Julie Owens (Parramatta, Australian Labor Party) Share this | Hansard source

I rise to speak on the Tax Laws Amendment (2007 Measures No. 3) Bill 2007. In general, Labor supports much of the bill. There are 10 schedules: seven of them are fairly straightforward and three of them have been subject to some debate—and two of those have been covered in detail by my colleague the member for Prospect. Today, I want to mainly concentrate on schedule 10 because—as dry as the tax law appears to be with its dense language and convoluted sentences which are guaranteed to make your eyes glaze over if you are a sane person—the philosophies and attitudes of the government well and truly show through, and how those attitudes and philosophies are applied impacts on our daily lives. Schedule 10 deals directly with an issue that deeply concerns the people in my electorate, and that is the net movement of Australian jobs overseas.

The bill and the amendment moved by Labor illustrate the differences in approach by the government and the opposition to building our future. Schedule 10 deals with new withholding arrangements for managed fund distributions to foreign residents. It improves certainty and provides simplicity—and those are good things. We support schedule 10 as far as that goes. The way that schedule 10 does this is by amending the Taxation Administration Act 1953 to implement a new withholding regime for distributions to foreign residents of net income from managed investment trusts attributable to Australian sources. The new regime applies where the distributions are made directly or through certain Australian intermediaries. However, income consisting of dividends, interest or royalty income are generally excluded from this measure, as are capital gains on assets other than taxable Australian property.

Under the current law, and as a result of schedule 9 of this bill, a trustee of a managed investment trust will be liable to pay tax on a beneficiary’s share of the net income of the trust if the beneficiary is a foreign resident at the end of the income year and is presently entitled to income of the trust. The rate at which tax is payable varies and depends on whether the foreign resident is a company, individual or trustee.

In practice, most distributions from Australian managed investment trusts to foreign residents are made through one or more Australian intermediaries. There is uncertainty about the nature of the legal relationship between Australian intermediaries, managed investment trusts and foreign resident investors, which could vary depending upon the terms and conditions of the arrangement under which the intermediary provides its services. This creates uncertainty about taxation obligations in terms of both the requirement to pay tax and the rate of tax payable.

Leaving aside those excluded items, under the existing law a managed fund that makes a distribution of income to a foreign resident must withhold at different rates, depending on whether the foreign resident is an individual, company, trust or foreign superannuation fund, and rates vary from 29 per cent to 46.5 per cent. Schedule 10 introduces a flat rate of 30 per cent, which applies to all types of nonresidents, thus taking out the uncertainty. It also reduces the compliance burden by reducing costs associated with tracing different types of income and different types of recipients of that income, as is currently the case. It also removes the need for managed investment trusts and intermediaries to have to classify the nature of a foreign investor as an individual, company, trustee or foreign superannuation fund. Consequently, the measure will also reduce the uncertainty regarding the obligations of managed investment trusts and intermediaries to withhold amounts from distributions to foreign residents. This in turn will improve Australian property trusts as a designation for foreign capital.

These compliance cost savings and the reduced uncertainty would increase the efficiency of the Australian managed funds industry in providing funds management services to foreign residents. This would result in a greater ability of the Australian managed funds industry to compete against foreign managed funds for the management of the investment of foreign residents’ savings. However, we on this side of the House do not believe it goes far enough. Our amendment asks the government to go further: not to 30 per cent but to a lower, flat and final 15 per cent rate. We do this because fund management is one of the areas where we have great strength as a nation and where we are internationally competitive with our skills and experience but not with our tax regime, even with the new 30 per cent flat rate. It is because of our obligation and commitment to the future of this country, to its businesses and its workforce, that we must act as a country to exploit our strengths for our own benefit and the benefit of our children. This is one of the great differences that we find in this dry tax amendment: a government that is still essentially coasting on good times, tinkering and making some changes, and an opposition committed to the future and prepared to make bold steps to ensure that we remain prosperous beyond the mining boom.

It is a role of government to find the strengths of a nation, to exploit those strengths and to remove the impediments that prevent them moving forward. Our amendment to reduce the flat rate to 15 per cent does just that. When I am out doorknocking in my electorate, the concern that members of my community show about the number of Australian jobs that are moving offshore is quite strong. It is an issue that is raised incredibly frequently in my electorate and has been for quite some time. Every time we see another Australian company talking about moving some of its jobs offshore, I receive a number of phone calls and people raise it with me at the shopping centres and when I am doorknocking.

