —Yes, it is the general portionment provision. Senator CRICHTON-BROWNE(Western Australia)(6.28) —As I understand it, if one has a family farm, which is a good example, which is passed on as an estate from parents to sons and grandsons, as long as it is passed on as such it does not attract a capital gains tax. But at the time it is ultimately sold the base for determining the capital gains and the sale price is the price at which it was sold to the last person-or is it the first person? If the property is sold for $1m-- The CHAIRMAN —I think the honourable senator will have to ask this question after dinner and the Minister will have a chance to reply then. Sitting suspended from 6.31 to 8 p.m. Senator BROWNHILL(New South Wales)(8.00) —Before the suspension of the sitting the Minister for Finance was going to answer a question that I asked earlier regarding leasing. Senator WALSH(Western Australia-Minister for Finance)(8.00) —I am advised on plant leasing that whatever is paid for the residual value of the plant is the cost of the asset for capital gains tax purposes. Senator BROWNHILL(New South Wales)(8.00) —The residual value of a harvester may be $30,000 or something like that. When that harvester is traded-in on a new harvester the trade-in value could be $120,000. Does that mean that the capital gains tax will be for the sum of approximately $90,0000? Senator WALSH(Western Australia-Minister for Finance)(8.01) —Yes. Senator Brownhill asked a question about deceased estates. The answer is that the asset can be passed down from one deceased person to another without attracting tax. It can be passed down more than once. Senator CRICHTON-BROWNE(Western Australia)(8.01) —I was not listening carefully to the question or answer, but I think the Minister answered in part the question that I was going to ask regarding the family farm which was the example I was giving before the suspension of the sitting. It might well pass from generation to generation. There might be five generations over which the farm does not attract a capital gains tax, but one might find that in 70 or 80 years time, because there are no further sons, the farm is sold. Is the cost base for the calculation of the capital gains tax the cost base at the time of the purchase immediately following the first purchase after 20 September last year? Senator WALSH(Western Australia-Minister for Finance)(8.02) —That is correct, with the addition that the figure, whatever it is, would be indexed for the consumer price index from the same time. Senator BROWNHILL(New South Wales)(8.03) —I seek clarification on the question I asked about leasing arrangements. The Minister just said yes in answer to that question. That would mean a quite horrific capital gains tax for people who have leased machinery after 19 September last year. Senator WALSH(Western Australia-Minister for Finance)(8.03) —A more complete and comprehensive explanation is that where the lessee acquired the asset after 19 September 1985 the capital gains tax will apply. In the case of the sale of appreciable assets, whether acquired by a lessee at the end of the lease or otherwise, the capital gains tax will apply on a residual basis, taxing any excess of the sale value over its purchase cost, with indexation applying to the purchase cost. Where profits on trade-ins are not taxed under existing income tax provisions the capital gains tax will apply. I think this gets back to the question I answered a while ago-I regard it as an anomaly, but that is a value judgment, I suppose-that if plant which has been partially written off for tax purposes is sold for more than its original price it is taxed and the gain is taxed only up to the original price. With the capital gains tax it may be taxed beyond that but with the important addition again that the original price would be indexed. As I said before, the chances of it happening are extremely remote. Senator MESSNER(South Australia)(8.05) —I do not mean to be nit picking, but I want to get it absolutely clear. Does the point about the purchase cost which the Minister mentioned refer to the residual cost in the case of a lease? We are not talking about the original purchase, are we? Senator WALSH(Western Australia-Minister for Finance)(8.05) —I am advised that the existing law requires that if an arrangement is to be accepted as a lease for income tax purposes the lessee can have no right, express or implied, to purchase the leased asset. In other words, it cannot be bought while it is still being leased. When the lease has expired a person may buy it. Senator Messner —So, that is the purchase cost, the residual value? Senator WALSH —Yes. Senator CRICHTON-BROWNE(Western Australia)(8.06) —I am certain the Minister for Finance answered a previous question because he said there were no qualifications in respect of a home which has not been occupied for a period in excess of four years. As I say, I think there are no exemptions. In other words, if one or both of a married couple are required to live in a frail aged home for a period greater than four years, the home which has been a family home for very many years would therefore lose that status, would it? Senator WALSH(Western Australia-Minister for Finance)(8.07) —I will give the example of a person who buys a house and lives in it for six years and is then absent from it for more than four years-say, four years and a day. Regardless of what happens thereafter it is deemed to be not the principal private residence. Let us assume that it is sold 20 years after the original purchase. The gain would then be apportioned according to the total time that it was the principal residence of the owner and that would be six-twentieths; six-twentieths of it would be exempt. Senator CRICHTON-BROWNE(Western Australia)(8.08) —In the event that an executor is instructed by the terms of an estate to dispose of the estate before distribution, a capital gains tax will apply. Very often that does happen because in many families there is a fight over various parts of the assets. I am not necessarily talking about private assets because they are excluded under the Act, but that is the general reason that the executor is instructed to dispose of the assets before distribution. In the event that the deceased, prior to dying, so arranges his affairs as to apportion the estate intact amongst the beneficiaries, would a capital gains tax apply at that time? Senator WALSH(Western Australia-Minister for Finance)(8.09) —I am not sure that I understood the question and I am not certain that my answer will be correct. This will be subject to confirmation. Let us assume it was a farm which had been purchased some time after 19 September 1985 and the owner died and instructed the executor to sell the property before distribution. If there were a real gain on that property that real gain would be taxable-unless it were a private residence. Senator CRICHTON-BROWNE(Western Australia)(8.10) —Perhaps the example of a farm is a bad one. For instance, let us say that the estate contains a block of flats and a small factory. Let us say that the deceased distributes the block of flats to one son and the small factory to another son. In that case would they attract capital gains tax? Senator Walsh —That is correct. Senator MESSNER(South Australia)(8.11) —I wish to make just one final point. I understand that in the event of a marital breakdown a capital gains tax would not be applied to the transfer of assets? Firstly, is that correct? The second question that flows from that is: What would occur with the apportionment of capital gains tax against different kinds of assets, for example, where there is one exempt asset and one non-exempt asset? I instance the case of a marital breakdown where a house and a block of flats are part of the total property of the partners. One of those assets, the house, would be exempt while the other asset, the block of flats, would not be exempt. I refer to a capital gains tax being charged in respect of the eventual transfer of that block of flats to one of the partners. Will there be any apportionment of that tax back to the other partner who was part of the marital breakdown? Senator WALSH(Western Australia-Minister for Finance)(8.13) —In relation to the first question, by a roll-over is allowed. I do not know the answer to the second question. Essentially what the honourable senator is interested in knowing is whether some of the tax liability, assuming that there is a tax liability, will be transferred back to the original owner? Senator Messner —Yes. Senator WALSH —I will have to get some advice on that. Senator Messner —Can we expect an answer now or later? Senator WALSH —I am advised-I hope I have this right-that there is no way that any tax liability, if there were one, could be passed back to the person from whom the property was rolled over. However, under some circumstances, providing all the other conditions were met, that could attract a tax liability to the person to whom the property was rolled over. Senator BROWNHILL(New South Wales)(8.14) —In relation to proposed new section 160zyf I am a little unclear how the profits on the sale of bonus shares will be taxed. In other words, what cost will be attributed to the bonus shares? Senator Walsh —The same as for income tax purposes. Senator BROWNHILL —Would that be the base value of the share at the time of the bonus issue? Senator WALSH(Western Australia-Minister for Finance)(8.15) —Again, I hope I have this right, but the price of bonus shares is determined by watering down the market price of the original shares. If it is a one for two bonus issue then two-thirds of whatever was the value of the two shares previously existing will be deemed to be the value of the bonus shares. Senator Brownhill —That is the market value? Senator WALSH —It is what was paid for the two original shares in that example. Senator Brownhill —Even if it were before 19 September 1985? Senator WALSH —If the original shares were owned before 19 September 1985, the bonus shares will not be affected. Senator Brownhill —Would it be different after 19 September? Senator WALSH —After 19 September it would be treated in the way that I have explained-the purchase price would be diluted by whatever proportion the original shares had been watered down by the issue of the bonus. Question put: That the Income Tax Assessment Amendment (Capital Gains) Bill 1986, as amended, be agreed to. The Committee divided. (The Chairman-Senator D. J. Hamer) Ayes . . . . . . . . . . . 33 Noes . . . . . . . . . . . 28 —— Majority . . . . . . . . . 5 —— Aulich, T. McIntosh, G. D. Black, J. R. McKiernan, J. P. Childs, B. K. Macklin, M. J. Coates, J. Maguire, G. R. Coleman, R. N. Mason, C. V. J. Colston, M. A. Morris, J. Cook, P. F. S. Ray, RobertCrowley, R. A. Reynolds, M. Devlin, R. Richardson, G. F. Elstob, R. C. Robertson, E. A. Evans, Gareth Sanders, N. K. Foreman, D. J. Sibraa, K. W. Gietzelt, A. T. Tate, M. C. Giles, P. J. Vigor, D. B. Grimes, D. J. Walsh, P. A. Haines, J. Zakharov, A. O. Jones, G. N. (Teller) Alston, R. K. R. Knowles, S. C. Archer, B. R. Lewis, A. W. R. Baume, Michael MacGibbon, D. J. Baume, Peter Messner, A. J. Boswell, R. L. D. Newman, J. M. Brownhill, D. G. C. Parer, W. R. Carrick, Sir John Puplick, C. J. G. Collard, S. J. Reid, M. E. Crichton-Browne, N. A. Sheil, G. (Teller)Durack, P. D. Teague, B. C. Guilfoyle, Dame Margaret Townley, M. Hamer, D. J. Walters, M. S. Hill, R. Watson, J. O. W. Jessop, D. S. Withers, R. G. Cooney, B. Kilgariff, B. F. Ryan, S. M. Chaney, F. M. Siddons, J. R. Short, J. R. Button, J. N. Vanstone, A. E. McClelland, Douglas Bjelke-Petersen, F. I. Question so resolved in the affirmative. Bill, as amended, agreed to. Income Tax (Rates) Amendment (Capital Gains) Bill 1986 agreed to. Bills reported with amendments; report adopted. Ordered that the questions for the third reading of the Bills be put separately. Motion (by Senator Walsh) put: That the Income Tax Assessment Amendment (Capital Gains) Bill 1986 be now read a third time. Question put. The Senate divided. (The President-Senator the Hon. Douglas McClelland) Ayes . . . . . . . . . . . 34 Noes . . . . . . . . . . . 28 —— Majority . . . . . . . . . 6 —— Aulich, T McClelland, DouglasBlack, J. R. McIntosh, G. D.Childs, B. K. McKiernan, J. P.Coates, J. Macklin, M. J.Coleman, R. N. Maguire, G. R.Colston, M. A. Mason, C. V. J.Cook, P. F. S. Morris, J.Crowley, R. A. Ray, RobertDevlin, R. Reynolds, M.Elstob, R. C. Richardson, G. F.Evans, Gareth Robertson E. A. (Teller)Foreman, D. J. Sanders, N. K.Gietzelt, A. T. Sibraa, K. W.Giles, P. J. Tate, M. C.Grimes, D. J. Vigor, D. B.Haines, J. Walsh, P. A.Jones, G. N. Zakharov, A. O. Alston, R. K. R. Knowles, S. C.Archer, B. R. Lewis, A. W. R.Baume, Michael MacGibbon, D. J.Baume, Peter Messner, A. J.Boswell, R. L. D. Newman, J. M.Brownhill, D. G. C. Parer, W. R.Carrick, Sir John Puplick, C. J. G.Collard, S. J. Reid, M. E.Crichton-Browne, N. A. Sheil, G. (Teller)Durack, P. D. Teague, B. C.Guilfoyle, Dame Margaret Townley, M.Hamer, D. J. Walters, M. S.Hill, R. Watson, J. O. W.Jessop, D. S. Withers, R. G. Cooney, B. Kilgariff, B. F.Ryan, S. M. Short, J. R.Button, J. N. Vanstone, A. E.Bolkus, N. Bjelke-Petersen, F. I.Siddons, J. R. Chaney, F. M. Question so resolved in the affirmative. Bill read a third time. Motion (by Senator Walsh) proposed: That the Income Tax (Rates) Amendment (Capital Gains) Bill 1986 be now read a third time. Senator MESSNER(South Australia)(8.31) —On this day of national disgrace we have observed the jackbooted approach not only of the Government but also of the Australian Democrats who have passed capital gains tax legislation against the will of the Australian people. The Opposition has stood for fairness and equity in taxation. Honourable senators interjecting- The PRESIDENT —Order! Honourable senators will please remain silent. Senator MESSNER —I guarantee that the people on the other side of the chamber who have witnessed this day of national disgrace have not read any of the legislation that has been put before them. Over the last four or five days four Government senators and 19 Opposition senators have spoken on the fringe benefits taxation legislation. In the case of the capital gains tax legislation, two Government senators have been prepared to stand up and defend their Government's decision while we in Opposition have put forward 15 speakers. That shows the depth of feeling of the Australian people on this matter and the lack of interest on the part of the Government in this most important piece of legislation. Honourable senators interjecting- The PRESIDENT —Order! I ask honourable senators to observe dignity and decorum. I ask that Senator Messner be heard in silence. Senator MESSNER —The Government, having pushed this measure through against the will of the people, clearly is in breach of the sacred commandments which, immediately preceding the Taxation Summit last year, the Government itself declared as the criteria for taxation reform. The Government said that we would have simple legislation, that the legislation would have widespread support in the community and that the legislation would introduce a new wave in respect of of anti-tax avoidance. On all of those grounds all of the legislation that we have discussed up until now has failed. I note that Government senators cannot take the heat and are leaving the chamber. They know they are wrong and they know that they should not have supported this legislation. It is clear that the Minister for Finance (Senator Walsh) is not going to change his mind about anything at this late stage. However, I want to make the point that the passage of this package of legislation will produce enormous changes in the Australian economy. They will not be the favourable ones which this Government has predicted. In fact, the reverse will be the case. We await with interest the outcome of the next few months as the real effects of what the Government has done here in the last few days come to pass. We do not oppose the passage of this Bill. Question resolved in the affirmative. Bill read a third time. Senator FOREMAN(South Australia) —by leave-In accordance with the provisions of the Public Works Committee Act, I present the report relating to the construction of the State Mail Centre, 501 Williamstown Road, Port Melbourne. Ordered that the report be printed. Senator FOREMAN —by leave-The two buildings currently occupied by the State Mail Centre are more than 60 years old, have numerous operational deficiencies and do not meet the requirements of new mail handling techniques. The Committee accepts that 501 Williamstown Road, Port Melbourne, is the only site available for Australia Post's purposes within the criteria determining its activities. The Committee expresses concern that Australia Post was obliged to accept this site after the Victorian Government withdrew the preferred site. The Committee is satisfied that the design of the new building adequately fulfils the requirements of new mail handling techniques and provides sufficient space to cater for forecast needs to the year 2005. The estimated capital cost of the proposal when referred to the Committee was $9.95m at February 1986 prices, and increased to $10.8m at April 1986 prices to allow for building price index increases and variations in design for security and other features. The Committee recommends construction of the work in the reference. The following Bills were returned from the House of Representatives without amendment: Income Tax Assessment Amendment (Research and Development) Bill 1986. Industry Research and Development Bill 1986. Messages received from the House of Representatives intimating that it had agreed to the amendments made by the Senate to the following Bills: Taxation Laws Amendment Bill (No. 2) 1986. Taxation Boards of Review (Transfer of Jurisdiction) Bill 1986. Debate resumed from 14 March, on motion by Senator Gietzelt: That the Bill be now read a second time. Senator ARCHER(Tasmania)(8.39) —This is a most disappointing piece of legislation for both the Australian Federal Police and Australia generally. It is an absolute nothing Bill at a time when Australian Federal Police legislation needs a lot of stiffening. The Australian Federal Police is the Commonwealth's front line to attack major crime. It has the job of being involved in problems in a whole range of things such as drugs, money laundering, illegal immigration, bookmaking, tax evasion, gambling, social security fraud, race fixing, murder, extortion and video piracy. That is the sort of job that we expect them to do. But at present they are absolutely hamstrung because they are stifled by a complete shortage of manpower, a lack of facilities and, above all, a lack of government support. They are getting plenty of promises-there is no shortage in that regard-but no real support of any sort. Inquiries are still being conducted and reports written. The recommendations from all those inquiries and reports happen to be much the same, as is the action, or lack of it, as the case may be. The Special Minister of State, Mr Young, in the other place, proudly parroted the achievements of the Government with regard to the Federal Police. But when one looks at them, they simply do not add up. Of most concern is the fact that