Tony Windsor (New England, Independent) Share this | Hansard source

I rise to support the Tax Laws Amendment (Personal Tax Reduction and Improved Depreciation Arrangements) Bill 2006 that is before the parliament. Many people in the electorate of New England—and, I am sure, in other electorates as well—would have been prepared to have given up some degree of tax relief for greater spending in the health area. Many surveys have been conducted which would suggest that people are crying out for better delivery of health services—and I am fully aware that a lot of those services are through the state governments. I do not want to enter into that debate, but I want to put on record the fact that, in my electorate particularly, people have raised that issue—that, if a surplus is left over after the legitimate costs of government, some of that money at least should be delivered into the health system, particularly for the training of professionals and obviously for capital facilities.

This debate gives me the opportunity to talk about a number of tax issues, some of which are currently being deliberated on by members of the government. I am pleased again to see the Parliamentary Secretary to the Prime Minister, Malcolm Turnbull, at the table. He may well be subjected to something that he has heard before. I have to reinforce some of the issues I have raised before, because there does not seem to be any action at this time. But I am extremely confident that, with his support and recognition of these worthy issues, something will be done. I, of course, refer to the taxation treatment of the compensation/adjustment processes. As an aside, I was interested the other day that the Prime Minister referred to an adjustment package for the people of Beaconsfield. From memory, it was $8 million. The parliamentary secretary or the minister might discuss that briefly at the end of the debate. I am interested in how that money would be expended and how the taxation treatment of that expenditure would be judged by the Australian Taxation Office.

The major issue I would like to raise relates to a number of areas of income tax policy and to the personal taxation matters of particular individuals. The best, but not the only, example I can find is the treatment of compensation/adjustment moneys to people who have lost their water entitlements in a voluntary sense—although extreme pressures were applied—across a number of ground-water systems in New South Wales. Six valleys across New South Wales are taking a reduction in their water entitlements so that sustainability of the resource can be gained in the future. I am sure that most people, even though it creates a deal of hardship for those individuals, would recognise that what they are doing is for the public and environmental good and that it is for the sustainability of a resource—in this case, water.

In that situation, the New South Wales government, the Commonwealth government and the irrigators or entitlement holders themselves agreed to a compensation package of $150 million. It was a three-way package. The state would put in $50 million, the Commonwealth would put in $50 million and the irrigators would put in $50 million in kind. Bear in mind that the irrigators were giving up a lot more than what this package was about—but it was about the total sum of money that they could garner from the governments.

At the time that package was agreed to, no-one told the water entitlement holders that the Australian Tax Office would judge those payments of compensation for the loss of a capital asset as income and that they would have to pay personal tax in the year of receipt of those funds. Prior to that, accountants had been treating the payments as capital. There was no doubt in their minds and in the minds of many others—and I think also in the minds of many others within government who were wrestling with this particular problem—that the loss of a capital asset should be seen as an entitlement to be treated under the capital gains taxation umbrella and not under the income tax umbrella.

I have raised this issue with the Prime Minister on a number of occasions. To give him credit, the Prime Minister on those occasions has responded, twice in writing, to the issue that others and I have raised. He has said that, as far as the government and the tax office are concerned, compensation payments to water entitlement holders are not treated as capital loss but as income, because these people are not exiting the industry. The Prime Minister quoted a couple of examples—the dairy industry and the sugar industry—where essentially exit packages which have been put in place would be taxed under the capital gains umbrella but not under the income tax umbrella. By saying that, he was implying that these were different arrangements and you could not compare the two systems—one was for exit and the other was for a reduction in entitlement—even though some of these people are losing nearly all of their entitlement and will have to exit the irrigation industry, even though they may well remain farmers.

However, the issue goes further than that. Currently, there is another assistance package available to those in my electorate and also in the electorate of the member for Gwydir, and I have been in contact with some of these people. It is the Brigalow assistance fund. This fund was put together by the New South Wales government to assist people to adjust to sustainability of the timber resource in the Pilliga scrub and in connection with the Brigalow timber asset. I might read from the deed of release and indemnity with which this package has come forward. However, essentially this package is to do the same thing, which is ‘to reduce a resource to a sustainable level’, and a package to compensate those people has been put in place. Bear in mind that the Prime Minister has said on a couple of occasions now that reduction in entitlement is treated as income and exit is treated as capital.

Clause 3 of the deed of release and indemnity of the Brigalow assistance fund says that the fund is to ‘provide assistance to individual businesses that have decided to exit the timber industry as a result of the creation of the community conservation area’—which has been created in the Brigalow area in the electorates of New England and Gwydir. There is advice also that the tax office is treating as income those payments to those people to exit that industry for good sustainable and environmental reasons. That creates a degree of inconsistency of interpretation.

We have a number of issues. We have water entitlement reductions being treated as income, timber exit being treated as income, dairy exit being treated as capital and sugar exit being treated as capital. Then, only last week, the Australian Taxation Office came out with a ruling on the fishing industry for where there is a reduction in the catch—similar to these other issues—to gain sustainability of the resource for all these very good reasons. Lo and behold, that particular adjustment package will be treated as capital. So here again we get constant confusion. The only consistent part of these arrangements is the inconsistency of interpretation.

I recognise that this is a difficult issue for the government and that it is trying to come to grips with it—and I compliment it for that. But, with 30 June racing upon us, this has to be rectified within the next month so that accountants et cetera can have a consistent interpretation regarding the way these matters are treated.

There is another issue within the Namoi ground water precinct, where government money was granted to a number of irrigators. To start with, I think it came through the Namoi Valley adjustment process and eventually, to the best of my knowledge, it was subsumed into the Regional Partnerships arrangements. A number of irrigators received funds to put in a channel to alleviate the very same problem. There had been an overallocation of water and sustainability had to be arrived at. The approach of sustainability would mean a considerable loss of income-earning capacity. Therefore, the government assisted some of those people to channel water into what was called a hot spot so that the diminishment of their income-earning capacity could be alleviated. I am told—and I inquired into this under freedom of information—that the receipt of that grant of moneys was tax free, and no-one has suggested anything to the contrary. It is another degree of inconsistency—government money being treated in three different ways. In fact, I am told, in the last case, GST was paid on the grant.

I call upon the parliamentary secretary and the minister to really have a good look at this particular issue. If they are serious about natural resource management—and I think some of the aspects of the National Water Initiative and other natural resource management initiatives are positive—and about those longer term benefits being taken up, by the farm sector in particular, but other land users in general, then they must address this matter. You cannot have a circumstance where you say you are going to compensate people and come along a bit later, when the package has been put together, and say, ‘Sorry about that; we are going to tax you 40 per cent of the total arrangement.’ That means, in many cases, that the Commonwealth’s gratuity is going to be going back through the tax—

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