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

I listened to the comments of the previous speaker, the member for Blaxland, Mr Hatton, about the goods and services tax and I would be interested in having a discussion with him on the issue. The Tax Laws Amendment (2006 Measures No. 7) Bill 2006 is, essentially, an omnibus bill. I will be supporting the legislation.

Schedule 1 of the bill amends the capital gains tax concessions for small business. I would like to raise, under the auspices of the bill, the implications of current government policy on capital gains tax and income tax in relation to groundwater users in New South Wales. The Prime Minister has a 10-year, $10 billion water plan. Some issues were raised a few years ago regarding the process of adjusting to a sustainable level of groundwater use in six valleys across New South Wales. Those issues are pertinent to the ongoing debate about the over-allocation problems and the Murray-Darling. More importantly, they are pertinent to the credibility of the current government as to how those problems are to be addressed and how those who do have current water entitlements will be treated.

Yesterday I raised this matter by way of having a historical look at the operations of the current government in the cooperative processes with the states regarding the National Water Initiative and other intergovernmental agreements and blueprints that have been in place. In that context, the New South Wales government and the federal agreement agreed to a compensation package. It was a three-way split—$50 million from the Commonwealth, $50 million from the states and $50 million in kind from the irrigators for the loss of their entitlements. At the time I congratulated both governments because I thought, ‘Here we have the resolution of a difficult problem where no-one is really to blame.’ Water had been allocated by a range of state governments over many years, over-allocation in the groundwater systems had been recognised and there had to be an adjustment process to bring it to a sustainable level. I will cite a number of documents in regard to that.

Suffice to say that the irrigators—the water entitlement holders—agreed to this plan for sustainability. There are certain parallels between that and what the Prime Minister is saying now on other areas of water reform where there has to be an agreement between the entitlement holders and governments or jurisdictions to come to a sustainable level of environmental and other uses.

As part of that process, and on agreement between the farmers, the irrigators, and the state and federal governments, this $155 million package—I think there was $5 million for other matters—was put together. It was applauded as a first in terms of the Commonwealth and the states working together. In fact, it was not a first; there had been a not dissimilar scheme for a pipeline in South Australia, I think, some years earlier. As part of that process irrigators were told that there would be a compensation package made available to them, and some months later an absolute shock was sent through the system: on receipt of those compensation moneys—the $50 million from the state and the $50 million from the Commonwealth—it would not be considered as loss of a capital asset. I am pleased to see the minister here, because he is very aware of this issue and very slow in rectifying it.

Irrigators were told that, on receipt of the compensation, those moneys would not be considered as being for loss of capital assets, although everybody in this place, including the Prime Minister, agrees that it is the loss of capital assets. And the Premier of New South Wales, at the Prime Minister’s water meeting last year, said that it was, in his mind, the loss of a capital asset, but the Commonwealth is still treating the payment of those moneys—the $100 million to groundwater irrigators across the six valleys—as income in the year of receipt. Obviously, individuals have different taxation arrangements, but theoretically it is possible for 47 per cent of that money to be clawed back by the Commonwealth. So the Commonwealth can actually make a donation in a compensation package and then take a considerable amount of it back in the year of receipt as income.

Looking at the capital gains arrangements in this legislation, the government seems unable to deal with this issue and has been unable to explain to me—in the parliament on a range of questions—and, more importantly, the water entitlement holders why it cannot do anything with this particular issue. The Prime Minister has a 10-point plan and says, ‘We’re going to go out there.’ I agree with removing the state borders as impediments to water reform—I think most people would—but there is a severe lack of credibility in terms of the historical context of what the government has done when it has gone out to embrace water entitlement holders and the sustainability issues of groundwater and surface water systems and in the way it is treating those people who have to make the adjustment—the water entitlement holders.

So there are great concerns out there, Minister, given its poor performance on this particular issue, about whether the government can be trusted in the takeover of water entitlements. There has been a blame game played in this place. I have raised it a number of times and you, as minister, have been in receipt of some of those issues and questions. Time and time again the Commonwealth says: ‘They are the states’ problems; the states have caused the problems. If they had written the document a different way the tax office would have been able to consider it as capital rather than as income and that would have an impact on cash flows to those people in receipt of compensation arrangements.’ And the states say, ‘No, they have been the Commonwealth’s problems; they are in charge of the tax office, and they have the tax act et cetera.’

So this continual blame game has gone on for nearly two years while these people out there were trying to make these adjustments and trying to do what the Prime Minister is now talking about on a broader basis and come to grips with sustainability. They have been doing it in a voluntary way and then, when the agreement was made, no-one told them that they could lose up to 47 per cent of it through the tax act as income in the year of receipt.

I approached the then parliamentary secretary, Malcolm Turnbull, last year in about November and said, ‘Malcolm, we’ve really got a dilemma here.’ I thought he was having a real go at trying to solve the problem. I said, ‘We have this continual blame shift and the victims are left out there wondering what is going to happen. If I organise a meeting with the Premier of New South Wales, will you attend and sit across a desk from this guy and let us find out who is to blame?’ At the same time, and even previous to that, I had an FOI request in for the documents, to find out who was to blame—but that is a story in itself.

I approached the then parliamentary secretary and asked him that question. He seemed almost petrified about the politics of doing that. I would have thought, particularly given his utterances over the last few days, that he is about bringing people together to solve some of the sustainability issues. So I was quite disappointed when he said that he would not meet with the Premier because he believed it was under control. We have not heard the control levers being pulled here. We have not seen this issue resolved with the tax office. I am delighted that the Assistant Treasurer is here because he might be able to make the announcement that there has been some active work done at a government level to solve this dilemma.