the Minister in his second reading speech promised $17.2m for law enforcement which was to go to the Federal Police. An amount of $10m was for staffing and $7.2m for computing. Of course, when we looked at it, we saw that it was the same $17.2m that the Prime Minister (Mr Hawke) promised a little later at the time of the so-called drug offensive. It was the same $17.2m that was promised after the AFP resources report was issued on 14 November 1985 and which was again promised by the Minister at that stage. It was the same $17.2m promised in May last year at the Drug Summit. Of course, it was the same $17.2m that was promised in 1983 in the run-up to the election. As yet, of course, with all the promises, we have only just started to see the tiniest tip of the corner of that allocation. I guarantee that we will find that that amount is promised several times more before the money is actually allocated. Ten million dollars of that amount was for manpower. As Mr Young said early on, as the Prime Minister said before the 1984 election and as Mr Young again said in February this year, the amount was to cover the three-year period 1984-87. That covers, of course, the years 1984-85, 1985-86, and 1986-87. That was the promise that we had. But when we came to check on it during the Estimates committee hearings in April we found that we had slipped a year already. We now find it is being stretched out until 1988. Was it meant to cover a three-year term or a four-year term? Was the funding supposed to start, as both the Prime Minister and the Minister said, in 1983-84, or was it due to go on until 1987-88? One thing was promised, but maybe something else will be delivered. What is the Government's attitude towards crime in general and what is it endeavouring to do? These amendments, of course, will do nothing in the pursuit of real crime. I ask again: When will we see some amendments to the legislation that could really make an impact on real crime? I am not talking about the pickpockets, the little cheque cashers, the petty swindlers, and so on. I am talking about real crooks. Why are we prevented from seeing legislation that is in line with the recommendations given by strings of reports, advisers and inquiries? Let us have a crack at the big crooks. I do not know why we should be protecting them any more. I think that the personnel of the AFP are tremendous. They operate under these sorts of circumstances and they exhibit great skill, diligence and dedication. They are deserving of more practical support. I have visited many divisions of the AFP and have seen officers of that force and other forces around Australia. They expect the Parliament to give them support. Let us look at some of the information that is available. I guess that the best place to start is with the 1985 annual report. The comments made in that report by Commissioner Grey say a lot, in themselves. On the first page of the report he states: In my view, drug trafficking and organised crime emerge as the areas most needing more resources. In addition to the need for more investigative staff, improved supporting capabilities and intelligence gathering, surveillance, technical (particularly electronic) support, witness protection are absolutely critical to the achievement of A.F.P. objectives. On the next page he states: I believe that the criminal elements within society must be controlled, and therefore without question essential `Special-to-task' resources must be provided to all law enforcement organisations. A reshuffling of the same particular resources of the A.F.P. between organisations is not the answer. In that case he was referring particularly to the fact that the Federal Police have had to make available staff for various other organisations that have been set up. One cannot use the same person in more than one place at the one time. As a result of these reports we have had a considerable amount of abuse from both Government senators and Ministers, I regret, in regard to the value judgment of such people as Judge Moffitt and Judge Webster. From the Minister's inquiry into AFP resources, which reported on 14 November last year, his assessment of the very real problems concluded: The Group was presented with cases of serious criminal activities which are not being investigated because of staff shortages. A bit later, the report states: As for the smaller criminal activities such as many DSS (Social Security) cheque frauds, most of these are unable to be investigated . . . That was because of a lack of staff. We have still heard nothing of consequence. The Government has had plenty of advice and plenty of time, but precious little has come forward. That report produced 28 recommendations. At an Estimates committee hearing a month or so ago, I asked what action had been taken in respect of those 28 recommendations. I seek leave to incorporate in Hansard a copy of the responses to those 28 recommendations. Leave granted. The responses read as follows- Recommendation 1. Immediate action be taken to prepare a resource deployment program for the next five years (p. 103). Action Program at present being completed by AFP. Recommendation 2. Recruitment of new members to the AFP be raised from its current level of 200-250 per annum to 350-400 per annum over the next three years and the necessary infrastructure be provided, with requisite AOSL cover for recruits, following which there should be a further review of AFP resources. Action Implementation dependent on Government consideration for increased staff numbers. Development of infrastructure, including required training accommodation, proceeding in accordance with Joint Management Review recommendations. Recommendation 3. Two hundred public service staff be recruited to the OAFP over the next three financial years. Action Implementation dependent on Government consideration of increased staff numbers. Recommendation 4. Terms and conditions be set at a level sufficient to attract and retain good quality recruits and to ensure the AFP is not at a recruitment disadvantage compared with State police forces. Action Recommendations of the 1985 Review of AFP Terms and Conditions of Service partially implemented. A review of AFP Arbitral Tribunal determination to go before Mr Justice Coldham in May 1986. Recommendation 5. The principal recruiting staff be trained detectives and recruitment techniques be introduced in order to select recruits on the basis of assessed potential for detective work rather than uniform work. Action Implemented in accordance with 1984 Joint Management Review recommendations. Recommendation 6. Cost savings resulting from the transfer of functions to other agencies be retained by the AFP in the form of AOSL cover. Action Recommendation under examination by AFP/Department of Finance. Joint submission to go forward to Ministers for consideration. Recommendation 7. While AFP members continue to perform functions on behalf of client Commonwealth organisations and under the direction of those organisations AOSL be recredited to the AFP. Action Cost recovery for uniform police deployment to airports under consideration. Where AFP members are seconded to other Commonwealth organisations they do not count against the AFP's AOSL. Recommendation 8. The guarding of Family Court judges residences and court premises cease to be a function of the AFP. Action Static guarding of Family Court judges residences ceased to be function of the AFP on 28 February 1986. Presence at court precincts reviewed against potential threat. Recommendation 9. Functions associated with the use of uniformed police inside the Family Court and relating to process serving for the Family Court be removed from the AFP, or else a commercially based cost recovery system be imposed. Action See Question 8. Guidelines on `user pays' being developed. Recommendation 10. All the current general policing and guarding duties carried out by the AFP at Australian airports be performed by other agencies-State police, the Australian Protective Service and private security companies. Action Review of AFP operations at airports being conducted to develop functional plans and `modus operandi'. Recommendation 11. Pending the transfer of uniformed function at airports, the Department of Aviation be billed for the services provided so that costs may be included in the changing algorithm. Action Under consideration by Government in 1986-87 Budget context. Recommendation 12. The AFP plainclothes presence at airports be enhanced. Action AFP operations at airports being reviewed in accordance with ministerial objectives and priorities. Recommendation 13. The diplomatic and consular guarding function be transferred from the AFP. Action Provision of static guards where necessary is under review by the Officials Committee on Law Enforcement. Recommendation 14. The static guarding function at official establishments be transferred from the AFP to the Australian Protective Service. Action Approved in principle, action on transfer expected to be completed by 1 July 1986. Recommendation 15. The static guarding function at the current Parliament House be transferred from the AFP. Action Being reviewed in the context of guarding arrangements to be put in place for the new Parliament House. Recommendation 16. The AFP no longer execute warrants or serve processes on behalf of Commonwealth client organisations; alternatively client organisations should be charged a commercially-based cost recovery fee. Action AFP execute only those warrants directed by the Court. User pay principle being reviewed at present. Recommendation 17. The user pay principle be applied generally to all Commonwealth organisations and other major users of AFP resources. Action The application of this principle is at present under review. Recommendation 18. Greater use be made of skilled civilians on contract and of special member provisions of the AFP Act to alleviate shortages of skilled members. Action Application of the ``Human Resource Use'' policy recommended by the Joint Management Review which is a general policy in relation to this issue is now in place. Recommendation 19. The AFP Act be amended to permit: 1. the re-appointment of former members at the discretion of the Commissioner within 12 months of departure at the same rank 2. permanent part time employment on the same basis as for the Australian Public Service. Action Under consideration at the present time. To be considered further when APS policy resolved. Recommendation 20. A review of classification structures be carried out, particularly in the AFP plainclothes functions and the concept of salary loadings for qualified detectives actively involved in investigative and intelligence functions be considered. Action Discussions are current between the AFP and the AFPA on classification structure in the AFP. An allowance for members designated detective or engaged in investigative/intelligence duties was awarded by the Federal Police Arbitral Tribunal in December 1985. Recommendation 21. The conversion of discretionary or non-urgent overtime funding into additional staff, with appropriate temporary funding over the next 2-3 years. Action Needs to be considered in conjunction with proposed staff increases. Recommendation 22. A study be conducted to quantify the offsetting effects of extra capital and equipment expenditure with a view to budget action in 1986-87. Action Study not yet undertaken. Recommendation 23. The development of regular statistical reporting from the regions and major line areas at Headquarters, together with appropriate analysis, be given a high priority as a fundamental requirement of good management. Action A complete review of the operational Information Management Reporting system within the AFP Investigations Department, including the collation and analysis of statistics, is nearing completion and its implementation will be a priority in the enhanced computer system currently being acquired by the AFP. The project is a pilot for possible development throughout the Force. Recommendation 24. A mobile resource and systems audit team be constituted to assist in the allocation of resources and in management systems. Action The Commissioner has created a Force Development and Analysis Branch within the Office of the Commissioner of Police, to provide a capacity for long term planning including resource use and deployment. Recommendation 25. The policy in relation to eligibility for promotion courses be reviewed. Action Being reviewed by the AFP Personnel & Training Policy and Procedures Committee in conjunction with the AFPA. Recommendation 26. Staffing for the ACT Region remain at its current level for the foreseeable future. Action Implemented in accordance with Ministerial Objectives and Priorities Statement. Recommendation 27. Funds be provided for appropriate office accommodation in Eastern and Southern Regions, and current proposals for the construction of a purpose built headquarters building in Canberra be pursued. Action Proposals being pursued. Government has provided ``in principle'' approvals for the acquisition of office accommodation in Sydney and Melbourne. Recommendation 28. AFP scientific services be developed consistent with overall objectives and priorities. Action Deployment of resources made available to the AFP in the short, and long term, is in accordance with objectives and priorities. Scientific Services will continue to be developed accordingly. Senator ARCHER —I thank the Senate. I will not bother going through them individually, because I do not wish to take longer than is necessary. But of those 28 recommendations, five are under action and the rest seem to have the sort of notation beside them that states: `dependent on government consideration', `partly implemented', `under examination', `under consideration', `being reviewed', `being developed', `review being conducted', `under review', `approval in principle', and so it goes on. This shows the way in which the Government typically handles reports. If one wants to do nothing, one refers it for report, and that is exactly what seems to be happening in this regard. There is also the question of duties. We have had raised regularly by all sorts of inquiries-by the Australian Federal Police itself and the Australian Federal Police Association-the question of surveillance functions, airport duties and so on. The Bill is totally inadequate. After all the time there has been in which to prepare a Bill of this sort, there is absolutely nothing in it which will make any worthwhile alterations to the system. This fiddling along with a few alterations is neither here nor there. There is no doubt that crime is big business and it pays well. I would even venture to suggest that the fringe benefits tax, capital gains tax and the assets test will not really interfere with the people who are at the top end of organised crime. There appears to be nothing in this legislation or in the actions of the Government at this stage which will slow it down in any way. Again, we have been told that Australia is the weak link in international crime investigations. I cannot see anything in this Bill that will change that situation in any way. There is not one change. Instead, we see these few fiddling, housekeeping type amendments which at this stage do no more than say that a policeman who is on dog duty is entitled to take his dog. He now has the authority to undertake protective duties outside the Australian Capital Territory in accordance with his normal functions. There is a change to the review committee of the appeals board. There are monstrous changes such as those that really give us an opportunity to see the Government's attitude towards conquering crime. I do not take any of those changes very seriously, even though I guess they are a necessary part of the clerical work of the Federal Police. The Opposition will not oppose the Bill. Senator MACKLIN(Queensland)(8.50) —The Australian Democrats also will be supporting the Australian Federal Police Amendment Bill, which is of a brief and largely technical nature. It is designed to align the powers of the AFP with the functions of the AFP; to clarify the conditions under which the AFP members are seconded; to improve certain administrative arrangements; and to provide, as Senator Archer has said, for the use of police dogs. In relation to the latter amendment, it is pleasing to see that provision is finally being made for the use of police dogs in hitherto prohibited areas. Now, where a police dog is under the control of a police dog handler, the dog can lawfully be where it is lawful for its handler to be. None of us would deny that this is a wholly sensible arrangement. We can only applaud the fact that this anomaly has now been overcome and that the Senate has moved to remove this enormous obstacle to the fight against crime. Law breakers such as drug smugglers can no longer avoid the attentions of sniffer dogs in certain areas. This is highly pleasing. There is not much more that one could say about the Bill. It only nibbles at the edges of the numerous problems currently confronting the Australian Federal Police, which impinge on the fight against organised crime in this country and the responsibilities of the Parliament and the Government in this regard. It has been pointed out by the Australian Democrats a number of times that it is quite clear that the force is underpaid, overworked, short-staffed and, looking at the comments made constantly in the media by its representatives, thoroughly fed up with its position. There is little doubt that morale is affected adversely when, in recent years, demands on the force have increased many times without a commensurate increase in resources, staffing or funding. The community and the Parliament expect that the Australian Federal Police will be our major force against organised crime, but members have had to be found to protect Family Court of Australia Judges after the tragic events of recent years, and the Coastal Protection Unit has to be serviced. Additional items are being found constantly. Today we had the news of another operation that the Federal Police will have to carry out in terms of protection of certain Ministers and others in the service of the Parliament. In addition, of course, the force's other responsibilities must be carried out satisfactorily. It is undoubted that this cannot be done on a shoestring budget, nor can trained police officers be plucked out of the air. The effective administration of this sector of the Special Minister of State portfolio requires far better planning than has been evident in the past. It is pleasing to note the five-year approach that the Australian Federal Police is adopting. I reiterate, however, that with an inadequate budget, inadequate staffing and limited resources, the AFP cannot do what is expected of it or demanded of it by the legislation of this Parliament. There is no doubt, for example, that some investigations have been shelved indefinitely for want of manpower. It seems very strange that in keeping this force understaffed and underfunded we are, in effect, preventing it from doing work which would increase revenue. It is certainly the wrong way of going about solving crime or pursuing criminals. As the Commissioner of Police has pointed out, the