Canberra — Tax avoidance has suddenly exploded into one of the hottest political issues in Australia and put the Liberal-National Party government in a most unwelcome spotlight.
Recent developments have forced Prime Minister Malcolm Fraser to defer and possibly abandon his plans to hold an early election.
Mr. Fraser was eager to hold an election this year, before voters have a chance to become truly angry at rising unemployment and inflation. (An election is not required until November 1983.)
With elections in mind, the prime minister produced a budget several weeks ago that would appeal to middle-class voters. It contained income-tax cuts and increased family allowances.
But a recently released report on tax avoidance may be throwing Mr. Fraser's plans to the winds. The report, commissioned by the government, says tax evasion has amounted to billions of dollars in recent years, and it criticizes the Fraser government for failing to prosecute the crimes.
As a result of the report, three senior bureaucrats have been charged under the Public Service Act with failing to fulfill their duties. There have been public calls, echoed by most newspapers, for the federal attorney-general to resign: His department lost track of prosecutions the tax department wanted to launch years ago to stem the tax-avoidance ''industry.''
The particular tax-avoidance scheme that caused the uproar is known as the ''bottom of the harbor'' plan. Essentially, it involved the sale of companies for inflated prices; the buyers would then strip the companies of their assets and dispose of company records at the bottom of Sydney Harbor.
This type of operation has existed for about 10 years, and for at least eight years the federal taxation office has been anxious to prosecute their promoters. Two years ago the government passed a special crime act to penalize future promoters, claiming then that it did not have the power to deal with the avoiders under the law as it then stood.
That claim has now been disputed by an official inquiry established by the government, as well as by state government legal experts.
Ironically, the inquiry was established by the Fraser government to try to embarrass the Labor opposition. The inquiry, in the form of a royal commission, was supposed to be into the activities of the Ship Painters and Dockers Union, a trade union active, as its name suggests, on the waterfront.
The union has been notorious for years for its gangland associations.
The prime minister hoped to paint the Labor Party with the same brush, as the union is affiliated with the Labor Party in three states.
The royal commissioner, a leading legal figure in Melbourne, Francis Costigan , QC, has reported the union in Victoria is under the control of hardened criminals. He said there had been some 15 murders involving the union in the 1970s, including four in 1979.
Mr. Costigan said, ''Their answer to any interference with their activities is not to use the processes of the law but rather threats, violence, and intimidation.''
It was while Costigan was investigating the union's illegal activities that he came across a link with illegal tax dealings. He then obtained permission from the federal government to broaden his inquiry.
A newspaper report which the prime minister has indirectly confirmed suggests that the reports deal with police corruption in Victoria, with associations between the union and prostitution rackets and drug running, with the involvement of prominent Sydney and Melbourne businessmen in drugs and other criminal activities, and with the revelation of more murders associated with the union.
The published report provided sufficient political dynamite to turn attention away from the union and onto the federal government's bureaucracy.
However, the allegations have gone wider than the public service. The Labor Party has alleged in Parliament that a series of officials of the Liberal Party, particularly in Western Australia, have been actively involved in the ''bottom of the harbor'' schemes.