Chris Bowen (Prospect, Australian Labor Party, Shadow Assistant Treasurer) Share this | Hansard source

The Tax Laws Amendment (2007 Measures No. 3) Bill 2007 is an omnibus tax bill that contains 10 separate schedules. I would characterise seven of these schedules as being non-controversial: schedules 1 to 6 and schedule 9, which contain sensible measures to either protect government revenue or correct unfair anomalies. As Labor supports each of these schedules, I will not be detaining the House by going into detail other than to express the opposition’s support for the measures contained therein. I will deal with schedules 7, 8 and 10.

Before I go to each of these schedules, I note that this bill has been referred by the government to the Senate Standing Committee on Economics. Presumably, this follows the imbroglio that was Tax Laws Amendment (2006 Measures No. 7) Bill 2006, which the government refused in the first instance to refer to a Senate committee but then agreed to do so. This bill in part corrects that bill. I note, however, that the bill has not yet been examined by the Senate committee—submissions closed on Monday—and that the original time constraints put on the Senate committee were such that there would be no public hearings to flesh out submissions. I understand that following complaints from several people who put in submissions to the inquiry there will now be a public hearing, which I welcome. I say this to the government: if they think their solution to the general lack of consultation over tax measures is to refer every bill to the Senate committee and then emasculate the process so that the Senate committee does not have time for hearings, they are kidding themselves. Consultation needs to happen much earlier, as I outlined in the House yesterday. It should not be referring matters to a Senate committee at the end of the process and then indeed attempt to emasculate the process so as not to have committee hearings. That would be a joke.

That brings me to schedule 7 of the bill, which amends section 128F of the Income Tax Assessment Act 1936. The House will need no reminding of the background to this particular schedule. Tax Laws Amendment (2006 Measures No. 7) Bill 2006 contained proposed changes to section 128F which had the effect of significantly reducing the ability of firms to obtain an exemption from withholding tax for syndicated loans or debentures. Labor pointed out that this had the potential to significantly affect the ability of Australian firms to raise funds for capital projects overseas. Labor referred the matter to the Senate economics committee, a move which, as I said before, the government resisted. Evidence was received from the Australian Bankers Association, the Asia Pacific Loan Market Association, the Institute of Chartered Accountants and the Australian Financial Markets Association. Each of their submissions underlined the concerns that I had outlined. They underlined the fact that the government had failed to embark on proper consultation.

Labor senators recommended that the schedule be removed and redrafted. Government senators did not recommend that. However, the government eventually accepted Labor’s position and withdrew the schedule, and we see before us today the replacement schedule. I said in the debate on Tax Laws Amendment (2006 Measures No. 7) Bill 2006 that Labor stood ready to support a sensible measure on which there had been proper consultation. Tonight we support that measure because this schedule meets that test.

The Asia Pacific Loan Market Association, in its submission to the inquiry, noted:

These proposed amendments as set in Schedule 7 to the Bill now provide a firm foundation for this important Australian market and will facilitate Australia being able to access offshore capital for major infrastructure projects and other requirements on a more competitive basis.

I am glad that this result was able to be achieved. Of course it would have been better if the government had done its job in the first place and consulted properly on these changes. But I am glad that we got there in the end, even though it was delayed and we had to go through the saga of having bad law put before this parliament by the minister and having the parliament overturn it.

I will now turn to schedule 8 of the bill, which deals with the tax treatment of forestry managed investments. This schedule comes about as a result of the Australian Taxation Office revisiting its view on the tax deductibility of investors’ contributions to forestry schemes. Forestry MIS was covered by the definition of ‘primary production business’ under the general deduction provision.

The government announced that it would legislate to restore up-front deductibility of expenses for forestry, but it would not do so for non-forestry investments. The bill provides a deduction under a separate statutory provision. This means that it will be a specific deduction rather than fall under the general deduction of the 1997 act. It will no longer be necessary for taxpayers to demonstrate that they are ‘carrying on a business’ in order to access the statutory deduction.