best technology and legal advice is available to criminals and is often well ahead of that used by or available to the law enforcement agencies. Of course, this is also true of the Australian Tax Office officials, but is even worse when the position applies to the Australian Federal Police. The lesson to be drawn is that if law enforcement is to maintain the status quo, much less redress the balance in areas such as the use of high technology, we as a nation will have to pay more. I suggest that if we are niggardly in this area it will be to our cost and the cost of the community. Demands for experienced investigators by commissions of inquiry, the Office of the Special Prosecutor and the National Crime Authority have placed great strain on the resources of the Australian Federal Police, particularly at a time when it is developing its strategy to meet the Government's objectives. The original charter outlining the priorities of the Australian Federal Police combined general policing and investigating organised crime. In September last year, the Special Minister of State (Mr Young) tabled a new charter of objectives which reflects the need to consolidate the AFP as a Federal investigative body with emphasis on specialist functions rather than general policing functions. The directives stressed the importance of an improved intelligence organisation, improved surveillance, technical and forensic support groups and witness protection. A quite proper high priority is placed on increasing the effectiveness and scope of investigations into organised crime, maintaining a capability to investigate large scale fraud against Commonwealth revenue and responding quickly to specific references from Government. However, when one looks at the objectives and the resources, one sees how mismatched they are. The additional resources that have been made available to meet these objectives are meagre compared with the needs set out in those objectives. In the 1984-85 annual report, the Commissioner of the Australian Federal Police drew attention to scarce resources and stated that shortage of manpower and funds remains his major concern. He says that crime is costing the nation dearly already and unless the needs of policing in Australia are recognised and effective police counter measures initiated, the loss to our nation will be incalculable. The fact is that we are pressing on with a band-aid approach in this area and as long as we do so we will not be able to develop a preventive as well as reactive capability. One assumes that the Commissioner is using restrained language and we therefore must pay heed to the real depth of the problem. I could go on to detail other problems; for example, the appalling state of Federal drug squad cars, the stress associated with the long hours worked by some to cover staff shortages, and the other dangers confronting members of the Australian Federal Police. This stress is not made any easier to bear when the police know that their hands are tied behind their backs because they are not given the resources either in human personnel or in technology to make the proper fight against crime, be it petty or organised, any easier to undertake. It is obvious that even if immediate action were taken, it would take some years to train the officers necessary to fill the requisite specialised positions. In short, the matters covered by this Bill are welcome, but they do not squarely address the outstanding problems confronting the force. The Government's increase in resources has not been adequate and rhetoric will not catch criminals. The Government must get its priorities in order and until it does we will continue to have the quite unsatisfactory situation that we have before us as far as the Australian Federal Police is concerned. Senator GARETH EVANS(Victoria-Minister for Resources and Energy)(8.59) —If the Australian Federal Police Amendment Bill is indeed a nothing Bill, as Senator Archer said, I have to say that his speech was entirely consistent with that characterisation. Senator Macklin's contribution, at least in its opening bars, was about the only one I can think of in recent parliamentary history when Sir Billy Snedden's famous interjection against Gough Whitlam might have been appropriate. I think it is inappropriate for me, given the utterly uncontroversial nature of this Bill, to detain the Senate further on the second reading. I commend that sentiment to others in the Senate as the evening wears on. Question resolved in the affirmative. Bill read a second time. The Bill. Senator GARETH EVANS(Victoria-Minister for Resources and Energy)(9.00) —I move: (1) Page 1, sub-clause 2 (2), line 12, leave out ``of the Principal Act''. This is a momentous amendment to leave out the words `of the Principal Act' where they appear. This expression was a drafting mishap and does not have any substantive significance at all. I say for the record that I think it is unfortunate that the House of Representatives declined to treat this as a proper case for a Chairman's amendment, which is the procedure which has been traditionally adopted where a self-evident slip has been made and where there is no prospect of confusion but a great deal of prospect of delaying the passage of the Bill if the formal amendment process is required. With those comments I commend this correction to the Senate. Amendment agreed to. Bill, as amended, agreed to. Bill reported with an amendment; report adopted. Bill (on motion by Senator Gareth Evans) read a third time. Debate resumed from 30 April, on motion by Senator Walsh: That the Bill be now read a second time. Senator HILL(South Australia)(9.04) —The Companies and Securities Legislation Amendment Bill 1986 is a Bill to amend both the Companies (Acquisition of Shares) Act 1980 and the Companies Act 1981. It is part of the co-operative scheme and it therefore comes to the Senate after a determination of the Ministerial Council. Basically this Bill will replace the pro rata partial takeover regime with a proportional bid system. It attempts to achieve a number of other objectives as well. For example, it attempts in particular to change pre-bid escalation agreements and to address that problem so that institutional holders of shares will not have the advantage of smaller shareholders in being able to negotiate agreements for the sale of their shares with escalation provisions that will allow them to escalate the price to that which is offered in a subsequent bid. Being large shareholders they are able to assist the offerer to attempt to reach his threshold of 20 per cent with the assurance that they will not financially suffer by agreeing to the sale of those shares prior to the eventual bid. The Bill attempts to stop that by providing that any escalation agreement entered into by a bidder in the six months prior to a bid may not be triggered by higher prices offered under the bid. As a matter of interest that rule will apply whether the bid is partial or full. Additionally the Bill attempts to deal with what is known as the multiplier effect. The policy that the Government seeks to adopt is that there can be no so-called multiplier effect permitting a larger proportion of acceptances to be made in relation to an original block of shares where the offeree shareholder accepts a proportional bid and then sells the balance of his shares in the target company to another person who, in turn, accepts the offer for a proportion of the shares he has purchased. Additionally the Bill attempts to deal with the inclusion of what have been known as the `shark repellant articles' in the articles of association of companies. It deals with that by allowing a company to include in its articles a provision requiring a shareholder plebiscite before a partial bid may proceed. Finally, the Bill also amends certain provisions in relation to substantial shareholdings. It is no secret that this Bill arose substantially out of the Broken Hill Proprietary Co. Ltd takeover debacle and is therefore tainted with the emotion of that duel which is still continuing. Unlike most of these Bills which come before us-of course normally we have about two companies amending Bills each year-this particular one never went to the public in the form of an exposure draft. On this side of the chamber we believe that it raises a number of important questions: First, the process by which laws are made under this co-operative system and the frustrations that the Senate experiences in not being able to fulfil its proper and constitutional role. That is a matter upon which I will expand later tonight. Furthermore, it raises the question of the whole emotive takeover environment in which we find ourselves in this country at the moment. It raises questions on the economic and social costs and benefits of takeovers. It also raises the question of the wisdom of its primary provision in attempting to outlaw pro rata or partial bids in favour of proportional bids; whether this has been an over-reaction and whether it really achieves the goals that are claimed for it. One of those claims is that it provides a greater equity between large and small shareholders and that is a subject which must be addressed. Finally, it also raises questions which arise out of particular details of the Bill-matters that arise out of the escalation provisions to which I have just referred and particularly matters that arise from the provisions which allow for the `shark repellant' provisions. I will address those in more detail in a few minutes. I begin with the first matter I mentioned-the question of the role of the Parliament in relation to companies legislation. What we are required to do again tonight is to provide a rubber stamp. In being asked to fulfil that role, we are being asked to take part in a farce. Senator Gareth Evans —It is a familiar farce. Senator HILL —Yes, it is a familiar farce. The last time I spoke on one of these Bills I said it was a farce. Now I say it again. We will be told that it is not possible for the Senate to amend the Bill because it has come to us from the Ministerial Council. By passing this legislation we change the appropriate laws of the States and if we attempted to amend it we would therefore be changing a law of a State contrary to that which has been agreed by the ministerial representative of that State through the Ministerial Council. We will be told that we cannot do that. In fact what we are allowed to do is comment and criticise. Senator Haines —And wave our arms. Senator HILL —And wave our arms and make some constructive comments which some people might read. Beyond that, our task is basically non-existent. So what we are doing is quite farcical. Senator Withers —An exercise in futility. Senator HILL —As my colleague says, it is an exercise in futility. We hope that this situation will change. Mr Deputy President, you will be aware that, to assist us in the changes, the Senate has finally taken the matter to task and set up an inquiry, through its Standing Committee on Constitutional and Legal Affairs, to review the role of the Parliament in the exercising of the task of the National Companies and Securities Commission and also the task of the Minister and the responsibility of the Ministerial Council for Companies and Securities. Finally, after experiencing the effects of the scheme since it came into operation in 1978 and experiencing the frustrations I have referred to, which, I hasten to add, have been referred to by both sides of the chamber, the Senate through that Committee-I am pleased to see the Chairman, Senator Tate, is present in the chamber-will wrestle with that problem and attempt to find a better way for this Parliament to meet its constitutional responsibility. The second matter I said I wanted to mention is the framework behind this Bill-the current atmosphere in relation to takeovers. There is obviously a preoccupation within the Australian business community with the subject of takeovers. Billions of dollars are being borrowed and spent on purchasing successful companies. Nobody is borrowing these massive sums in an attempt to build up companies and businesses into successful corporate entities. We find that the preoccupation in this country lies in taking the short cut to wealth and power through borrowing and taking advantage of the generous taxation provisions. Massive sums of money are generally borrowed off-shore in order to follow that short cut by acquiring a successful company. A question that should face the Government and the Parliament is whether a legislative answer to that problem can be achieved. We can legislatively restrain or retard the ease with which a takeover can take place but we run the risk of suffering from the shortfall because it would mean that inefficient or stale management would be protected in a way that we regard as undesirable. So what it really comes down to is that what is needed from the business community of this country is a change of attitude rather than a change of law by the Government. In mentioning a change of law, I still say-perhaps it is a little beyond my brief-that there are ways that can easily come to one with a little imagination, particularly through the tax laws, by which greater incentives can be given to encourage those in the business community who are prepared to put their efforts and their skills into the growth and development of productive activity rather than simply attempting to take over what has been achieved by others. I bring that point to the attention of this Government and urge that it give greater consideration to what can be done to assist those who want to build the productive endeavour of this country. The typical attitude in relation to takeovers at the moment can be found in the speeches of Mr Bosch and others, who refer to the `takeover game'. Mr Bosch, in his address to the Company Directors Association of Australia Takeovers Seminar in April of this year, in what, with respect, was basically a good address, fell for what I believe is the same error that we see so often in the business community. For example, in relation to this Bill Mr Bosch said: . . . I shall offer a few reflections on how the Bill will affect the takeover game in Australia. Regrettably that is what it has become. That is how it is even being referred to by the Chairman of the National Companies and Securities Commission. The sooner that we can get beyond regarding it as a game and get back to constructive growth in this country, the sooner we will be able to wrestle with the shocking $14 billion balance of trade deficit that we will have this year. Whilst mentioning the Chairman of the NCSC, I have been somewhat concerned as to the attitude he has been taking in basically expressing the view that there are too many takeovers. I have wondered whether that is the appropriate type of sentiment to come from the chairman of a chiefly administrative body; but on further reflection I think that his comment no doubt arises out of the frustration that governments of Australia, which should be looking primarily to those questions of policy, simply are not doing so. I wonder whether that comes back in part to the problem that again no one government is responsible for this field; rather when the responsibility is shared through the Ministerial Council, with no individual immediately and primarily responsible, one tends to look to someone else to take the responsibility. I urge governments to accept that there is a need to play a lead in this matter. There has been a shocking neglect in recent years in the area of policy relating to this subject. Apart from a neglect, there is also an inconsistency. On one hand, we hear this Government saying: `In our new spirit of free market power we think it is inappropriate for us to interfere or become involved'. On the other hand, we know that the Government conducted kitchen cabinet inquiries in secrecy into the wisdom of the takeover of the Broken Hill Proprietary Co. Ltd. That shows an obvious inconsistency and it also demonstrates a great uncertainty of direction on the part of this Government, and it is time that a real lead was shown. The third area that I said I would mention in this contribution deals with the primary part of this Bill, and that is the outlawing of pro rata partial takeovers in favour of the proportionate system. A question that has to arise is: Will that be beneficial to small shareholders, when the Government claims that it will overcome much of the coercive force that could be placed upon small shareholders? Is that valid or have we been carried away by the rhetoric of the debate and been convinced, without a proper and thorough examination, that small shareholders will be beneficially advantaged by this legislation? On this occasion we have had no exposure draft. In many ways, these exposure drafts have been the compensation offered for the Parliament not being allowed to fill its traditional and constitutional role of full scrutiny. What has been offered in lieu of the public exposure draft is the opportunity for the public-by `public' I do not mean only individuals, but obviously all of the professional bodies and those with a direct interest-to scrutinise the Bill, provide advice and recommendations and then be given the assurance that those recommendations would be considered by the Ministerial Council before the Bill is brought to the Parliament. As the Minister for Resources and Energy (Senator Gareth Evans) will recall, on previous occasions, in answer to our frustrations, he has been able to say: `But, of course, there has been a long public exposure, and expressions of concern have been taken into account in a redraft of the Bill'. On this occasion there has been no such exposure, which I think is a bad trend in what is already a flawed system in Australia. It means that there will possibly be a greater reason for us to query and scrutinise the primary validity of this attempt to assist small shareholders. There is no doubt that this is not a one-sided debate. In recent times, academic and business writers have been expressing concern that these provisions do not achieve their objective. I refer to the recent contribution of Professor John Coffee of the Columbia University Law School which appeared in the Company and Securities Law Journal and also to the very worthwhile contribution of Mr S. Hannes of the Macquarie Bank Ltd which appeared in the August edition of the Company and Securities Law Journal, both questioning the basic validity of the argument that is put to justify this change in the partial takeover law in Australia. What is happening with this law is that what is possibly the most highly regulated system in the world is becoming further regulated. That may be necessary, but it requires a very careful cost-benefit analysis. What is quite clear from these writers and I think from all others except the Government, which has not acknowledged it, is that what will be achieved by this legislation is to make partial takeovers more difficult. If the Government's goal is to retard takeovers in this country I would have preferred it to come clean and to say that that is the goal, rather than attempting to justify it under the guise of provisions that in some way will basically assist the small shareholders of this country. It is