In the absence of Malcolm Turnbull—I neglected to say a moment ago that the Premier agreed to that meeting between himself, Malcolm Turnbull and me as the broker of the meeting—I had that meeting, not with the Premier but with the New South Wales Minister for Primary Industries, Ian Macdonald, only last week, and I received a couple of documents. I have an FOI request in with the New South Wales government now for those documents and I am told they will be forthcoming. I am told that the intergovernmental agreement—and the minister might like to comment on this—was driven by the Commonwealth Solicitor-General. I will be waiting eagerly to see who is to blame in relation to the writing of this document that has essentially classified it as income rather than as capital.

I would like to take the opportunity to read into Hansard two things—one in relation to the freedom of information request. I made a request to the government, particularly in terms of the former federal minister John Anderson and his conversations, letters et cetera with former state minister Craig Knowles. I think they did a good job because the two of them actually sat down and tried to work out a process which would lead to sustainability and compensate those people who were going to be impacted by the change or allow them to adjust. There was no mention of being charged income tax. It was the loss of a capital asset that was in everybody’s mind.

I made a request for the various communications in my quest to find out who is to blame. If it is the state, let us flog them to death; if it is the Commonwealth, they deserve the same fate. The FOI request went in and, strange as it may seem, the morning before I met with New South Wales minister Ian Macdonald last week, I received a letter. Before dealing with that, I will read out essentially what my FOI request was:

Correspondence (letters, faxes, emails, memos) between Federal Minister John Anderson and NSW State Minister Craig Knowles and their respective Departments with regard to the “Achieving Sustainable Groundwater Entitlements” ... Program jointly announced by the Prime Minister and then NSW Premier Bob Carr on June 9 2005. Further, I seek any correspondence about this matter between the Department and the Prime Minister’s office and the Treasurer’s office. Dates between 2001 and the present are requested.

The decision that has come back to me reads:

Section 24A – Requests may be refused if documents cannot be found or do not exist

Section 24A of the FOI Act ... provides that:

24A Requests may be refused if documents cannot be found or do not exist

An agency or Minister may refuse a request for access to a document if:

(a)

all reasonable steps have been taken to find the document; and

(b)

the agency or Minister is satisfied that the document:

(i)

is in the agency’s or Minister’s possession but cannot be found;

Section 24A of the FOI act provides that a request for access to documents may be refused where those documents are in the department’s possession but cannot be found. Before coming to the conclusion that the documents cannot be found, the department must take all reasonable steps to find the documents. The steps taken to locate the documents to which you are seeking access have been interrogations of all files on which the documents may have been located, including searches of electronic filing systems, searches of desks, filing cabinets, drawers, safes, cupboards, files by staff in the Western NSW Regional Office Regional Partnerships Branch and Strategic Projects Division, searches of backup tapes of electronic records by Ms Marie Cooper, Western NSW Regional Office and Mr Roger Fisher, Strategic Projects Division, searches of all archived documents from the Western NSW Regional Office and Strategic Projects Division and searches of the registry. Despite the searches undertaken, no documents could be found.

The document actually says ‘no documents could not be found’—there might be more truth in the actual wording of it. It goes on:

I am satisfied that all reasonable steps have been taken to locate the documents in question and that no documents can be located in the department at this time, and I am unable to provide you with any documents as per your request.

Strangely enough, that afternoon I happened to meet with the state minister. Somewhat contradictory to what was being said in terms of the FOI request, he was able to give me a few documents in relation to this process, the discussions between the Hon. John Anderson and Craig Knowles. As I said, I have subsequently put in an FOI request for all the documents, including the intergovernmental agreement, because I think it has great significance in terms of what the Prime Minister is trying to do with the Murray-Darling.

One of those letters is from the state minister, writing to the Treasurer. I seek leave to table the letters so I do not have to read them out.

Leave granted.

I thank the minister in the chair. The first letter is from Ian Macdonald, the state minister, written on 20 March 2006, nearly a year ago. I will quote it a little bit:

The purpose of this letter is to seek your urgent reconsideration of the proposed taxation of the payments to be made under the program—

that is the Achieving Sustainable Groundwater Entitlements Program—

To eligible licence holders for a reduction in their irrigation water assets.

…            …            …

I believe that it would be against the spirit of our original agreement—

that was the agreement between Knowles and Anderson—

for the Australian Government to retain up to $47 million, or almost 85% of its total support as a result of income tax, when the clear intention was for the program to be equally funded by both the NSW and Australian Governments.

There is also a letter from the Hon. Peter Dutton MP written on 14 June. I will table this as well, if I can.

Leave granted.

The Hon. Peter Dutton responded on behalf of the Treasurer to this particular issue, where he raises the issue of a grant. There was no mention of it before. The letter reads:

Under the income tax law, a grant received in relation to carrying on a business is assessable income.

It goes on to say that these people are carrying on a business, and even though it was never mentioned on prior occasions that it would be taxed up to the rate of 47 per cent, the government, in his view—representing the Treasurer—believed that they should be taxed.

A number of issues have been raised since then, and the parliamentary secretary Malcolm Turnbull, now Minister for the Environment and Water Resources, has been playing a role and there have been a number of people at a state level. I will be waiting with interest, because I think I will receive the documents within the next few days, to see how that intergovernmental agreement was actually put together and why these water entitlement holders have been subjected to this massacre of their capital asset and then a massacre of their income base or their income-earning capacity. If the government is serious about the Murray-Darling, and really serious about putting in place policy rather than politics on coming to grips with this issue of over-allocation, it has the ideal way to display that here and now: recognise those who are going to give up their entitlement and bear in mind the property rights arrangements in the original COAG agreement back in 1995. Those who are going to give up these entitlements for the greater good of the nation should be encouraged, and not penalised in the way in which the current government is perpetrating this act of bastardry upon them.

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