This is, of course, a very real concern and it is something we should all be concerned about. I am not suggesting for a moment, with the global trend of companies finding various inputs in various parts of the world, that we can stick our finger in the dyke indefinitely and prevent jobs from going offshore. There are some things that we can do that protect the safety, security and privacy of Australian citizens but, in the long run, we will find greater and greater movement of inputs, particularly in services, from one country to another. What we can do is be concerned now—preferably before now, but certainly now—that we maintain a strong net movement of jobs towards Australia by identifying where our strengths are and where Australia can actually attract jobs from offshore to our shores. The area of film comes to mind, and after a long, 11-year delay the needs of the film industry have very recently been dealt with by the government. Areas of the environment come to mind as well, where for some time we were leaders in providing solar power, for example. We certainly are not now.

The funds management industry is another one where we have great strength and the ability to attract jobs from elsewhere to Australia. That is certainly something that we should be doing robustly. Australia has a robust funds management sector. Thanks to the superannuation guarantee established by the Hawke and Keating governments Australia has one of the most developed funds management sectors in the world. Australia’s funds management industry is the biggest in Asia and the fourth-biggest in the world. The managed fund market can be split into two broad categories: Australian real estate investment trusts and other trusts, for example share trusts.

Australian real estate investment trusts comprise 73 per cent of the listed management investment market and pay the majority of withholding tax. The 2006 budget announced that the government would simplify the withholding arrangements by introducing the amendments in this schedule. The Leader of the Opposition announced in his budget reply that we would reduce the headline withholding rate on the distributions from managed investment funds to nonresidents from 30 per cent to 15 per cent and abolish the deductibility of debt to all managed investments. This would boost the exporting of Australian financial services to the region, making Australia a managed funds hub. It was strongly supported by the industry.

Australia has more than a trillion dollars under management but attracts only a small proportion of the funds available to be managed internationally. The international market is predicted to top $60 trillion over the next three years, and a large proportion of that will be found in our region.

Labor’s commitment to reducing the withholding rate to 15 per cent brings our tax rate into line with the US and Hong Kong. Our funds management industry is one of which we can all be proud. It is well regarded around the globe and with competitive tax regimes in place is well positioned to become the financial hub for the region. If we want to prosper, the job of government is to build on our competitive strengths and to remove impediments to success. Our policy and our amendment today do just that.

The policy has been well received around the country. Peter Verwer, CEO of the Property Council of Australia, said:

The Opposition’s proposal for a 15% final withholding tax rate is more likely to generate additional tax revenue and create jobs as the world will give us more of its money to manage. The Opposition’s proposal also makes sense because it:

• puts Australia’s withholding tax rates on a similar footing to other advanced markets, in particular the United States—

and—

protects government revenue.

Robert Gilbert, CEO of the Investment and Financial Services Association, said: ‘The proposed introduction of a new 15 per cent flat and final withholding tax would remove a significant and burdensome administrative requirement for non-resident investors and Australian fund managers. Importantly, this measure also entails boosting tax integrity, as a flat and final rate would protect the public revenue.’ Here in this bill, if the government accepts out amendment, we can make a significant difference and invest in our future. We have no choice, if we want to prosper beyond the mining boom, but to do just that.

Our export performance has been appalling in recent years. A report released this week by the Committee for Economic Development of Australia shows that infrastructure bottlenecks are contributing to all-time low export volumes and Australia’s skyrocketing foreign debt. The report shows that in 2005 export volumes had fallen to just over 17 per cent of GDP from 19 per cent in 2001, the biggest fall in export volumes as a share of GDP in 45 years of data. And this is at a time of the biggest mining boom and the highest global growth in 30 years. The annual average export volume growth of 7.3 per cent in the eighties and nineties is now absolutely a thing of the past, with growth virtually frozen at just 2.1 per cent a year over the period 2001 to 2006. Labor’s amendment, which would allow significant growth of the funds management industry in Australia, would go a small way towards redressing that trend.

Since the superannuation guarantee was introduced by Labor in 1992, funds under management have grown from $250 billion to $1 trillion—that is, averaging growth of 11 per cent a year for 13 years. In 2004-05 the finance and insurance industries combined added $62 billion to Australia’s gross domestic product and accounted for 8.5 per cent of the total economy. This was up from six per cent in 2000 and represents a 157 per cent increase since 1985. This in turn represents average annual growth of 5.3 per cent over that 20-year period, making it the third fastest growth sector in the Australian economy after communications and property.

This is an industry that is confident in its future. The Australian Investment Management Survey 2005 reported that 50 per cent of CEOs surveyed in the sector expect growth of more than 20 per cent over the next three years. This is a great success story. This is a confident, skilled sector that is capable of an even greater contribution to our economy and to our future. I commend the amendment to the House and ask that the government let this sector get on with what they are doing—get the impediments out of the way and let them get on with it. They will be a great export story, they will create jobs here, and we will all benefit.

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