interesting that, in a telex that the Opposition received only in the last few days from the Australian Associated Stock Exchanges, it has been prepared to come clean. It refers to the Bill as a Bill which is aimed at making it more difficult for an offerer to succeed with a partial takeover offer. It acknowledges the real purpose of the Bill and I think it would have been of benefit to this Parliament and to the Australian people if the Government had done so. What we have is a mechanism which increases the costs of takeovers, which therefore makes them more unlikely. There are many and varied views as to whether the provisions will achieve what this Government states are its objectives; that is, to provide greater safeguards and equity for small shareholders. Finally, I said that I would mention a few of the particular provisions that cause us concern-one of which I think we would be of a mind to amend but for the fact that we know the Australian Democrats are convinced that they do not have the power to support amendments in this Bill and we know that we would not receive Government support. That area is the one concerning the shark repellant provisions of articles. Mr Acting Deputy President, as you no doubt will be aware, the North Broken Hill company has just amended its articles of association to allow such a provision, so it obviously will become reasonably common place in the future. The amendment, which is basically a defence mechanism against takeovers, requires a plebiscite to acquire a 51 per cent approval from shareholders before a partial bid can go ahead. I think I might have mentioned earlier that this Bill originally came from a paper produced by the Companies and Securities Law Review Committee which was put down in March this year. That Committee advised against including the power of the companies to amend their articles in this way. I think it calls for the Government to explain why the Ministerial Council has gone against that advice. It is interesting that the reasons that were given by the Committee in opposition to amendments of the articles in such a way have been taken up by writers such as Mr Hannes from the Macquarie Bank Ltd, whom I mentioned a few moments ago and who adopts those reasons and expresses grave concerns as to whether these provisions will be in the best interests of the community. They have been taken up by the Australian Associated Stock Exchanges and, as the Minister would know, their representative, Mr Bain, has been in the parliamentary building today expressing the grave concern of his exchanges as to whether these provisions are in the best interests of the takeover code within this country. He gave three reasons for this in his telex, to which I have just referred: He said: This plebiscite provision will be counter productive because it will confuse shareholders, particularly private shareholders, who will be unsure when the offer is current and when it is not. He said further: Professional investors will often vote for the offer to be made even though they have no present intention of accepting it. They would do this because it keeps their options open and while there is a partial offer on the table there is a better chance of a white knight or counter bidder emerging. Thus the intention of the provision will be negated . . . When putting this particular provision in balance with the other provisions of this amending Bill he said: It is unnecessary to introduce a provision which effectively enables the majority to deny the minority the right to dispose of its property as it sees fit. What that amounts to is a restriction on individual shareholders, whether they be small or not, to transfer their shares. Rather, the majority of shareholders will be able to determine, through a plebiscite, whether or not they are entitled to do so, which is a major restriction on the transferability of shares in this country. It seems to the Opposition that there is considerable merit on this occasion in the arguments that have been put up by the stock exchanges and in the arguments that have been put up by the Companies and Securities Law Review Committee to which I have just referred-- Senator Haines —The National Companies and Securities Commission; is that what you are talking about? Senator HILL —No, I am talking about the Committee. I thank the honourable senator for her help, but I am talking about something different. We think there is considerable merit in those arguments and, as I have indicated, we would be of a mind to amend this Bill if we were able to do so. We suggested to the representatives of the exchanges that the best course open in such circumstances was to take their plea to the Government because, of course, it is within the Government's hands to return the Bill to the Ministerial Council for further consideration. I understand that the Minister and the Government have refused to do that but we, from the Opposition, in a last ditch effort, urge that course upon the Government again tonight. Senator Gareth Evans —Which course? Senator HILL —I am sorry that the Minister was not listening. I see that his advisers have picked it up. I am pleased that at least they have been listening. We urge that, in relation to the shark repellant provisions, the Minister take them back to the Ministerial Council. Senator Gareth Evans —That is not a bad idea, actually, but it is not a course I am going to follow. Senator HILL —I am pleased that the Minister acknowledges that it is not a bad idea. We urge that course upon the Minister tonight. If the Minister does that, at least this flawed system of company law which we have in this country will have an opportunity in practice to work just that little bit better. In summary, as I said before, the Opposition does not oppose the Bill. We support the goals which are claimed in it-that is, that the smaller shareholders be treated more equitably. We express doubts as to whether those benefits will occur in practice. We express considerable doubts as to the cost-benefit of this Bill-whether the costs will outweigh the doubtful benefits which I have mentioned. As I said before, we would have preferred the Government to come to the Senate with the real objectives of its Bill, which is to retard takeovers rather than the spurious objectives that are claimed of it. We express grave reservations about the inclusion of the shark repellant provisions and we again register our irritation at the Parliament being used as a rubber stamp. Senator HAINES(South Australia)(9.30) —Like the Futures Industry Bill, which has not yet come before the Senate, the Companies and Securities Legislation Amendment Bill before us tonight, as Senator Hill has already mentioned, emanated from the Ministerial Council for Companies and Securities and is introduced as part of the Commonwealth's obligations under the co-operative companies and securities scheme. Because of that it has all of the problems that Senator Hill outlined. Its passage by this Parliament has the effect of automatically amending the corresponding State companies and securities legislation and this, as Senator Hill indicated, makes life rather difficult for the two Houses of Federal Parliament that have to vet and presumably pass this legislation since any amendment has to be referred back to the Ministerial Council and has then to be approved by a majority of that Council with all the attendant time delays that occur. If the Government thinks that Senator Hill and I have any criticisms of that with regard to this piece of legislation, I suggest that it wait until the Futures Industry Bill actually comes before the Senate because not only do we have concerns about that and the abrogation of our powers through the role of the Ministerial Council, but the Senate Standing Committee for the Scrutiny of Bills probably wrote the longest report on the Futures Industry Bill that it has ever written on any piece of legislation that that Committee has been looking at since its inception. Let me just say by way of preface to the debate on the Futures Industry Bill that the Government's response that self-incrimination clauses and reverse onuses of proof and so on that occur right through the futures industry legislation have occurred in the past under various Bills relating to the NCSC system does not mean that we ought necessarily to sit back and allow them to continue. I think the Government may have to rethink some of its attitude to the sort of legislation that emanates from the Ministerial Council. I am well aware of the fact that the Council was established under the Fraser Government regime and it does seem a little cheeky of Opposition senators now to be complaining about it; nevertheless, the Scrutiny of Bills Committee's concerns on the Futures Industry Bill are, I think, justified and do warrant some attention being paid by this Government to the whole principle of Bills coming from the Ministerial Council being put and passed as they are presented by this Parliament in order that the States can then have similar companies and securities legislation. Certainly the Australian Democrats will not oppose this attempt by the Government to put some rationality into the laws governing take- overs, although we feel they have not gone far enough. Again, as Senator Hill said, they do attempt to inject some equity amongst shareholders into the whole system of takeovers, but it is marginal at best. The most significant change is the outlawing of that form of partial takeover know as pro rata and that in itself is a much needed reform. I must confess that until earlier this year when Bell Resources Ltd began its enthusiastic attempts to take over Broken Hill Proprietary Co. Ltd I, like a lot of other people including members of this chamber and the other place, did not know the difference between the various sorts of partial takeovers that were around the place and had never heard of a multiplier effect other than in a classroom situation. Because my husband and I hold some insignificant numbers of BHP shares we learned very fast what was going on with regard to those takeover bids that Mr Robert Holmes a Court was making for the Big Australian. Pro rata partials have given the big institutional shareholders far too much power vis a vis the smaller shareholders in deciding on the success or failure of a takeover bid. Conversely that means that the small shareholder has been disadvantaged with the sort of situation that occurred with the first Bell Resources bid for BHP. I might add at this point that the problem was compounded by the fact that the multiplier effect was applying at that stage so we had a situation where somebody was able to sell to Bell Resources the percentage necessary of his shares, then sell off the rest to somebody else, who could also sell a percentage, and so on, until I gather the smallest fraction of a share was left remaining of the original parcel held by the original person. Typically pro rata partials have worked to the benefit of institutional shareholders, as I have said, in the following way: A company makes an offer, for example, for 30 per cent of the capital of the target company. The offer runs for a certain length of time, and for the purposes of this exercise let us say that it runs for a month. At first small shareholders do not know what to do. They have their shares and hold those shares for all sorts of reasons. They are not well versed in the ways of takeovers. They may have inherited the shares or they may have simply accumulated them at the suggestion of their sharebroker, and they are certainly not well up in the particular games that are played by major groups in the share market. So they dither around for a while. If they accept they risk losing the opportunity to sell at what could be an even higher price should the raider choose to increase the bid at some later date. In this situation most small shareholders decide to hang on and see what happens closer to the closing date. With regard to the Bell Resources takeovers of BHP, a number of media advisers-that is people who habitually go on radio and advise small shareholders what they should do-have in fact been recommending that small shareholders hang on to their shares and see what happens. So, they do that; they hang on until closer to the closing date. The institutions which might control something like 50 per cent of the shares on the stock exchange currently generally also do likewise. After all, they are in it for the benefit of the people they represent and they, too, want the best possible price. As the closing date draws near the institutions might decide that no better offer is going to be forthcoming and they accept then for all the shares they are entitled to sell. The small shareholders who have been waiting perhaps for a lead from the institutions then attempt to follow that lead and are likely to be too slow in reacting and are then not able to accept before the closing date. They are, in fact, significantly disadvantaged vis a vis the large institutional shareholders. The institutions have a very good reason for holding off and acting at the last minute. When a company makes a bid of the sort I just mentioned all the acceptances are counted after the closing date and the offerer buys out the accepters on a pro rata basis; that is, the number of shares is divided into the number of acceptances needed and a ratio is worked out to apply to all accepting shareholders. If the institutions think an offer is good, it is in their interests to prevent as many small shareholders as possible from accepting. This gives them the chance to sell a greater proportion of their shares. By using this sort of brinkmanship they can profit at the expense of small shareholders. After the passage of this legislation which is, as Senator Hill said earlier and I said a moment ago, assured because of the restraints placed on us in this place due to the legislation emanating from the Ministerial Council, only proportional partial takeovers will be allowed. This was the form which the second Bell Resources offer for BHP took. It ensures that if somebody bids for 30 per cent of a company, each shareholder will be able to sell only 30 per cent of that particular person's shareholdings. This ensures that all shareholders will get an equal opportunity to benefit from the bid. As I said, this is a reform which is long overdue. Maximum acceptance conditions have also been outlawed by the Bill before us tonight. In other words, an offerer cannot be protected from the effects of making an offer at an unrealistically high price through restricting the acceptance level other than through naming the total percentage of the capital the offerer hopes to acquire. Maximum acceptance conditions can have the effect, of course, of making a proportional bid into a de facto pro rata bid. Another form of, shall we say, collusion-although it may not be deliberate; effectively it is collusion-between the large institutional shareholders and corporate raiders has been the use of escalation clauses. This means that a bidder can come to the institutions and say effectively: `Look, I am planning on taking over company X. I will give you, say, $5 a share for your holding now. However, I may have to go as high as $6 in order to get all the shares I want'. I guess that is known as showing all the cards that one holds. In effect, he is suggesting to the institutions that an agreement be signed that allows the institutions to benefit from any higher priced offer that the offerer is forced to make at a later date. Of course, this gives the raider a good foot in the door to commence the bid and also gives the institutions the chance essentially to have two bites at the cherry which is being dangled before them. The small shareholder does not get this opportunity. The small shareholder does not know about the opportunity and is not in a position to take advantage of the opportunity. Of course, it is unfair to give the opportunity to the institutions just because they are big, powerful and available in some way to be approached easily, quickly and readily by the raider. The law has therefore been changed to ensure that substantial shareholders, that is those owning at least 10 per cent of the capital in a company, need only notify changes in their holding if the change involves one per cent or more of the company's shares. Effectively, this will reduce the onerous paperwork requirements on substantial shareholders but will still alert companies to major changes in holdings of their shares. Of course, as a party, we do not support needless paperwork and we are glad to see that this provision will be altered. However, we believe that the problem of takeovers needs more attention than the Government simply is giving it in this legislation. I suspect that the Government has developed a strategy to keep itself in office which essentially revolves around buying off financial interests. We have seen that in the last couple of months the Government found the money, not withstanding the alleged economic problems faced by this country, to buy off the private banks to the tune of some several hundred million dollars. It succumbed to the banks' blackmail that if some form of deregulation was not introduced for interest rates they would simply dry up the money that was available for housing loans. We saw that too, perhaps to a lesser extent, with the funds that this Government was prepared to make available to the oil companies following the drop in the oil price resulting from the behaviour of the Organisation of Petroleum Exporting Countries. The Government unquestionably is aiming its attention, its bids-wooing if one likes-at the big financial institutions and the big financial interests in this country. As a consequence there is no doubt that the finance sector has become the glamour sector of the moment. It is the sector that this Government believes it needs in its pocket if it is to be successful, particularly if it is going to be successful at the next election. Might I say in passing that the Government in doing so is tending to ignore those sectors of the population which I would have thought were the traditional concerns of an Australian Labor Party Government. I have said that on a number of occasions in more appropriate places and I do not intend to pursue it at this stage. With deregulation and the entry of foreign banks the business Press too is focusing its attention on financial matters as it has never done before. Deregulation has become, if one likes, the buzz word of the moment. I presume the Government feels that if it gives financial markets what they want the business Press will consider the Government to be a responsible economic manager. To a very large extent so far it seems to have worked. The business community is fairly satisfied with the manner in which this Government is wooing it. If the business sector has not exactly been lying down and allowing its tummy to be tickled, it has not been biting the hand that feeds it either. I would have thought that any impression one may have had that the Government was doing a good job economically would have been thrown out of the window over the last month or so. Record balance of payments deficits, the ever climbing foreign debt and alarming falls in the