Australia debating tax plan that would include capital gains

As is the United States, Australia is tinkering with its tax system. The government introduced a package last month that features capital-gains provisions, higher taxes on business and lower ones on personal income, and a squeeze on fringe benefits and entertainment allowances.

It's the largest set of tax law changes ever introduced in Australia and carries with it the risk of a substantial loss in popular support for the Labor government. The package follows nine months of agonizing by the government over tax proposals and a series of defeats of options favored by Prime Minister Bob Hawke and Treasurer Paul Keating.

Several months ago the government sponsored a tax summit meeting, attended by more than 100 business, professional, trade union, and welfare group leaders, which rejected government proposals for a broadly based consumption tax.

Instead, the government has decided to restructure personal income tax scales and crack down on loopholes. One means is a national identity card for individuals and corporations, to be used in employment, tax, and financial transactions.

Another is abolition of business-paid lunches; entertainment expenses are immediately disallowed under the plan.

The proposals had to survive a three-day review by the 27-member Labor Ministry and then a two-day mauling by the Labor caucus in the federal Parliament.

Their eventual adoption, however, depends on what happens when they reach the Australian Senate, where the governing Labor Party is in a minority.

The Australian Democrats, who hold the balance of power in the Senate, have indicated general sympathy with tax reform, but they have not committed themselves to supporting all the measures proposed by Treasurer Keating.

The package's most sensitive political part is introduction of a capital-gains tax. Over the past few weeks the proposal has been watered down to exempt the family home and motorcars, and the tax has also been indexed against inflation.

It is to apply only to assets purchased from the date of the treasurer's announcement, and then only when an asset is sold or given away.

Businessmen have to face increased costs through the loss of business deductions, but personal rates of income tax will fall substantially for those with high incomes. The highest marginal tax rate, at present 60 percent for incomes over $35,000 (Australian; about US$24,640), will fall to 49 percent. Mr. Keating says tax cuts would cost far more than the revenue to be raised by his proposals and public spending would have to be reduced. He says the reforms would make ``a whole host of tax avoidanc e devices futile.''

The government is hoping economic growth and tax cuts, which would not take full effect until 1987, will help boost its popularity before the next election in early '88.