The specific deduction provision ensures that initial investors in forestry schemes will receive a tax deduction for their contributions and that secondary investors will receive a tax deduction for their ongoing contributions, provided that there is a reasonable expectation that at least 70 per cent of the scheme manager’s expenditure under the scheme, at arms-length prices, is expenditure attributable to direct forestry expenses.

Schedule 8 of this bill also amends the Income Tax Assessment Act 1997 and the Income Tax Assessment Act 1936 to allow secondary investors to obtain deductions for ongoing contributions to forestry scheme arrangements under the new deduction provision. An investor who acquires an interest in the scheme from another investor cannot claim the specific deduction in relation to the payment to acquire that interest—only the ongoing costs are deductable. The scheme introduces a four-year holding period for initial investors. Where an initial investor disposes of the interest within four years, any deductions obtained by the investor under the new deduction provision will be denied in the income years claimed. These are sensible measures, which the opposition supports.

I have been very critical of the government’s appalling handling of the non-forestry investment scheme issue—the lack of consultation by the government and the lack of a transition period—which has created massive uncertainty in rural and regional areas. However, in fairness, I think the government has got the balance right on the matter of managed forestry investments. I recognise that the tax treatment of managed investment schemes, in general, is a very divisive issue, with passionate views held on both sides.

The Australian forestry industry plays an important role in our battle against climate change. We have seen that the returns are so long in coming that any changes to the up-front tax deduction regime will mean that investment turns down very quickly. The 70 per cent rule strikes an appropriate balance and ensures that only legitimate expenditure has been claimed. I am a little concerned about the paperwork and compliance burden that this might create; however, I recognise that there is no easy solution. I would monitor this should we form the government later in the year, but I have no problem in supporting the measures as they are put before the House this evening.

Finally, I would like to deal with schedule 10 of the bill. This schedule enacts an announcement made by the government in the 2006 budget to introduce a flat withholding tax on non-dividend interest and royalty distributions from Australian managed investments to overseas residents. It could be said that this is a step in the right direction—a very small step made too late—which was announced in the 2006 budget. Now, after the 2007 budget, the government is getting around to implementing this legislation, but it will still leave Australia saddled with an uncompetitive withholding tax regime. This shows a lack of concern by the government about the financial services sector and the ability of Australian fund managers to compete around the world.

The bill introduces a 30 per cent withholding tax rate. This is uncompetitive: it impedes the ability of Australian fund managers to best our competitors. Why is this important? It is important because countries have a choice. They can support services exports or they can get in the way of them. Some countries around the world have embraced their financial services sector and helped to make them vibrant export industries. Ireland stands out as an example of such success. This is not about picking winners, because the Australian funds management industry is already a winner. They have already won, thanks to the superannuation reforms of the Hawke and Keating governments. We have the largest savings pool in Asia and the fourth largest in the world. This means that the Australian funds management industry is well developed and has well-respected skills.

This is particularly the case when it comes to property investment trusts. Australia is already the world’s No. 2 property trust manager. Over 12 per cent of the world’s listed real estate now resides on the Australian Stock Exchange. Australia pioneered real estate investment trusts, and the rest of the world has followed. We have a number of competitive advantages. We have a well-respected and transparent system of regulation. Although from time to time we may have issues about particular matters, our prudential regulators are well respected—as they should be. We are in the same time zone as Asia, which is important when it comes to funds management. But our funds management sector is being held back by this government having its blinkers on. This is not about picking winners; it is about giving Australia a competitive tax regime and then getting out of the way to let the funds managers do what they do best, which is compete around the world.

The bill before the House gives Australia one of the highest withholding tax rates in the world. Belgium, Canada, France, Germany, the Netherlands, the UK and the USA all have rates of 15 per cent. Singapore has 10 per cent. Japan has seven per cent. The government say that it is good enough to have 30 per cent. They say that it is good enough to let the Australian funds management industry compete with the rest of the world with a tax rate of 30 per cent. They walk away from the industry and say: ‘You’re on your own. And, by the way, you’ve got your hands tied behind your back because we’re going to give you a tax rate of 30 per cent. Go and compete with that.’ That is a disgrace. This is such a short-sighted government. They are not looking towards the future; they are not looking to where the economic growth is. They just say: ‘Bad luck. We’re giving you a tax rate of 30 per cent.’