level of productive investment show that the Hawke Government is presiding over an economic disaster largely contributed to, I might add, by private sector borrowings from overseas and by the fact that those people who grizzle that our exports are not keeping up with our imports are the very people who purchase expensive imported motor cars, clothing and so on. The obsessive belief of the Treasurer (Mr Keating) that what is good for the financial sector and good for financial interests is necessarily good for the country is being shown up for the fallacy that it is. There is so much money to be made by financial wheeling and dealing today that the prospect of investing in real assets to create jobs and export income is looking very unattractive indeed. Why take the hard way out when the easy way is being offered to one on a plate by the current Government? A few figures will serve to make my point here. In 1984 $1.9 billion was used to fund takeovers. By 1985 this had jumped to $4.2 billion. Already this year we have seen in excess of $5 billion put into Broken Hill Proprietary Co. Ltd shares in takeover bids, defences and interlocking share deals. At the same time, investment in plant and machinery is at an all time low. Expenditure on fixed capital is lower now than it was in 1981-82. We believe that this Government, in its cynical effort to stay in power, has sold the country down the drain. We must act now if we are going to act at all to put the brake on takeovers. Instead of encouraging productive investment, currently we are encouraging so-called entrepreneurs to borrow funds from overseas and buy up other companies, often many times their size. They can afford to do this because the ordinary Australian foots the bill through the taxation system. Therefore, the taxpayer must no longer be expected, indeed forced, to fund the activities of the corporate raiders through negative gearing so that these people can borrow billions of dollars overseas, send millions of dollars in interest repayments out of the country, deduct those interest repayments for tax purposes in this country and, in the process, take over, in an essentially non-productive way, another Australian company. Certainly, the Australian Democrats do not wish to see takeovers banned altogether. That would be stupid. However, we want the present bias in favour of the bidder to be redressed. I suggest that this country can no longer afford to waste its resources in share market paper-chases; essentially that is all they are. We must encourage real investment to create jobs and exports and not encourage profit making through non-productive taxpayer subsidised takeover bids. As I said at the beginning of this speech, the Australian Democrats will not be opposing the legislation partly because we believe it does do something to correct the inequity that currently exists between shareholders caught up in takeover bids and partly, of course, because simply we are not in a position to do anything at all, apparently, to a piece of legislation which emanates from the Ministerial Council under the Fraser Government proposal which attempts to set up similar and co-operative companies and securities legislation. Senator HAMER(Victoria)(9.50) —The current takeover code is a mess and we should scrap it as soon as possible and start again. The problem is that the present legislation is too technical and is primarily concerned with procedures rather than equity and fairness. The code is very complex; even our most experienced practitioners often cannot interpret it accurately, and the judges who apply the law have little experience in corporate law and practice. The present regulations and practices have produced a great deal of unfairness, especially to small shareholders. Of particular concern should be the ability of institutions to obtain higher prices for shares than are available to small shareholders, the use of escalator clauses, and the disadvantages caused to small shareholders by pro rata partial offers. We should also look at the results of the present system. Someone who wants to gain control of a company can make a bid, but the current holders of control cannot make a counter bid; they are forbidden to buy their own shares. It is not an equal contest. The contest is loaded in favour of the raider. I should make it clear that I am not against takeovers. Our economic efficiency depends on inefficient management being called to account. We must not produce a system that protects them. The trouble is that our present system is biased the other way, and corporate raiders are making a great deal of money without producing anything. Compared to full bids, partial bids are notoriously difficult to defend against. In Australia, an increased percentage of recent takeovers, now estimated at 40 per cent has been partial bids, a figure which contrasts sharply with the American experience. In 1984 the figure was approximately 20 per cent. One option we should look at is to eliminate the partial bid altogether. We could raise the threshold shareholding to, say, 30 per cent and if a raider wanted to go beyond that he would have to make a bid for all the remaining shares. This would require greater financial backing and would discourage post-acquisition asset stripping. It might be useful to compare our takeover system with some others. In the United States, partial takeover bids are freely permitted, subject only to the requirement that all shares tendered be pro-rated if the offer is oversubscribed. Thus bidders can and do purchase control through creeping acquisitions in the market, which is unregulated to a large extent. But while the bidder is unregulated, so also is the target, which can engage in aggressive defensive tactics. This may include the sale of assets and the making of discriminatory self-tenders. These defensive methods threaten the bidder with serious losses, especially if the bidders do not acquire most of the target's shares. Thus, the bottom line is that, while the substantive law does not discourage partial bids in the United States, the self-help remedies available to the target do. The situation is much simpler in the United Kingdom. Partial bids are prohibited unless approved by the panel on takeovers and mergers and the target company's shareholders. The law in the majority of Canadian jurisdictions achieves an even more sweeping result by requiring a bidder who privately purchases more than 20 per cent of the target's shares, at a specified premium over the market price, to follow up these purchases by making an offer within 180 days thereafter at an equivalent premium for the remaining shares. The current Australian system allows partial bids to be made in such a way that shareholders are pressured or intimidated into accepting offers which are inadequate. In reforming the takeover code, this unacceptable practice must be given the most serious consideration. The current system allows an offer to be framed so that acceptances are prorated backed if the offer receives acceptance for more shares than are being sought. Thus, the proportion of a shareholder's holding which is acquired by a bidder, and for which the shareholder receives the bid price, depends on the acceptance of the offer by other shareholders. If all shareholders accept a partial bid, they receive the bid price for only a portion of their respective holdings. Many shareholders would consider this an inadequate return for control of the company. However, some shareholders may seize the opportunity to break ranks and accept the offer, thus receiving the bid price for their entire holding. The current system involves a game of cat and mouse, often resulting in a stream of acceptances in the last days or even hours of an offer. This is particularly evident in a bid which has been relatively unsuccessful. In short, the present rules may set up an incentive to accept an offer in an attempt to secure a disproportionate share of the prize offered to gain control. Under the current code, shareholders have little option other than to sell when it becomes apparent that control will pass. The current system entrenches the practice that it is in the financial interests of all shareholders to accept the offer even though they are opposed to the transfer of control to the raider. Only in this way can they share in the once-off benefit from the passing of control. All this gives a clear advantage to the professional or institutional investor over the small shareholder who faithfully follows his board's advice to reject the offer. The current rules place the large shareholder in a much stronger position. A potential bidder seeking to acquire a 20 per cent holding before launching a bid will no doubt approach the large or institutional shareholders to purchase their shares. The proposed changes must deal with this problem. In March 1985, the Companies and Securities Law Review Committee released a paper on the subject of reforming the current system with regard to partial bids. The Committee considered a number of proposals to amend the code in relation to partial bids in order to redress the balance between the offerer and the interests of the target company's shareholders. The Committee recommended three significant reforms. The first was to introduce a special 10 per cent threshold for partial bids. Under such a proposal, a partial bid would not be allowed where the offerer was already entitled to at least 10 per cent of the company's voting shares and a successful partial bid would increase such entitlement to more than 20 per cent. This proposal would introduce greater equality amongst shareholders, large and small. The coercive effect of the partial bid, as the present laws allow, would be diminished as the proposed reform would require the offerer to obtain a greater proportion of the shares by way of formal bid rather than by open market purchases. A 10 per cent holding is also less of an obstacle to a potential counter-bidder than the current 20 per cent threshold. Thus, a more competitive market is encouraged and shareholders are the beneficiaries. The Committee also recommended restricting a partial bid to a specified proportion of each shareholder's holding. Under such a proposal, a partial bid may be made only for a fixed proportion of each shareholder's holding, thus a proportional bid. It is argued that four advantages would flow from the elimination of pro rata bids. First, it would add certainty to the system. Each shareholder is aware from the beginning of the offer period of the proportion of his shareholding which may be accepted by the offerer. Secondly, the abolition of the pro rata offer would remove the element that supplies the coercive engine in a partial bid. Thirdly, it gives the opportunity to participate in the value of any control premium to all shares. Fourthly, it reinforces the incentive for all shareholders to determine whether the bid price, if paid on only a portion of their holding, represents a fair premium for transfer of control. The third recommendation of the Committee was the introduction of a mechanism designed to eliminate the uncertainty associated with partial bids. Specifically, the Committee suggested that the maximum offer period for a partial bid should be one month with a consequential prescription of the time within which the consideration for the partial bid should be paid, and this period should not be capable of being extended. The Committee also considered various defence tactics available to target companies to ensure that partial bids succeed only if approved by the target company's shareholders in general meeting. It is, of course, an inherent feature of partial bids that control passes without the need to acquire a majority of the shares. A separate question is whether control should be allowed to pass without the consent of the owners of a majority of shares. Should consensus amongst shareholders be required before there is a change in control? Such issues must now be addressed-especially since the `shark repellant' proposal has been flagged by the Macquarie Bank and the `poison pill' proposal raised by Lloyds International. I was not responsible for these terms, Madam Acting Deputy President. The `shark repellant' proposal, involving an alteration of the articles of association which would require majority shareholder approval before control could pass, was rejected by the Committee. Similarly, the `poison pill' proposal, involving the issue of shares to ensure an offerer does not secure control unless a majority of shareholders approve the partial bid, was also rejected. The Committee dismissed such defensive tactics, claiming they would be `inconsistent with the principle-- Senator Gareth Evans —You have mixed up shark repellants with the poison pills. Senator HAMER —Does the Minister want me to repeat it? Senator Gareth Evans —You just gave us a second run on the shark repellant rather than explaining what a poison pill was. Senator HAMER —No, I explained them both. I think the Minister had better look at Hansard tomorrow for elucidation. As I was saying, the Committee dismissed both such defensive tactics, claiming they would be `inconsistent with the principle that a share in a public company should be transferable without the consent of other shareholders'. The Committee also questioned whether shareholder ratification would be a `valid means of expression of informed shareholders' will'. In introducing this Bill, the Attorney-General (Mr Lionel Bowen), I regret to say, revealed a disturbing lack of knowledge. This point was highlighted by Terry McCrann in the Age on 2 May 1986 and it is worth quoting. Mr McCrann wrote: In debate on legislation to amend the Takeover Code, Mr Bowen came out with a series of quite staggering statements-staggering in their suggestion of an almost total lack of understanding of the very legislation under discussion, and the amendments he was introducing. When such-what may be described as-a gaping black hole of knowledge is revealed in the first law Minister in the land, and the person who one way or another sits at the very top of the pyramid of legislation and regulation of business and commercial activity in this country, it can be little other than deeply disturbing. So much for Mr McCrann. Nevertheless, Mr Bowen's and the Government's proposals for reforming the code are with us. This Bill proposes eight major changes: First, all partial bids are to be restricted to a proportion of each shareholder's holding. In other words, the pro-rata bid is to be done away with. Secondly, for both full and partial offers, maximum acceptance conditions are to be prohibited. Thirdly, benefits under escalation agreements entered into within six months of the bid, whether full or partial, are to be cancelled. Fourthly, all Part A bids, full or partial, are to be subject to a minimum price, being the highest price paid for shares in the target company by the offerer within the previous four months. Fifthly, the so-called multiplier effect is to be eliminated from partial bids. Sixthly, `shark repellant' provisions may be put into the articles of listed companies which would subject takeover bids to a plebiscite of a target company's shareholders. Seventhly, shares held by a nominee or trustee on behalf of different persons are deemed to be subject to separate offers for each share holding. Finally, the substantial shareholder provisions of the Companies Act are to be amended so that shareholders holding over 10 per cent will be required to notify net variations of only 1 per cent or more in their holdings. Although the Opposition does not oppose the Government's reforms, I have a number of criticisms to air. There does not seem to be any attempt to analyse the economic effects of the Bill on takeovers. The Takeover Code has an important impact on the level of foreign investment in Australia and on the attitude of foreign investors towards Australia. It would seem that the major thrust of the Government's reforms is to ban pro rata partial bids. It must therefore be asked: Is this consistent with the Government's current foreign investment policies? The Government has not clearly explained its position in this area. Indeed, proportional bidding will make foreign acquisition harder so the Government is in effect encouraging foreign companies to make full bids and then subsequently to `Australianise'. The obvious result is that some foreign investors will be deterred from investing in Australian companies. Is this what the Government wants? Again, the Government's position is unclear and I would like to hear a clear explanation of its intentions. The introduction of plebiscite provisions also raises a number of important issues. These provisions are designed to give the ordinary shareholder a say in whether or not his company should be taken over. Has the Government considered that such a provision may simply be used by entrenched minorities to protect their position and to prevent fellow shareholders selling at a fair price? Does the Government intend that one's ability and right to deal with one's shares will be dependent on a vote of one's fellow shareholders? Under the Government's reforms, the offerer and the person associated with the offerer are prohibited from voting on a plebiscite resolution and the approval required is the proportion specified but not exceeding one-half. The offerer is to be given notice of the result 14 days prior to the end of the offer period and 10 per cent of shareholders can ask for a review by a court of the plebiscite provisions. In introducing such reforms, the Government must give clear answers to a number of questions. What will be the effect on the level of takeover activity in Australia? Accepting that the level of takeovers at the moment is too high, has the Government established what a proper level of takeovers should be? Has the Government considered that the reforms will probably deter desirable foreign investment? With all this in mind, we at least now have some reforms to counter the current unsatisfactory situation. Australians are truly sick and tired of the non-productivity of the takeover bid at today's level which gives corporate raiders enormous profits-but the economy and Australia benefit little. We must also look at whether the present cumbersome structure of legislation by a committee of Federal and State Attorneys-General, advised by the Companies and Securities Law Review Committee, is capable of dealing with such a complicated and rapidly changing problem. As was pointed out by Senator Hill, the problem of a committee is that no-one is responsible. The question of the responsibility to this Parliament and the inability of this Parliament to amend legislation in desirable ways, is very serious. The Standing Committee on Constitutional and Legal Affairs is looking at the loss of power by the Federal Parliament which the present system requires. When we have its report, we must look again at the whole way in which the takeover code is amended and policed. I have no desire to place restraints on the free market or on our free enterprise system. But the passion for takeover after takeover must be restrained, because what we need in Australia is productivity. Finally, we must turn our attention to the present struggle