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

I was interested to hear the member for Sydney make some comments in relation to that great film The Castle. In terms of some of the comments I would like to make about fairness of tax treatment in the Tax Laws Amendment (2006 Measures No. 5) Bill 2006, I thought some of the issues raised in that film were pertinent, particularly in relation to the term ‘just terms’. Those who have seen the film would be aware that Bud Tingwell acted as a QC representing a family who were going to have their home, or their castle, removed because of the expansion of an airport facility. The airport company was using some sort of legislative process which allowed them to compulsorily acquire their land without just terms. The film came to the conclusion that one’s home is one’s castle and there would be a legitimate claim for ‘just terms’ compensation if one’s home were taken away under those circumstances.

The reason I mentioned that—and I say at the outset that I am in support of the legislation—is that I would like to take the opportunity, as have some others, to talk about the broader taxation arrangements that have been put in place. In respect of the just terms provisions that I have just mentioned, which the film The Castle reminded me of, I take the parliament back to an answer that the Prime Minister gave last week in question time to a question that I asked him in relation to groundwater entitlement holders and the taxation treatment that they would be allowed in terms of the Achieving Sustainable Groundwater structural adjustment fund that was put in place.

I know that the parliamentary secretary at the table is very familiar with this issue, and I would imagine that she would be quite sympathetic to some of her water entitlement holders. But for members of the House who are not aware, some years ago the Commonwealth, states and groundwater users put together a package amounting to $150 million to help compensate for the loss of groundwater entitlements, which the state government—the New South Wales government, in this case—had deemed to be applicable to reach sustainable use of a natural resource. Having done that, and the groundwater users having agreed to the package, it was assumed—quite wrongly by them, in hindsight—that the compensation package would be made available to them in total.

Over ensuing months it was found that the Australian Taxation Office would be deeming the receipt of compensation arrangements from Commonwealth and state governments as assessable income in the year of receipt rather than assessing them as the loss of a capital asset and treating them under the capital gains tax umbrella. That came as a great shock to many of the irrigators because, in a three-way split of $150 million, it meant that of the one-third shareholding of the compensation package the Commonwealth could receive most of its money back via income taxation receipts. I am pleased to see the Minister for Revenue and Assistant Treasurer coming into the chamber, because he has had something to do with this particular issue. In his summing-up, he may like to address some of the correspondence that he has been privy to.

In going back to the answer that the Prime Minister gave last week, I thank the Prime Minister because I think he made a very genuine attempt in a fairly complicated issue to come to grips with the concerns of the groundwater holders across the six valleys in New South Wales. I will quote the Prime Minister because I think that, in respect of the ‘just terms’ or property rights issue that I referred to earlier, the Prime Minister made a very important point and I share it with the House. In his reply to my question relating to the taxation treatment of compensation for the loss of groundwater entitlements for the greater good and the sustainability of the natural resource for the environment et cetera, the Prime Minister said:

It is my view that these payments are in the nature of compensation for the withdrawal of the previously conferred water right.

I myself do not believe that you can regard these payments as being in the character of income.

That was a significant breakthrough and I thank the Prime Minister for his words in relation to that particular issue.

It is the first time that the Prime Minister or any minister in this House has actually used the words ‘compensation for the withdrawal of a previously conferred water right’ in the same sentence. That is, in my view, the first time that the leader of the government has recognised a property right. If you look at the history of the property rights issue, particularly in relation to water—and I do not think anybody argues that we do not have to bring our natural resources into some degree of balance and sustainability—and if you travel back to 1995, when the competition policy arrangements were first put in place, there were two major tenets that underwrote the arrangements and the agreement between the Commonwealth and the states. As part of those arrangements the Commonwealth and the states agreed that money would not flow in terms of competition tranche payments to the states unless those various arrangements were put in place.

In the case of the water reform process, there were two things that were basic to the process commencing. One was that a properly constituted market in water licences be established. There are some fuzzy bits on the edges but essentially that has happened. The other thing was that a recognised property right be established between the Commonwealth and the states before any flow of money in terms of tranche payments would flow to the states. We have gone through over 10 years and taxpayers’ money—money that has been earned through the income tax process and other taxation arrangements—has flowed from the Commonwealth to the states. That has applied for 10 years and yet property rights have not been recognised until last week, when the Prime Minister used the term ‘compensation’—not ‘structural adjustment’, not ‘financial assistance’—for the withdrawal of a previously conferred water right. I compliment the Prime Minister for doing so.

I am pleased that Minister Dutton is here because, having said that, the Prime Minister did go on in his answer to my question to deflect blame, in my view quite wrongly, onto the New South Wales government. I am not defending the New South Wales government here; I think their behaviour has been absolutely atrocious in relation to their treatment of natural resource users in that state. However, the Prime Minister went on to deflect blame, saying:

The New South Wales government thus far have represented to us—the federal government—that they want the payment treated as income because, apparently, they are fearful of a precedent being established whereby such payments are seen as truly they are, and that is as compensation for the withdrawal of a previously conferred water right.

I believe that the Prime Minister was completely honest in his answer last week in the knowledge that he had of the issue. I am not criticising the Prime Minister. I do not think he was adequately briefed on the paper trail between Commonwealth and state government on this particular issue, bearing in mind that the Commonwealth and the states were equal partners in relation to the package that was put up to cover the six groundwater valleys that are going to be impacted. I made the point that I thought the Prime Minister should check the communication flow.

