With controversy attracted by the limited retrospectivity of the Curran amendments, Howard adopts early announcement procedures for tackling emerging tax schemes.
Chapter 11 referred to the controversy, particularly within government party ranks, generated by the April 1978 decision to backdate the Curran remedial measures to August 1977.
Perhaps feeling the heat directed at him, Howard, on the morning of 11 April 1978, indicated that he would consider a general practice of pre-introduction announcement of remedial (anti-avoidance) legislation. He had just done this in relation to current year losses on 7 April.93
O'Reilly responded later in the day with a minute94 which offered some caution to Howard:
You mentioned to Mr Boucher this morning that you would like to give consideration to the adoption of a practice whereby, as tax avoidance schemes come to the surface, you would make an announcement foreshadowing remedial legislation which, when enacted, would apply from the date of the announcement. In this context, you have asked to have today a list of known, currently employed, schemes in respect of which early legislation might be envisaged. I understand that you would like to have a discussion on the subject and the following comments have been prepared for that purpose.
2. I had planned, as soon as things had settled down following the introduction of last Friday's Bill, to consult with my officers on the spot in the States as to the matters that might form the basis of another programme of anti-avoidance legislation. What I am writing at the moment has been hastily prepared and I would like to have an opportunity to review it when this process has been completed.
3. I feel that I must temper with some words of caution the natural enthusiasm that we all share for taking the earliest practicable action against tax avoidance by, for example, the "early announcement" practice you have mentioned. Specific points are:
- While the Taxation Office may get to hear that a particular scheme is being put into practice, it takes considerable time and effort to find out details of the scheme (and variants of it) sufficient to define an appropriate amendment and to secure ministerial acceptance of it.
- Just as some people take a stand of principle against retrospectivity, so there are those who are critical of "legislation by announcement".
- Announcements of planned tax legislation are sometimes claimed to inhibit ordinary commercial arrangements, by leaving people in a state of uncertainty.
- We are spread very thinly with officers who have the necessary background and aptitude to develop anti-avoidance and other tax legislation. Any attempt to take on too much at any one time can be counter-productive. Without being exhaustive, legislation officers now have on their plate -
- work associated with explanation and defence of the Bill just introduced;
- preparation of guidance for officers in the field as to the interpretation and application of this and earlier legislation;
- legislation/Cabinet Submission work;
- current year losses
- branch profits tax
- resource tax
- foreign tax credit system
- shifting of profits from Australia
- foreign trusts for Australians
- review of investment allowance cut-off of dates
- 2-year write-off of film costs
- health insurance levy matters
- abolition of estate duty and gift duty
- review of law relating to employee share acquisition schemes
- service by post of taxation summonses.
- A (lagging) program of double taxation agreement negotiations and associated work
- Continuing preparation of draft Ministerial replies on policy questions and other policy advice.
An announcement of intention is often found, as drafting of legislation proceeds, to have been deficient in one way or another.
An outline followed of four matters that could be considered for early announcement: a foreign tax credit system, shifting of profits from Australia, foreign trusts for Australians, prepaid interest, rent etc, schemes and trust income distributions. The minute concluded by listing 16 areas of avoidance/evasion that 'sooner or later will have to be looked at'.
The post-Curran amendment furore came up in Cabinet on 17 April 1978 when, 'without submission', Cabinet reaffirmed the decision on retrospectivity which was reflected in the Bill introduced on 7 April.95
Also 'without submission', but as the decision notes, after oral proposals had been put by the Treasurer, and again on 17 April 1978, Cabinet Decision No. 5124 took an important stand on the future handling of tax avoidance schemes. In each case, the Treasurer would obtain Cabinet agreement to close off individual schemes. But as sufficient evidence emerged (and after Cabinet agreed) the Treasurer would make an announcement detailing the scheme and foreshadowing remedial legislation, such legislation 'to operate with effect from the date of the announcement to introduce the legislation'. The Treasurer was authorised to take public opportunities 'to publicise this change in procedures, especially the change in the date of effect'.
The next day, in an address to the Melbourne Chamber of Commerce, the Treasurer strongly justified the government's Curran decision, saying 'it is one to which the Government will firmly adhere'. He announced its decisions about the date of effect of anti-avoidance legislation:
The Government is firmly committed to curbing tax avoidance schemes.
Let me be specific as to the nature of our commitment.
The Tax Office has been requested to maintain a close and continuous watch for all types of tax evasion and avoidance.
The general approach of the Government will be that as sufficient evidence emerges of a particular scheme of avoidance the Government will make an announcement detailing the scheme and foreshadowing its intention to legislate against it.
Such legislation when introduced will operate from the date of the announcement to introduce the legislation.
Priority will be given to the speedy introduction of such legislation.
This will be a continuous process and essential in view of our dedication to the cause of tax reform.
Thus the government, through Treasurer Howard, adopted a policy which - with Treasurer Lynch at the helm - it had declined to follow just a few months earlier, concerning the Curran and other measures proposed in Submission 1550. If the policy had been adopted at the earlier date, the government would not have had to endure the travails it did in relation to the Curran measures. Still, the immensity of the revenue challenge which Curran schemes posed was not known to ministers earlier. It was later revealed that the size of that challenge was even larger than it appeared in April 1978.96
But now it was mid-April. Just a few days later, things hotted up and it became even clearer that tax avoidance schemes were to be tackled at the earliest opportunity.
Sections within Chapters 21-30
Last Modified: Wednesday, 16 June 2010