for Broken Hill Proprietary Co. Ltd in the context of this debate. Some would argue that to oppose, debate or even introduce amendments to the code creates uncertainty in the market. But debate over legislation does not create uncertainty. This is created by natural forces within the market. We must not become transfixed by the struggle for BHP. We must decide these matters on merit and not be diverted by the immediate drama. Those who argue that debate and proposed reforms cause uncertainty are usually direct participants in current market events and are motivated by old-fashioned self-interest. In our deliberations, we must not be influenced by black knights, white knights or other superficial considerations. Reform is obviously necessary. We must ensure that the proposals will be a stimulus to productivity and a more efficient corporate sector. It is time for this Government and this Parliament to show leadership. Senator GARETH EVANS(Victoria-Minister for Resources and Energy)(10.10) —It is a bit late at night to be showing leadership of any kind, but I think it is appropriate to respond quickly to some of the issues that have been raised during the second reading debate. I should say at the outset, in response to Senator Hill, that it is not true that the Bill arose out of the Broken Hill Proprietary Co. Ltd fracas. It arose out of the Companies and Securities Law Review Committee report which had been set in train well before anything had happened in relation to BHP. A discussion paper was released by the CSLRC and the issues involved in this issue were exhaustively debated at seminars and other occasions of that kind. Certainly, it has to be acknowledged that most of the issues in this Bill are well known and have been amply considered. I can understand the criticism that this Bill, I think uniquely of this series of company law amendments, has come forward without a full scale exposure period. There was, however, a universally perceived need to get the Bill in place quickly once the policy decision had been made to outlaw partial pro ratas so that we did not have a flood of pre-emptive pro rata bids trying to beat that particular legislative deadline. That was the consideration that motivated the Ministerial Council for Companies and Securities. Given the familiar character of most of the issues involved, I think it was a defensible decision. During the course of the debate the usual whinges were expressed about the Senate's defacto inability to amend legislation of this kind, coming forward as it does from the Ministerial Council, with the full scale imprimatur of the States and with all sorts of consequences flowing from the amendment of the passage so agreed. I acknowledge the force of those arguments. I have been obliged to do so on a number of occasions in government, but the solutions, of course, are in our hands, as they were for the Fraser Government which introduced this abomination of a co-operative scheme in 1978; that is, to grasp the nettle of Commonwealth legislation and reliance upon the corporations power and whatever else we can find, and have a properly run-- Senator Chaney —Introduce it with your national land rights legislation. Senator GARETH EVANS —At least there are no compensation payouts to be contemplated in this context, unlike some others of a more delicate kind. I simply repeat that I have always been a vigorous proponent of unilateral Commonwealth legislation in this area. I notice an increasing disposition on the part of the federalist forces opposite to acknowledge the utility of a legislative scheme of that kind. Senator Crichton-Browne —That is not unanimous. Senator GARETH EVANS —It may not be unanimous. I hear a bellow from the outer darkness from Senator Crichton-Browne-- Senator Crichton-Browne —The forces of righteousness. Senator GARETH EVANS —The forces of righteousness still have to overcome a degree of prejudice on this matter, as will others, and make themselves come to appreciate what is for once in the national interest. But that is a debate for another day. I think the issues have been well exposed by Senator Haines and Senator Hill. Turning to the substantive provisions of this legislation, Senator Hill asked whether the Bill would really overcome coercion of small shareholders or whether it was mere rhetoric. I believe, as does the Government, that the Bill is based on a carefully considered set of recommendations by the CSLRC, that it does have broad business support across the spectrum and that the particular package of measures that it deals with will have a useful and perhaps salutary effect in giving some considerable measure of protection to minority shareholders. If one were to adopt the robust view of Senator Hamer that the whole takeover code is too technical and it ought to be scrapped entirely or, I think he said as a sort of lesser option in a slightly less robust mood as his speech wore on, that partial bids raised difficult problems and maybe they should be eliminated altogether. If not scrapped, the takeover code could at least be simplified by cutting a swathe through some of these provisions. I simply make the point that if this were done, big companies would become virtually impregnable to takeover. Often the partial bid is the only thing that can be afforded. I suppose BHP is the best extant example of that. The sum of money involved in a full takeover bid is almost beyond grasp, even it would appear to Mr Holmes a Court, although one can never make assumptions of that kind these days. But clearly it is important in the interests of the efficient functioning of Australian capitalism-to which, of course, the socialist Hawke Government is strongly committed-that we do not have entrenched, inefficient managements. The bleatings of managements-entrenched, inefficient and otherwise-about some aspects of this takeover legislation have been wondrous to behold and certainly not a very edifying spectacle for those of us who want to see a robust, competitive environment in fact as well as name. Coming to the specifics of the substantive provisions, it would appear from the debate here and elsewhere that there is general support for the outlawing of pro rata partial bids in favour of proportional bids, in favour of the abolition of the multiplier and removal of maximum acceptance conditions, and the outlawing of escalation agreements. People might have reservations and concerns about this or that aspect of those provisions, but, by and large, they seem to have general assent. Where there is much less of a measure of agreement is in relation to the so-called shark repellant provisions, enabling a shareholder plebiscite to be written into the articles of association on a 75 per cent majority vote of those present and voting-it being acknowledged that those present and voting, even taking into account proxies and so on, might represent a rather small proportion of the total shareholding of the company. I suspect that is probably the case with Mr Bethwaite's rather deft defensive manoeuvres with North Broken Hill Holdings Ltd recently. There is a concern that provisions of this kind, notwithstanding the hurdles that technically have to be jumped, might be relatively easy to include. They could be used once again to entrench inefficient and weak managements from the chills of a takeover raid. I understand those arguments. They have been strongly put by the stock exchange, not just in the context of this legislation, but over a longer period. There are, of course, counter arguments to the effect that one is, after all, talking about a majority of shareholders taking the decision, and taking it in the knowledge that such a provision may have some depressing effect on the price of the shares in a takeover environment. Arguments can also be made that all that such a plebiscite provision does is give shareholders a further option to consider the desirability of a bid separately from the question of their participation in it, their actual purchase of the shares in question. I thought the arguments were finely balanced. It is probably desirable that this matter be reconsidered after the passage of this legislation. It is simply wildly impractical, as we all know and as, I think, Senator Hill will acknowledge, for this legislative package to, in effect, be shelved or deferred. There cannot even be-the way that the legislation is now written-a proclamation of these provisions in a selective way. It is really a matter of accepting or rejecting the whole package. The atmosphere in the financial market-place is such that it is important, I believe, to put to bed any uncertainty that might exist about pro rata partials being outlawed. It is important that the air be cleared and the ground rules that have been expected to be put in place be put in place, but that will still allow an opportunity for this matter to be reconsidered. I indicate that the Government will accommodate the raising of this matter with the Ministerial Council in the future in order, perhaps, for a more extended consideration of the pros and cons of this so-called shark repellant clause to be made. With those remarks, I commend the Bill to the Senate and hope that we can have a speedy Committee stage of this Bill. Question resolved in the affirmative. Bill read a second time, and passed through its remaining stages without amendment or debate. Debate resumed from 8 May, on motion by Senator Grimes: That the Bill be now read a second time. Senator CHANEY(Western Australia-Leader of the Opposition)(10.21) —I wish to confirm whether the Government intends to have a cognate debate on the Customs Tariff Amendment Bill 1986 and the Bounty and Subsidy Legislation Amendment Bill 1986. Senator Gareth Evans —Yes. Senator CHANEY —These Bills contain a whole series of detailed adjustments to the industry assistance measures which are in place and, as such, represent the most characteristic opportunity this chamber gets to debate industry policy. In a sense, that is a pity because the debate tends to focus on the immediate assistance or adjustments to the assistance being proffered in the legislation. Perhaps there is inadequate emphasis in this chamber and in the House of Representatives on the broader issues which go to the health of manufacturing industry in this country. That matter is of very considerable importance because it seems now to be the common wisdom that we have a very serious problem in the manufacturing industry in Australia. This is an important part of the wider economic problems we face and has led to the very erratic behaviour on the part of the Government over recent weeks: The suggestion that we are approaching banana republic stage; the suggestion that we are about to have the most important economic meeting of a summit-type since the National Economic Summit Conference; the obvious disputation between the Treasurer (Mr Keating) and the Prime Minister (Mr Hawke); and the situation where the Prime Minister is now endeavouring-with more or less success we are yet to know-to put his stamp on leading the Government out of the economic morass into which it has led this country. Manufacturing industry is getting increasing prominence because, as the Government is prone to bleat whenever the economic issues are raised in this chamber or in the House of Representatives, the country has seen a decline in the terms of trade and that means our traditional reliance on mining and primary production looks to be more perilous today than it has been in the past. It is a matter of relatively recent history that we were worrying about the Gregory thesis. We were deeply concerned that our major problem was an overvalued dollar caused by the massive excess of exports over imports. It is a nice reminder of how much fallacy there is in economic predictions that the besetting worry just a few years ago, in particular in the period around 1979 and 1980-that we had a problem of an excess of exports-has faded from everybody's memory. Now the perceived problem is with respect to imports, which will not go away. Our exports cannot pay the import bill, the invisible bill, with which we are now inflicted and there are no obvious ways for reducing our import bill other than by the use of a government-induced recession. All this is very serious stuff because it goes to the standard of living of all Australians and to our capacity to meet many of our national ambitions. I know of no economists who are predicting a significant turnaround in our balance of payments situation, and that may be the greatest cause for optimism that we have. I do not have much sense of optimism when I look at the Government and its apparent incapacity to come to grips with some of the significant basic problems we face, but I am reminded that economic circumstances change and if all economists are predicting the same thing, it is almost certain that the opposite will occur. I can only hope for Australia's sake that we see some easing of the non-domestically inflicted problems that we face. It is no good sitting around waiting for something to turn up. Now that the Minister for Industry, Technology and Commerce (Senator Button) has turned up, we can get on with the debate. The fact of the matter is that, on all the indicators we have at present, Australia has no choice but to look to some restoration of health for its manufacturing industry. If we are to do something about the balance of payments, which is such a significant problem for us now, it is undoubtedly true that the perceived wisdom now is that we have a very great national interest in seeing a better circumstance for our manufacturing industry. In debating the Customs Tariff Amendment Bill and the Bounty and Subsidy Legislation Amendment Bill I want to make the point that the sorts of provisions contained in this legislation are not the major part of any solution to the problem. The major part of any solution to the problem is in providing a general environment for manufacturing in Australia which will give investors confidence that there is a long term future for manufacturing in this country and that new money invested in manufacturing today will show a return which is in some way competitive with the returns which can be obtained by investing in government bonds or in some other apparently safe or completely safe form of investment. It was interesting that the Minister for Industry, Technology and Commerce in Question Time over the past two days, in response to questions about what has impacted upon investment in Australia, suggested that interest rates were the primary cause of the recent decline of investment and listed as his second point the uncertainty about the Australian dollar. Today in Question Time he conceded or agreed that wages were also a significant factor in his equation. It is important that the debate on the future of the manufacturing industry in Australia should be centred not so much on what tariffs we impose to protect Australian manufacturers or what bounties or subsidies we provide in lieu, but rather on the provision of a genuinely competitive environment for Australian industry. Senator Button —Hear, hear! Senator CHANEY —The Minister acknowledges that quite frequently in the speeches he makes, usually more bluntly in the speeches he makes outside the Parliament than the speeches he makes within the Parliament. That acknowledgement is yet to be reflected in any substantial attempts by the Government to come to grips with the problem the Minister diagnoses. The major criticism the Opposition would make of the approach of the Government and the Minister to industry policy is that to some extent it is conducted in an environment which is not particularly favourable to the outcomes the Minister seeks. It is one thing to pursue the general policy of forcing Australian industry to face up to external competition-that is an objective with which the Opposition agrees and on which it has consistently supported the Government when it has introduced measures which have that end in view-but the real difficulty for those who are asked to respond to this new, more competitive environment is that there are so many elements of the Government's policies which diminish the capacity of industry to respond. I refer to the taxation system as one very obvious area of complaint, not least of which is the legislation which has been through the Senate in the past few days of sittings, almost all of which, with the exception of the research and development legislation, has involved additional taxation imposts on industry, including manufacturing industry. Since we are due to adjourn, I will leave my specific comments on the Bills until tomorrow morning. Debate interrupted. The PRESIDENT —Order! It being 10.30 p.m., under sessional order, I put the question: That the Senate do now adjourn. Senator CRICHTON-BROWNE(Western Australia)(10.30) —Earlier in the day I had an opportunity to speak for just a few moments; now that I have a greater opportunity I will take advantage of it. Earlier I spoke of the merits of retaining the exemption on the tax on gold. The volatility of gold prices is certainly a factor which has a greater impact on the gold mining industry than on any other mining industry. The maximum price paid at the Perth Mint for an ounce of gold in 1980 was $752.50. Two years later, in 1982, the minimum price for an ounce of gold had dropped to $291.85. This variability deters both investors and lenders because of the higher risk which it entails. There is very little that the industry can do to insulate itself. Gold producers are price takers and have no control over the price they receive for their product. This means that gold mining companies have no constant stream of revenue upon which they can depend. It also means that they have no ability to pass on any rise in costs. Again, by way of comparison, coal contracts have a base price fixed per tonne with provision for adjustments to be made to this price according to changes in other factors. These other factors may vary between contracts but they might, for example, include a term which allows a price increase, for example, whenever a national wage case grants a wage rise and so on. Gold has no such guarantee of profitability. Facing a price for gold over which they have no control, gold producers must absorb any cost increase by taking it out of profits. This increased risk requires premium returns for people who invest in the industry. Any tax which is imposed on the industry will be like any other costs. It will not be able to be passed on in the price of gold. The traders in Hong Kong, London and New York certainly have no sympathy for the Australian gold mining industry. Any tax will have to be absorbed out of the profits which gold miners and prospectors make. I would like to examine the wastage which may result if a tax is imposed on gold. I have already mentioned how present gold mining companies may be forced to mine only high grade ore in an effort to meet their debt commitments. The imposition of a tax will have an even more marked effect on future mines. Looking at the combined factors of the risk involved in the industry, the inability to pass on cost increases and the difficulties of financing gold mining operations, it becomes obvious that if a tax is introduced