Labor has announced a policy on this. The Leader of the Opposition announced it in his budget reply. He said that Labor will introduce a flat and final 15 per cent tax rate. This would help position Australia as the financial services hub of Asia. It would mean that the sector would no longer be held back by uncompetitive tax rates that exist under this government; it could compete on its own merits, and it could do well. It would also be good for our current account deficit. It would mean more services exports. We all know the challenges facing Australia as a trading nation with almost 60 consecutive monthly current account deficits. Yet the government says to one of the most successful Australian industries, ‘We’re going to give you a tax regime which saddles you, which holds you back, and which stops you exporting.’ It would mean more jobs and more highly paid jobs in Australia. It would make Australia the funds management hub of Asia—and it makes eminent sense. That is why Labor’s announcement has been so warmly welcomed by third parties. The Investment and Financial Services Association said:

This policy measure would greatly assist Australia’s global competitiveness and facilitate capital raising for the Listed Property Trust ... market.

…            …            …

This policy, if implemented, is a welcome ... step in securing Australia’s future as a global financial services centre in the Asian region ...

AMP said:

AMP Capital Investors has welcomed the Federal Opposition’s plans to halve the withholding tax charged to foreign residents investing in Australian managed funds.

…            …            …

Any reduction of the withholding tax for foreign residents will continue to increase the appeal of Australia as an international investment destination.

The Property Council said:

The Property Council of Australia applauds the Leader of the Opposition’s commitment to reform Australia’s outdated withholding tax system.

The government’s current proposal keeps us out of step with our international competitors ...

Then Vanguard Investments, which is one of Australia’s leading investment funds, said:

... we need some government help to get the impediments out of the way ... We view the proposal by Kevin Rudd very favourably.

The list goes on. I will refer to some submissions to the Senate inquiry into this bill. GPT Group, a well-respected investment group, said:

We would like to express our concern at the introduction of a 30% withholding rate on distributions to non-residents. We believe that Australia needs a flat and final rate that is competitive and removes the need for complex tax administration.

They went on to say:

Investors consider that the present system, if not changed, will be a major deterrent to foreign investment in Australian Funds.

…            …            …

GPT believes that if Australia does not adopt an international system with a more competitive tax rate, the immediate scenario will be an adverse effect on the market with foreign investors choosing to invest elsewhere in the region—followed by difficulties for Australian funds managers in raising new capital.

Now I will go to Barclays Global Investors. I quote:

We believe that Australia needs a flat and final rate that is competitive and removes the need for complex tax administration. The proposed 30% rate is non-final and permits the investor to offset it with deductions—which may produce the same net Australian tax cost as a reduced flat rate.

The Real Estate Institute of Australia supports Labor’s proposal. The Business Coalition for Tax Reform have been calling on the government to introduce a similar measure, and the government has ignored them.

For the benefit of the Assistant Treasurer, who will sum up this debate, can I confirm that none of the organisations that I just mentioned are trade unions. I say that because he will come in here, and he will sum up the debate—I am happy to go out on a limb here—and say: ‘The Labor Party follow their union taskmasters in every event. They do what the unions tell them at all times, and all they do is do what the unions say.’ I know he will say that, because he summed up two other bills today that had nothing to do with trade unions, and that is exactly what he said. He says that on every press release. He says that when he sums up every measure. No matter what it is about, he says, ‘This is just about the Labor Party listening to trade unions.’ So I want to be clear: the Investment and Financial Services Association is not a registered trade union. I checked, and Barclays Bank is not a registered trade union. AMP is not a registered trade union. GPT is not a trade union. The Real Estate Institute is an employer organisation. That is how it works.

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