Craig Emerson (Rankin, Australian Labor Party, Shadow Minister for Service Economy, Small Business and Independent Contractors) Share this | Hansard source

The amendment is seconded, Mr Deputy Speaker. I thought I would take the opportunity of raising the tone of the House by dressing up for the occasion in my dinner suit. I also have a commitment, as I know the member for Prospect does, with the Australian Industry Group—our friends in the manufacturing and service industries. I hope you will forgive me. I hope I am not in violation of any dress code. I thank the duty minister, the Parliamentary Secretary to the Treasurer, for his mercy in not taking action against me.

The Tax Laws Amendment (2007 Measures No. 4) Bill 2007 and cognate bills before us tonight are complex. We do support most of the legislation with the exception of the broadening of the definition of ‘family’ in respect of disbursements from family trusts. I want to concentrate the time that I have on that provision, but before I do I want to make some general remarks about the complexity of the tax system. The member for Prospect has informed the House of the volume of the legislation that is before us tonight. It reminds us of the increasing complexity of the income tax system in this country. The Treasurer undertook an exercise that he described as ‘simplifying the tax system’ and as a result of that exercise he thought it was a terrific outcome that the government had removed a couple of thousand pages of redundant provisions from the Income Tax Assessment Act. It is not the redundant provisions that are the problem but the operative provisions. I doubt that implementing changes that remove redundant provisions actually constitutes genuine tax simplification. Since I have been in this parliament, from 1998, probably on a fortnightly basis we have been confronted with incredibly complex taxation law amendment bills. This is yet another and it adds to the complexity of the income tax system. There have been many opportunities for the government to simplify the tax system. Indeed, the great tax adventure, launched by the Prime Minister before the 1998 election, was supposed to be the ultimate in simplification. The Treasurer, from 1999 through 2000, described this endeavour as a ‘streamlined new tax system for a new century’. Streamlined? The government never streamlined the tax system. It introduced a monster new tax, the GST, itself involving many kilos of legislation. And we know that the GST is anything but a simplified tax.

Since that time, the government has had an enormous amount of revenue at its disposal. It is revenue that initially was generated by the productivity surge built on the reform program of the previous Labor government—and carried forward, in some places, by the coalition—and more recently through the bounty of the mining boom. You would have thought that, in the 11 years it has had, the government would have seized the opportunity to use those proceeds to implement genuine tax reform. It had the opportunity to set out what it considered to be the ultimate tax system. It could have used the proceeds to march towards that goal. At least the Australian public would have known what was in the minds of the Prime Minister and the Treasurer and would have seen that destination getting closer and closer.

The government, though, for pretty base political reasons, declined that opportunity. It would have perhaps limited the capacity of the government to make tax cuts in areas which were of the greatest political benefit. That has been the constant driver of this government. Rather than introducing tax reform, the government has sought to harvest political benefit from targeting particular groups at particular times—usually much closer to elections—and giving them back some of the bracket creep that they have been paying because of the operation of inflation on the income tax brackets. They then say: ‘What jolly good fellows we are. We have given back some of the tax that we have taken from you. Now we deserve to be re-elected.’ The Australian people are well and truly awake to that caper. They are sick and tired of the ever-increasing complexity of the income tax system and the cynicism of the Howard government in providing tax cuts, but not tax reform, close to elections. This legislation, though in the intent expressed is mostly laudable, does surely fail the test of simplicity.

The member for Prospect has spoken eloquently on the second reading amendment. We are disappointed that this legislation does not take the opportunity to implement Labor policy that offshore banking units be included in this bill. We note that the Australian Bankers Association has expressed concern that this omission will weaken Australia’s attractiveness as a financial centre and we condemn the government for failing to embrace policies such as a flat and final 15 per cent withholding tax rate and the introduction of a managed funds tax regime, which would promote Australia as a financial services hub. I commend the member for Prospect for developing these policies and for being resolute in his determination to have them properly debated in this parliament. The relevant industries know the importance of these and they know that they pass a vital test—that is, to boost the productivity and competitiveness of Australian industry. A key criterion for any reform relating to the business tax system in Australia is that it should in some way or another boost productivity. And, in relation to the personal tax system, wherever possible rates should be reduced to ameliorate the incentive-crushing effects of the personal income tax system.

While we are on the issue of passing the test of boosting productivity or in some way increasing overall the prosperity of our great nation, I now take the ruler to that provision with which we do not agree—that is, that the definition of ‘family’ under the family trust system be broadened to include lineal descendants of family members. This would expand the definition of family to include any lineal descendant of a nephew, niece or child of the relevant individual, or that individual’s spouse. Obviously, this considerably expands the number of people who can receive distributions from family trusts.

The amount involved—$8 million per year—is substantial. With $8 million a year you could do a lot towards the overall exercise of the tax reforms that have been proposed by the member for Prospect, just by way of example. I would be fascinated to hear from the minister how he considers this to be good for the nation as a whole. Obviously, it would be good for the beneficiaries of family trusts. We are, in this case, putting our money where our mouth is. We do not think that this is a priority and therefore think that the money could be better spent elsewhere. As a consequence, we are moving a substantive amendment to remove this particular provision from the bill.

Around the year 2000, following the Ralph Review of Business Taxation, the government announced that it was going to implement recommendations of the Ralph review relating not only to the alienation of personal services income but to changes to the taxation laws as they related to trusts. Indeed, I remember that I was sitting in the chair now occupied by the member for Gorton. The then Leader of the Opposition, the member for Hotham, was sitting in the chair next to him and the Treasurer was sitting in the chair opposite, now occupied by the member for Aston. Over the table there was a conversation in which basically the Treasurer put the proposition that Labor agree to a reduction in the corporate tax rate from 36 per cent to 30 per cent on the condition that it was revenue neutral. He asked whether we would, and we said that, so long as the government proceeded with measures dealing with the alienation of personal services income and with trusts—as announced by the government—that would be fine by us.

Just to be sure—because you do need to be sure with the Treasurer—we sought that commitment in writing. By the end of the day, the commitment was provided in writing, signed by the Treasurer and soon thereafter completely repudiated by him with no apology or explanation other than that he either rolled himself or got rolled in the cabinet room. I remembered the then member for New England, Stuart St Sinclair, had led the charge, and the Treasurer of the country got knocked over by the member for New England on this matter. It is now history that the company income tax rate was cut from 36 to 30 per cent—we still support that—but, shamelessly, the Treasurer reneged not only on an undertaking given across the table but on a signed undertaking.

This measure before us tonight goes even further. It does not by any standard pass the test of improving productivity and improving the overall prosperity of the nation. It is good for one small group. We believe that there are higher priorities for changes to the tax system in this country, priorities that would in fact support our export industry and our growth industries. That is why we consider that the $8 million a year could be better spent elsewhere. It is for that reason that I have great pleasure in seconding the amendment. I commend the amendment to the House.

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