on the industry and profits are reduced from what they would be without a tax, exploration will begin to target only on high grade ore bodies. Not only would this be an enormous waste of gold which would otherwise be mined, but also as high grade ore bodies become more and more scarce, so the opportunities for the industry contract. Even now, gold mining is operating on ore qualities which are far less than they were last year. The New Celebration Mine owned by Newmont Holdings at Kalgoorlie operates on an ore grade of only 2.8 grams to the tonne. This project would expect to produce 1,400,000 grams of gold each year which, at a price of $15.90 per gram, would produce $22,260,000 in revenue. This project will employ some 60 people and represents an investment in the range of $10m. This project is going ahead despite its low grade. It may well be that it would never have started had there been a tax on gold and were the profits it could achieve half what they are at present. There are many other gold mining operations which are proceeding under the present tax concession to the industry which may not proceed at all if a tax is imposed. Many operations are working on grades of ore which are extremely poor. I seek leave to incorporate in Hansard a table giving the average grades of ore in the majority of mines in Western Australia. Leave granted. The table read as follows- AUSTRALIAN GOLD MINES 1986 Western Australia Project Company/Companies 1st pour Production (tpa) head grade Max. recovery 1986 output ozs Max. recovery 1st 12 months ozs Bellevue... Queen Margaret Gold Mines, Spargos Exploration May 150,000 at 5.4 g/t 14,664 24,482 Black Flag... Southern Resources 60%, Geometals 15%, Patronaco 25% June 50,000 at 19 g/t 14,356 27,278 Broad Arrow JV... HMC Australasia 70%, Electrum NL 30% January 120,000 at 3.7 g/t 13,006 13,419 Callion Shaft... Lubbock Nominees Pty Ltd, 50%, Thyssen Mining 25%, Metallgessellschaft of Australia Pty Ltd 25% July 100,000 at 7.0 g/t 8,991 21,157 Cave Rocks (oxidised)... Central Kalgoorlie Gold Mines NL June 75,000 at 3.6 g/t 4,083 8,167 Cork Tree Well... Auswhim Resources NL April 275,000 at 3.1 g/t 17,178 25,767 Edwards Find... Mincoa NL December 50,000 at 12.9 g/t 1,624 19,495 Emu... Western Mining Corporation Ltd July 500,000 at 3.6 g/t 22,668 54,405 Far East Porphyry-Mystery North... Windsor Resources NL 54.5%, North Kalgurli Mines Ltd 43%, Dallhold Investments Ltd 2.5% October 250,000 at 3.6 g/t 6,936 27,202 Galtee More... Brunswick NL March 200,000 at 6.6 g/t 29,923 40,000 Gibraltar (Heap Leach)... Lubbock Nominees Pty Ltd 30%, Pan Australian Mining Ltd 40%, Todd Corporation Ltd 30% March 200,000 at 1.8 g/t (70% recovery) 6,199 8,102 Golden Crown... ACM 60%, Austamax 40% May 52,000 at 25 g/t 19,646 39,292 Golden Spec... Mining and Process Engineering Services 70%, Invincible Gold NL 30% July 25,000 at 25-30 g/t 10,249 20,498 Greenfields... Coolgardie Gold NL 50%, Anglo Australian Mining Trust 50% March 250,000 at 1.3 g/t (vat leach) 8,882 10,450 Grosmont... Grants Patch Mining Ltd and United Goldfields Corporation NL February 150,000 at 3 g/t 12,467 13,601 Hopes Hill (Stage 1)... Broken Hill Metals NL 92%, R. Washer 8% April 100,000 at 1-2 g/t (heap leach) 3,200 4,800 Kanowna... Delta Gold NL June 100,000 at 4.1 g/t 6,150 12,300 Katanning... Associated Gold Fields NL 70%, Southwest Gold Mines NI 30% September 90,000 at 3.4 g/t 2,450 9,248 Lady Bountiful... WMC 50%, Consolidated Exploration 50% April 150,000 at 6 g/t 20,385 27,201 Lawlers... Forsayth NL January 220,000 at 4.4 g/t 27,474 29,257 Marvel Loch Regional... Kia Ora Gold Corporation NML August 200,000 at 3.5 g/t 7,193 21,157 Montague... Clackline Refractories Ltd July 100,000 at 6.2 g/t 7,964 18,739 Morning Star Open Cut... Hill 50 Gold Mine February 50,000 at 4 g/t 5,016 6,044 Mt Gibson... Forsayth NL 50%, Reynolds Australia August 450,000 at 3.3 g/t 15,251 44,884 Mikado... Indian Ocean Resources Ltd November 120,000 at 3.3 g/t 385 11,969 Mt Pleasant Phase 1... Southern Resources 30%, Technomin 25%, Square Gold 25%, Mt Pleasant Gold Trust 12.5%, Geometals 7.5% November 555,000 at 5.5 g/t 15,376 92,246 New Celebration... Newmont Holdings 60%, Hampton Australia Ltd 25%, Mt Martin Gold Mines NL 15% November December 500,000 at 2.8 g/t 1,360 42,315 North Morning Star... Metana Minerals December 200,000 at 5 g/t 2,416 30,225 Orion... Western Mining Corporation Ltd January 80,000 at 3.3 g/t 7,580 7,979 Paget... Paget Gold Mining Co. Ltd April 50,000 at 9.9 g/t 11,250 15,000 Patricia... Aztec Exploration 50%, Mitchell Cotts 50% January 130,000 at 4.6 g/t 16,899 18,074 Poona... Poona Emeralds Pty Ltd February 65,000 at 4.6 g/t 7,489 8,987 Sons of Gwalia Tailings... Sons of Gwalia NL and Grants Patch Mining Ltd June 1.2 million at 1.2 g/t 13,505 27,009 6 Mile Hill, Kanowna... Western Mining Corporation November 100,000 at 5.2 g/t 2,671 15,717 Westonia... Australian Consolidated Minerals May 500,000 at 3.5 g/t 26,447 52,894 Youanmi Tailings... Central Murchison Gold Ltd 50%, Private Interests 50% February 170,000 at 1.9 g/t 6,377 7,652 Senator CRICHTON-BROWNE —By way of comparison it is worth looking at the grades of ore which companies mined in the past in order to see how marginal many present gold mining operations in Western Australia are. I have a second table which demonstrates that and I seek leave to incorporate that in Hansard as well. Leave granted. The table read as follows- Table 3.4 PRODUCTION STATISTICS OF MAJOR GOLD DEPOSITS OF WESTERN AUSTRALIA-BASED ON RECORDS OF WESTERN AUSTRALIAN DEPARTMENT OF MINES TO DECEMBER 1975, EXCEPT WHERE OTHER INDICATED Ref. No. Mining centre Main deposit Tonnes ore Kg gold g/tonne Discovered Main producing period 1 Kalgoorlie Golden Mile 94 487 192 1 120 556 11.9 1893 1895-1975 2 - - Mt Charlotte 6 531 976 27 955 4.2 1893 1962-present 3 Leonora Sons of Gwalia 7 254 395 82 025 11.3 1896 1897-1963 4 Norseman Mararoa-Crown 5 187 211 63 431 12.2 *...1892 1897-1919, 1936-present 5 - - Princes Royal 1 395 079 31 380 22.5 *...1892 1897-1910, 1947-1972, 1974-present 6 Wiluna Wiluna 7 810 552 45 657 5.8 1904 1906-1910, 1931-1946 7 Mt Magnet Hill 50 3 219 720 42 174 13.1 1898 1937-1974 8 Day Dawn Great Fingall 1 927 219 38 550 20.0 1891 1897-1918 9 Meekatharra Paddy's Flat 1 726 214 27 890 16.2 1894 1907-1939 10 Big Bell Big Bell 5 094 357 23 077 4.1 1904 1937-1955 11 Bullfinch Copperhead 3 935 524 20 552 5.2 1909 1911-1921, 1952-1963 12 Laverton Lancefield 1 587 706 16 464 10.4 1897 1899-1912, 1914-1928, 1935-1942 * estimates by Central Norseman Gold Corporation N.L. to June 1975 Senator CRICHTON-BROWNE —I emphasise the point once again. With the disadvantages which gold mining companies face and the low grades of ore which are typical of gold mining today, if a tax is imposed there will not be enough return left in many low grade ore bodies for investment to be worthwhile. There is another aspect to the present gold mining industry which relates directly to the fact that Australia exempts gold mining from tax. There is a significant amount of overseas investment in the gold mining industry in Australia rather than in some other country which has gold deposits, simply because Australia does not tax its gold mining industry. In the United States, for example, company tax rates for gold mining are 15 per cent for up to $25,000 and 46 per cent for between $100,000 and $1m. That gives an idea of the levels of taxation that are being levied on gold mining activities in America and the incentive that gold mining companies have to come to Australia. The incentive for investors to choose a country where there is no taxation on gold mining is obvious. The extent of the impact of foreign investment in gold mining in Australia should not be underestimated. In a publication entitled `Foreign Ownership and Control of the Australian Mining Industry' the Australian Bureau of Statistics indicated that in 1982-83, 41.1 per cent of the people employed in the gold mining industry and 41.8 per cent of the wages paid by the industry were attributable to foreign capital. Thus there is a significant amount of the industry which owes its existence to foreign investment. The tax concession gives Australia a certain attractiveness which does not occur in other countries where tax is imposed. If this concession were removed it would put a significant proportion of the industry at risk. Although there is a high proportion of foreign equity in the industry it does not mean that Australia is giving a tax concession to a large number of foreign controlled companies. Despite high levels of foreign investment, rarely does this amount to foreign control. The same publication to which I referred earlier indicated that of the 92 gold mining sites in Australia in 1982-83, only two were actually controlled by overseas interests. If we can attempt to look to the future it is possible to predict that Australia could miss out on significant investment in the gold mining industry from South African interests. There is no need to attempt to explain the turmoil which is presently occurring in South Africa. This unrest is causing many South African people and a great amount of South African capital to flee that country. Much of this money is coming into Australia and as disturbances in South Africa worsen, I believe that this will continue, if not increase. This is because Australia provides a politically stable environment with a well developed infrastructure. In addition it is almost certain that these companies are assessing the tax implications associated with alternative gold producing countries. Typical of this move is that being made by the American company Amax. In the Sydney Morning Herald of 17 February this year it was reported that the company was considering spending 30 per cent of its exploration budget in Australia. The Managing Director of Amax, Mr Born, when commenting about South Africa, said: My problem is trying to find deposits outside a country which I do not want to be in. I do not want to invest in Africa. Another aspect of foreign equity in the Australian gold mining industry is the question of repatriation of profits. If profits are not taxed in Australia there is a strong incentive to retain them here rather than return them to the home country where they will be taxed. Retained profits are frequently reinvested in the industry. If a tax is introduced for gold mining there will not be the same incentive to retain the profits in Australia. What is the end result of these features of the gold mining industry? It is that the introduction of a tax will have an effect way above and beyond that which occurs when any normal industry is taxed. The impact of a tax on gold will be particularly vicious. It will stop industry which otherwise has a great future. It is the net effect of all the factors which I have mentioned which brings me to the final reason why it makes no economic sense to tax the gold mining industry. When an industry is going to be devastated in the way the gold mining industry will be if a tax is introduced, it is necessary to look at the net amount the Government would expect to make by taxing that industry. The Treasury estimates that a tax on the mining of gold will earn the Government initially $90m and ultimately $100m per year. Senator Michael Baume —We wouldn't do that. Senator CRICHTON-BROWNE —No, we certainly would not. We would not have a tax on gold. What is more, if there were a tax I am quite sure we would repeal it. From the Treasury estimate figure must be deducted the extra amounts the Government would have to pay in unemployment benefit and the amount of income tax revenue which the Government will lose when the industry grinds to a halt. The Australian Gold Mining Industry Council estimates that another 8,000 people could be employed in the Australian economy if the tax free status of gold were maintained. Those people would be employed directly in gold mining itself and in all the industries which depend for their incomes on the gold mining industry. These include the farmers who provide the food to the towns, the builders who build the houses and the transport operators who carry the goods to the gold mining towns, and so on. If the tax free status is not maintained this employment will be jeopardised. It is predicted that exploration will decline by 50 per cent on 1985 levels and production ultimately is expected to decline by 20 per cent per annum. When the growth in the industry is replaced with decline, the chance that the predicted increase in employment will actually materialise must be subject to considerable doubt. The Treasury itself must be taken to have cast some doubt on future growth in the gold mining industry after a gold tax is imposed. In the White Paper on the Reform of the Australian Taxation System, the Treasury indicated that it expected that the revenue which would be raised from a tax on gold would be $90m in the second year of taxation and then $100m for each of the third, fourth and fifth years of taxation. If the Treasury expected that the gold mining industry would maintain the spectacular growth of recent years, one might have expected it to predict a rising stream of $100m. Perhaps even the Treasury is pessimistic about the future of the industry after a tax has been imposed. If growth in the industry is stopped we must look at what the Government will actually raise by imposing a tax on gold. In so doing, I wish to dispel the notion that the gold mining industry contributes nothing to tax revenues. The gold mining industry, by employing many people, using many goods and services resulting in the building of many buildings, contributes to income tax revenues, sales tax revenues and local council revenues. If growth is stopped and the 8,000 people which the Australian Gold Mining Industry Council expects to be employed in gold mining and associated support industries are not employed, significant tax revenue will be lost. A person on average weekly earnings is already paying around $96 per week in income tax. Allowing for some tax deductions and sales taxes it is reasonable to assume that a person on average weekly earnings is paying $100 per week in various forms of taxes. Thus, if growth in the industry is stopped, and the predicted 8,000 people who would otherwise have been employed are not employed, that will represent a loss in tax revenue, in my view at least-in my modest calculations-of $41,600,000, if each of the 8,000 people were on average weekly earnings. If we assume that on average those people are married with one child, the Commonwealth will be liable to pay $186.30 per week in unemployment benefit. Over a year, for those 8,000 people, this involves an expenditure of $77m. I am not assuming that those 8,000 people will become automatically unemployed. On the present level of unemployment-it was 7.9 per cent in the April quarter-one cannot be optimistic that there will not be dislocation and that in due course those people will find themselves unemployed. Senator Gareth Evans —No one will read this. Senator CRICHTON-BROWNE —I say to Senator Gareth Evans that it becomes apparent that the Commonwealth would actually lose by imposing such a tax. It is possible that the imposition of any tax will so kill incentive that it will result in less revenue being raised. If income taxes were raised to 95 per cent, for instance, probably so few people would bother to work that less revenue would be raised. Just where this borderline is varies with each industry. For the reasons which I have stated, I believe that in the case of gold mining the point is very low. There are aspects of the gold mining industry which make it particularly sensitive to taxation. I have attempted to express some of these aspects. The Government should consider this fact and reject any proposal to introduce a tax on the gold mining industry. If the Government does this the industry will continue to grow in the fashion in which it has grown over the last several years. If it does not it may well be responsible for bringing stagnation and decline to one of Australia's most vibrant and exciting industries. Senator MICHAEL BAUME(New South Wales)(10.45) —Tonight I want to refer briefly to a matter that I raised first on the adjournment on 5 December last relating to strokes and the death rate in Australia as a result of strokes, the third highest killer in Australia after heart attacks and cancer. I point out that if Australia could reduce its incidence of stroke per thousand head of population to the level that exists in America-that is, reduce it from 2.02 per thousand to 1.4 per thousand-it would not only of course save many thousands of lives but also save the Government something like $500m a year in the costs of caring for the survivors of stroke, because something like one-third of people who suffer a stroke do survive and need care of various kinds. Many are hospitalised and many end up with residual handicaps requiring some degree of care, while of course many have to spend time in some other kind of institution. At the moment there are something like 180,000 stroke victims in Australia. I rise tonight to commend the Government, because, since I spoke on this matter last December, the Government has now made permanent the once-off funding of about $70,000 it provided last year to the Brain Foundation of Australia, which is concerned with this matter. Instead of that being a once-off grant, the Government has now provided $70,000 per annum, indexed for five years. To a large extent this is being spent in Queensland on a program which involves testing of blood pressure as a preventive medicine prospect. I am glad that my cousin, Senator Peter Baume, who is a physician with some knowledge in this matter, is here. This program, which is a trial program in Queensland, involves blood pressure testing at the work place. I commend the Government for supporting the Brain Foundation in this first rate operation. However, the Government having taken this initial step, may I encourage it to add strokes to the nine priorities that the Government presently has in respect of funding for national health and medical research. I understand that at present it gives a priority to the following nine items: Addictive behaviour, obviously relating to drugs, aging, alcohol abuse, rehabilitation medicine, Aboriginal health, environmental toxicology-which I presume means pollution of one kind or another, but environmental toxicology sounds like good bureaucratese for it-health evaluation, public health, and acquired immune deficiency syndrome. Obviously those nine items are matters of great significance, but I suggest that, apart from the humanitarian problems involved in the incidence of strokes, in view of the enormous cost of strokes to the community-as I said, it is the third largest cause of death in Australia, after heart attack and cancer-there is some enormous merit in including research into strokes on the list. At the moment it is included to the extent only of the aging item, but in fact something like a quarter of stroke victims are under 65 years of age, so it is not necessarily appropriate to include strokes in the aging category and to depend on that for adequate funding of strokes. I now want very briefly to refer to a matter that was