In the meantime there has been some response from the state minister, the Hon. Ian Macdonald, to the Prime Minister’s words in question time last week. The Hon. Ian Macdonald has taken some degree of offence. I would like to read his response in the New South Wales parliament. The Hon. Ian Macdonald said:

The Achieving Sustainable Groundwater Entitlements Program is a joint program co-funded by the New South Wales and Australian governments. It aims to assist in minimising the impact of reductions in groundwater entitlements on regional communities. That is correct: it is funded jointly by the New South Wales and Australian governments. It was always agreed that the New South Wales Government would cover a third of the impact, the Commonwealth would cover a third and irrigators would meet the remaining third. From the outset, the irrigators flagged with John Anderson, who was then Deputy Prime Minister, that there could be a problem if the payments were taxed. Indeed, my predecessor, Craig Knowles—

I would say that Craig Knowles, who is not in the New South Wales government now—and I think John Anderson would agree with me on this—was a good minister and was actually trying to come to grips with this. Unfortunately, he is not there now. Maybe if he had remained, this problem would not have arisen.

Indeed, my predecessor, Craig Knowles, wrote to the former Deputy Prime Minister in 2004, requesting reconsideration of the Commonwealth’s proposed tax treatment.

Now to be clear, the Commonwealth and not New South Wales, is responsible for the Australian Tax Office and its rulings. This is not a new issue. Indeed, when the Federal Government and honourable members opposite—

this is Ian Macdonald speaking in the upper house of the New South Wales parliament—

chose to deregulate the dairy industry they decided to treat those payments as taxable income as well. The Prime Minister has known about this issue for at least two years and has done nothing. But yesterday, the Prime Minister had the hide to say the following in Federal Parliament:

The problem here is the way in which the payments are currently structured by the New South Wales Government.

Then he goes on to try to sheet home blame, and there are various communications between Malcolm Turnbull, the minister for water and others. He goes on to say that there was nothing confusing about letters that had been received:

... it was just another in the series of representations made by me, the Premier and others. Neither the Prime Minister nor the Treasurer responded. The Assistant Treasurer, Mr Dutton, responded by saying:

Under the income tax law, a grant received in relation to carrying on a business is assessable income. Therefore, where the financial assistance is provided by governments to industry, as is the case for this package—

this is the package I am talking about—

the payments will generally—

generally—

be treated as assessable income for tax purposes.

To sheet that home even further, Mr Dutton stated later:

The treatment of the assistance payments is ultimately a matter for determination by the Australian Taxation Office.

He did not say it was a matter for determination by the New South Wales Government. Peter Dutton is clear about this—unfortunately the Prime Minister is not.

I am pleased to see the Parliamentary Secretary to the Prime Minister who has responsibility for water is here as well. Just in case the parliamentary secretary did not hear what I said earlier, I believe that the Prime Minister gave an honest assessment of what he believed to be the case last week in answering my question. The state minister has taken him to task and has said that the Prime Minister, by deflecting blame onto the state government, is not correct in doing so.

This is a very important issue, not just for those water entitlement holders but for the way in which taxation treatment is going to be carried out into the future in relation to natural resource management adjustment policies. I call on the Prime Minister today, and the parliamentary secretary for water, to release the documents, the paper trail, relating to this issue—the discussions between the Commonwealth and the states on the establishment of what I still think is a good program, this joint Commonwealth-state irrigators adjustment package, compensation package, for a conferred water right, as the Prime Minister described it last week. I call on them to release all documents pertaining to those discussions, because the irrigators, members of this House and other chambers, and, most importantly, the general public, need to know how the tax office is going to treat the removal of a property right or—I spoke about the film The Castle earlier—the way in which just terms will be delivered to people who lose an entitlement that they have been issued in the past. As the Prime Minister said, it is a conferred water right, properly conferred by a state government, not the Commonwealth—I am not taking issue with the Commonwealth in relation to that. People need to know the way in which the tax office is going to treat those payments into the future. It is very important for natural water resource management.

I congratulate the government. You have seen a problem with the overallocation of a resource and have tried to come to grips with that problem. We have seen this in the timber industry, we have seen it in the water industry and no doubt we will see it in a whole range of industries: for the greater good we have to remove some usage of a resource that is not sustainable at that level of extraction or usage. I am not arguing about that. But it is the message that we are sending to those people who are going to be impacted on by the change. People have been brought into a compensation arrangement fully assuming that the money would flow to them for the loss of a capital asset. They then find that the Australian Taxation Office may have a bite of it. Then there is a dispute between the Commonwealth and the states about the writing of the offer document for acceptance of the compensation. The Prime Minister is saying, and others have said, that the wording of that document will be the way in which the tax office will make a ruling on this matter. We have a similar issue with the removal of timber entitlements from the Brigalow bioregion. We have also had an issue in the fishing industry that is similar. The tax office is treating it differently.

The point I am making is that we need to have a very clear determination so that, when we have a removal of an asset for the greater good of the community or for environmental purposes, those who are going to be impacted upon know exactly what the rules are. Because this issue has gone on for so long—it is over 10 years since property rights were written into the competition policy agreements between the Commonwealth and the states—we really do require all those documents pertaining to the discussions between the Commonwealth and the New South Wales government on this issue to be released for examination. The Prime Minister is saying that the New South Wales government is at fault because of the wording of the offer document, and the New South Wales government is saying that the Prime Minister does not understand the reality and the various messages and communications and meetings that have taken place. I am privy to some of those meetings, but I think it is time that the air was cleared and those documents were released.

It is quite embarrassing for the government, with the Minister for Finance and Administration having written a letter to the New South Wales government, the parliamentary secretary for water having made other communications, the former Deputy Prime Minister having made further communications at other times, and many others, including the Treasurer, having made certain arrangements; and now the Prime Minister is put into a position—inadvertently, I believe, because he has not been given the full information on the issue—where he has made a statement that he may find difficult to back up. If he can back it up, let him do so by way of release of the documents. If that means the New South Wales government is embarrassed, so be it. (Time expired)

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