raised in the Senate today by Senator Walsh. He claimed that about half the examples of waste that the Waste Watch Committee had pointed out related to matters under the previous Government's jurisdiction. I simply say that Senator Walsh is hoping that, like Goebbels, by repeating a lie long enough and often enough it will become accepted as being the truth. No matter how often Senator Walsh repeats this nonsense it is simply not true. Not one of the grants under the enormous range of programs that the Waste Watch Committee has pointed out was ever made by the Fraser Government. If Senator Walsh is saying that some of the programs under which these grants were made by the Labor Government were introduced by the Fraser Government he is right. But, of course, he is just as right as anyone who would say that it is a disgrace that the Curtin Government introduced a taxation system which took away the rights of the States to impose income tax and that our present taxation ills and the absurd rates being charged at the moment are all the fault of the Curtin Government. Now that is absolute arrant nonsense just as, of course, it is nonsense for a coalition government to be either credited with or blamed for all the present social security arrangements even though coalition governments introduced the great bulk-in fact almost all the social security benefits-that presently exist. It is deceptive nonsense for anyone to assume from the fact that a program was introduced by someone that everything that then happens under that program is the responsibility of that government. I repeat: Not one of these absurd wasteful grants which embarrassed the Minister for Finance because he was not sufficiently competent to prevent them being made was made by the Fraser Government. In fact, the first of the grants to which we drew attention was not made until the second half of 1983-something like four or five months after the Fraser Government was defeated. The great bulk of the grants to which we have drawn attention took place well over a year after the defeat of the Fraser Government; this applies even on those programs which had been introduced by the Fraser Government. I simply say that I am overjoyed to see that Senator Walsh is so determined to go to even these extraordinary lengths, these deceptive lengths, to try to diminish the impact of the Waste Watch Committee because it shows how we are dramatising to the Government what it has done wrong and how the Australian people will not be deceived by the sort of mendacious nonsense coming from Senator Walsh on this matter. Senator WATSON(Tasmania)(10.53) —The United Nations Educational, Scientific and Cultural Organisation has come under severe criticism in recent years. Two of the heavyweights of world politics, Britain and the United States of America, have both been highly critical of this organisation and what is seen to be a lack of proper direction. In fact, the United States House of Representatives produced a very damaging report several years ago which summarised what it believed to be its major problems. The American decision on funding has highlighted some very real problems of UNESCO which are yet to be properly corrected. In fact, not all is well with UNESCO. It has strayed from the ideals upon which it was funded. These ideals were the exchange and broadening of education and culture throughout the world and the spread of scientific knowledge. For example, it has in the past been recognised for its gallant fight against illiteracy. Unfortunately, at present UNESCO does not have the same significance or standing as it had several years ago. Its impact has been severely diminished. One of the criticisms is that the organisation nowadays has become far too political and that it has politicised many of the issues which should, by definition, remain outside its boundaries. Many of these initiatives, of course, have nothing to do with the organisation's roles. It has also been charged with becoming inefficient and non-objective. Its headquarters are situated in Paris, where 70 per cent of its entire staff is now located. Only 30 per cent are in the field. This surely is an indictment in itself. UNESCO must diminish the weight of its bureaucratic machine. Staff morale is another thing to suffer under the present set-up. According to a UNESCO Staff Association poll in 1983, only 13 per cent of 1,100 staff responding believed that their employer allowed them to participate satisfactorily in the management of the organisation. A major criticism levelled at UNESCO, one which is particularly damning, is that the organisation tried to interfere with the freedom of the Press some years ago. It tried to establish a system whereby journalists all over the world had to be licensed. It sought to impose government control on media content. This is quite beyond the realms of its normal jurisdiction and totally intolerable from an organisation with such goals. Clearly, corrective action is needed to bring UNESCO back into its proper role. UNESCO must put its house in order. With staff costs accounting for something like 60 per cent of its total expenditure, this organisation must recognise and redefine its priorities. It must have good budgetary control and, most importantly, it must fill staff vacancies with the most capable people, not necessarily with people of a similar political mind. Senator WALTERS(Tasmania)(10.56) —I will not detain the chamber for more than a couple of minutes. I would just like to read into Hansard a letter I received today. It was addressed `To whom it may concern'. It is from the women and mothers of Canberra and starts by quoting Mr Hawke: We want to give women the opportunity to make a full contribution to Australia's development, whether they work in the home, in the paid workforce or in any other aspect of life. We want to give women a choice, we want to give women a say, and we want to give women a fair go. R. J. Hawke National Agenda for Women Office of the Status of Women. The letter goes on: We who are opposed to have family allowances paid at a flat rate, are coming to believe that these are empty statements. We who have made a choice to make motherhood a full-time career and therefore rely upon income derived through family allowance and the constantly threatened dependent spouse rebate, are feeling as though the present Government rather than making this choice a realistic one, are trying to reduce or remove it. As the real value of family allowances are eaten away constantly by rapidly escalating prices, many single income families in which a woman has exercised this right to choose to remain outside the paid workforce, are struggling to maintain adequate standards of living. And this same Government who claim that they want to give women a choice, a say, and a fair go are considering further reductions to the income available to ourselves and our families which make the choice they claim a strong commitment to, a viable one. Does the Government mean to imply that mothers who despite financial sacrifice are still committed to the full-time care of their families, are not considered to be women and thus deserving of a choice? Is the Government by its own actions more strongly committed to the family with one child and both parents working? After recent threats to our family budgets, does the Government still expect us to believe that they have any real intention of giving women outside the paid workforce any form of choice whatsoever? The Government has illustrated its support for women in the paid workforce through The Office of the Status of Women, Affirmative Action Policy, C.E.S. training schemes for women re-entering the workforce, child care and the like. We demand that it also recognise our right to make our choice not only by easily made statements in the National Agenda, but by actions. It is time that the Government demonstrated a real commitment to the families of Australia. It is time to prove to all families that they are considered to be a valuable asset and worthy of real support. It is time to prove to mothers working in the home that their freedom of choice will not be threatened by economic bullying at budget time. We demand a definite commitment from the present Government to maintain the dependent spouse rebate, to maintain eroded family allowance payments at their present value, and rather than making empty statements to women in the home to channel their energies into the indexation of family allowances. Give us a real choice, a real say, a real fair go!! I give every support to the women and mothers of Canberra who have taken the trouble to express what so many people in Australia feel, not only women but also families as a whole, including the husbands. This Government has no idea of true equality. At every Budget it threatens the dependent spouse rebate and the family allowance. The women of Australia, the mothers who are choosing to stay at home and look after their children, object very strongly to this very great threat. Senator GARETH EVANS(Victoria-Minister for Resources and Energy)(11.01) — Senator Crichton-Browne left us in no doubt where he stood on the gold tax, but he could perhaps have spared us some of the detail, given the lateness of the hour and the existence of festivities proceeding elsewhere. He might have followed the example tonight and indeed tomorrow night of Calvin Coolidge-I think it was Calvin Coolidge; undoubtedly Barry Jones will correct me if it was not-who, on one famous occasion when asked what the sermon he had just attended was about, said: `Sin'. When he was asked what the preacher had said about sin, Coolidge replied he was against it. I commend that precedent to Senator Crichton-Browne. Senator Michael Baume talked about 180,000 stroke victims. I think there was a danger of there being 180,001 if he kept going any longer tonight. Mr President, you maintained your forebearance admirably. We are indebted to you in the Senate for that. From Senator Watson we had a familiar litany of complaints about the United Nations Educational, Scientific and Cultural Organisation which seems to have become a kind of article of tory faith to espouse. I suppose Senator Walters cannot be blamed for wanting her ten inches worth in Hansard, but I only wish it had not been tonight. As to the last contribution, I only hope that the women and mothers of Canberra are happy with Senator Walters as their champion. Others might have some reservations, but this is not the time to be churlish enough to express them. Question resolved in the affirmative. Senate adjourned at 11.02 p.m. The following papers were tabled: Fisheries Act- Fisheries Notice No. 161-Equipment for taking prawns, dated 9 May 1986. Plan of Management No. 7-Northern Prawn Fishery Management Plan (Amendment), together with explanatory statement. Land Acquisition Act-Statement by the Minister describing land acquired by agreement under sub-section 7 (1) of the Act, for specified public purposes. Public Service Act-Determination 1986 Nos 30, 31, 40. The following answers to questions were circulated: (Question No. 928) Senator Short asked the Minister representing the Minister for Employment and Industrial Relations, upon notice, on 18 February 1986: (1) What funds have been received by each of the following groups under the Community Employment Program: (a) The Trans National Corporation; (b) The Transnational Research Corporation; (c) Asia Workers Links; (d) Workers Health Centres; (e) Labor Resources Centre; (f) Trade Union Training Authority; (g) The Western Regions Development Committee, and specifically the Western Suburbs Enterprise Planning Project; (h) The Trust for Conservation Volunteers; (i) The Australian Teachers Federation; (j) The Centre for Education and Research into Environmental Strategies; (k) The Trade Unions Migrant Workers Centre; (l) The Working Womens Centre of the Australian Council of Trade Unions; (m) The North Eastern Region Economic Development and Employment Network; (n) Amalgamated Metal Workers Union; and (o) Building Workers Industrial Union. (2) To whom have the grants been made. (3) What was the purpose of the grants. Senator Walsh —The Minister for Employment and Industrial Relations has provided the following answer to the honourable senator's question: (1) and (3) Funding provided under the CEP is recorded on the Department of Employment and Industrial Relations (DEIR) database as funds approved, rather than funds received. The amounts listed below therefore refer to approved funds. The State Government Departments which administer the CEP jointly with DEIR are responsible for making payments to project sponsors and monitoring the expenditure of project funds. The purpose of the grants is shown below. In some instances, the organisations named in the honourable senator's question could not be identified on the database from the title provided. ``No record'' is noted under the names of these organisations. If the honourable senator wishes to provide more information, a further search will be undertaken. (a) One application has been received but no funds have been approved to date. (b) No record. (c) $69,161 for a statewide project in Victoria to set up an information bureau, training and education. (d) $83,867 to provide resources and multi-lingual materials for the effective training of community groups on occupational health, $36,056 for the processing and conservation of data; coding and entering occupational health data to compile a record of health statistics. (e) No record. (f) No record. (g) No record. (h) $242,621 for a regional development and enhancement project, $634,905 for a field training project in forestry and plantation, $500,375 for a community development conservation project. (i) $8,354 for a project to train a junior clerical assistant. (j) $125,424 for the Brunswick recycling project, $195,638 for a community education and works skills training project. (k) No record. (l) The Working Womens Centre Incorporated had funding of $36,040 approved for a project providing assistance to victims of sexual harassment, $49,374 to fund a project development officer, to contact organisations, and disseminate information. (m) No record. (n) The Amalgamated Metals Foundry and Shipwrights Union had funding of $44,922 approved for a project to co-ordinate and develop other job creation projects for unemployed union members. (o) $88,464 for a housing industry research project, $14,300 to the New South Wales Branch for a migrant education awareness service, including interpreter services and multicultural development, $23,293 to the New South Wales Branch for a survey of the housing needs of single aged persons. (2) In all cases, grants have been made directly to the listed sponsoring bodies. (Question No. 994) Senator Lewis asked the Minister representing the Minister for Territories, upon notice, on 19 March 1986: (1) Will the Minister for Territories table the documents which called for and outlined the conditions of the tender in view of the Government's declaration that the sale of the Belconnen Mall was all above board. (2) Will the Minister also state how many different tenderers there were, how many different tenders were received and how many tenders were conforming and how many were non-conforming. Senator Gietzelt —The following response has been provided to the honourable senator's question: (1) The tender documents associated with the sale of the Belconnen Mall are considered to be commercially confidential and will not be made public. However, officers from the Department of Territories can be made available for a briefing with the Senator. (2) Five tenderers lodged seven tenders for the purchase of the Mall. Four were conforming tenders and three were non-conforming tenders. (Question No. 1019) Senator Crichton-Browne asked the Minister representing the Minister for Defence, upon notice, on 14 April 1986: (1) What was the total number of officers to retire from each arm of the Armed Forces (a) during the last 12 months; and (b) during the last 5 years. (2) What is the average length of service for those officers who have retired from each arm of the Armed Forces (a) in the last 12 months; and (b) in the last 5 years. (3) What is the average cost of each of the services to train an officer for the time given in answer to question (2) (a). (4) Which forms of employment are the most common amongst those officers who retire from each of the services. (5) What is the average rate of pay received by officers who have retired from the Armed Forces at the time of retirement (a) over the last 12 months and (b) over the last 5 years, in 1986 prices. Senator Gareth Evans —The Minister for Defence has provided the following answer to the honourable senator's question: Retirement is the term applied to officers who have achieved statutory maximum age for rank or, in a limited number of cases as a result of medical disability. The retirement figures requested are as follows: (1) The total number of officers to retire from each arm of the Armed Forces (a) during the last 12 months from 31 Mar 86, and, (b) the last five years were: RAN ARA RAAF (a)... 8 28 24 (b)... 37 113 87 (2) The average length of service for those officers who retired from each arm of the Armed Forces (a) during the last 12 months, and (b) during the last five years was: RAN ARA RAAF (a)... 24.7 21.43 23.06 (b)... 26.08 22.13 23.83 (3) The average cost for each of the Services to train an officer for the above lengths of service is not quantifiable without accessing each individual officer's service record. This would entail an extensive effort which is not considered justifiable within current staff resources. (4) The most common forms of employment of officers who have retired, in order are: RAN ARA RAAF (a) Executive (Seaman/ Aviation Arms Corps Supply (b) Engineer Logistics Engineer (c) Supply Engineer Administrative (5) The average rate of pay received at the time of retirement (a) during the last 12 months, and (b) during the last five years at 1986 prices was: RAN ARA RAAF $ $ $ (a)... 41,470 41,537 43,968 (b)... 43,413 39,455 39,456 Senator Button —On 8 May 1986 (Hansard, page 2635), Senator Vanstone asked me in my capacity representing the Prime Minister a question without notice concerning the promotion of Priority One: Young Australia. I undertook to check the details of what had happened. The Prime Minister has supplied the following answer to the honourable senator's question: In the debate on Priority One in October 1985, the Minister for Sport, Recreation and Tourism was referring to full page press advertisements on Priority One: Young Australia which the Department of Sport, Recreation and Tourism had funded. The audience for these was not only young people but the public at large including employers, unions, parents and so on. The item under consideration in the Senate Estimates Committee was the $2m allocation to the Department of the Prime Minister and Cabinet to continue the on-going Priority One promotion campaign commenced by the Department of Sport, Recreation and Tourism, to conduct the consultation with your people and to provide for follow-up activities. The press advertisements placed under this allocation were directed to young people and related to the phone-in consultation.