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

I support the Tax Laws Amendment (2007 Measures No. 5) Bill 2007 and restrict my comments to the implications of schedule 7, ‘Partial capital gains tax roll-over for statutory licences’. I quote:

This schedule amends the ... Income Tax (Transitional Provisions) Act 1997, so that the existing CGT—

capital gains tax—

exemption (or roll-over) for the granting of a proposed statutory licence on the ending of the previous licence extends to situations where one or more licences ends and consequently one or more licences are issued. Further, these amendments provide for a partial CGT roll-over in the above situations where ‘non-licence capital proceeds’ (such as money) are also received.

There is no doubt when you read that that those who are not accountants have some difficulty with the tax act. I have probably spoken on this issue more than I have on any other—with the exception of Telstra perhaps. The very important issue of capital gains tax rollovers has been around for years now. I would like to spell out some of the background, because it is very important to future natural resource management decisions and policies that governments of either persuasion make. I would not like to see the same mistakes occur that have been made over the last two or three years, and particularly in the last decade, on the removal of entitlements—in this case from irrigators but it may apply to other natural resource areas—and the way in which those entitlement holders have been treated not only at the Commonwealth level but at the state level in particular.

The issue, which goes back a number of years, is that the New South Wales state government removed entitlements from irrigators—specifically groundwater licence holders—across a number of valleys in New South Wales. Over a period a $150 million package was developed with the state and the Commonwealth putting in $50 million each to structurally adjust/compensate. The word ‘compensate’ has led to some of the difficulties that Treasury and Tax have had with the interpretation of whether the removal of an entitlement and the payment of a sum of money should be treated as income or capital. The legislation before us today was introduced to resolve that question. Up until a few months ago, the $50 million from the state, the $50 million from the Commonwealth and the like contribution from the irrigators was to be treated as income, in which case the Commonwealth would have been able to reclaim up to 85 per cent of its contribution through the Income Tax Assessment Act. That was seen as a double play by many in the irrigation sector, particularly those who were viewing this as a precedent in natural resource management and in the payment of structural adjustment/compen–sation for the loss of entitlement. Schedule 7 of the legislation deals with that issue. The proceeds from the Commonwealth and the state government for the loss of water entitlement for those groundwater licence holders in those six valleys in New South Wales will now be treated as capital under the assessment processes. That will make a significant difference to the amount of money that the groundwater users receive in their pockets.

A number of issues are still outstanding. I was pleased to hear the member for Prospect raising one of these issues this morning. It gets to the fine detail of how this will be interpreted on the ground. There are two things: one is that the deeming of the rollover provisions and the trigger mechanisms for the capital gains tax event have, as I understand it, been triggered by the acceptance of what I would call water-sharing plants. In five of those six valleys those water-sharing plants came into place in 2006. So it was deemed that the trigger mechanism for the application of schedule 7 of this bill would occur as of 2006. The water-sharing plant in the Lachlan Valley has not been approved as yet. I am told it will most likely be approved in 2007. I am open to correction from the members of the government that are here to listen today.

In a sense, the application of schedule 7 means two things to two different groups who are getting compensated for essentially the same event—the loss of groundwater entitlement as part of their licence. The 2007 trigger event will be able to take advantage of some of the small business taxation amendments that were made earlier this year. The 2006 trigger event CGT rollover people will not be able to take advantage of that. I believe the member for Prospect, the shadow minister, referred to that particular circumstance this morning. There has been concern and a lot of pressure to get this legislation into the House. There has been a lot of procrastination over this issue for some time as to who is to blame and what was the precedent that was being set. As I understood the shadow minister this morning, he was essentially saying that if the Labor Party were to come to power they would consult with the irrigators about the two trigger mechanisms of 2006 and 2007. What precedent is created for those people that will be deemed differently or will be able to take advantage of the small business provisions in a different fashion to the 2006 people? Maybe the minister would like to address those issues when he sums up the debate.

The other issue that is involved in this occurred in 2005—and I might be corrected on the date. As part of this $150 million package, the New South Wales government made a contribution to the same groundwater users, particularly of the Namoi groundwater system, of $20 million. When the $150 million package was agreed between the states and the Commonwealth, that $20 million was rolled into the $150 million joint state-Commonwealth compensation package. The state said, ‘We have already made a contribution of $20 million, so if we add another $30 million that will make our $50 million, and the Commonwealth should put in its $50 million and the irrigators should put in their $50 million in kind.’ That $20 million, as I understand it—and I am once again open to correction—is going to be treated differently from the provisions that this legislation will put in place. That has upset many irrigators. I will not go through this letter I have from a groundwater irrigator. In summary, the writer goes through the various issues his accountant has raised in clarifying a ruling. He mentions that his accountant has spoken to the member for Gwydir about the 2003 structural adjustment package and the tax status of that package, even though it has been rolled into this larger package of $150 million. Even though he has lost an entitlement and has been partly compensated for some of that loss, he reaches the conclusion:

This means that my family has lost nearly $100,000 in tax, which should have been considered capital repayments and, therefore, tax free.

I think what he was saying by ‘therefore, tax free’ is that it was subject to income tax but that it should have been considered under the capital gains tax provisions that schedule 7 allows. So I was pleased to hear the shadow minister raise that issue. However, I would also like the current minister to look at those two events—the trigger mechanism of the 2006-07 variations in terms of the water-sharing plants and this early payment of something that was rolled into a much larger arrangement. I am pleased to see the minister here in the chamber now. I do thank the minister and his staff for some of the work that has taken place on this within the last few months. Many people have been critical of the government for being slow, but I think there was a genuine attempt to try to get it right in the end. I had contact with the minister and some of his senior people, and I thank them for the way in which they have tried to come to grips with some of these issues.

I would like to congratulate John Clements, the CEO of Namoi Water. I have been involved in this issue for many years and with issues that preceded this, involving property rights and the arrangements that were put in place with the National Competition Council back in 1995. I have absolutely no doubt that, had Namoi Water, their chairman and their chief executive officer, John Clements, not stuck to this issue like glue and spent time doing the detailed work, we would not be here today debating this piece of legislation. Even though there is a great deal of angst among irrigators about the delays that have taken place, this is a much better outcome, due to the detailed work that Namoi Water have done. Some of the other irrigation areas and representative bodies had given up, in a sense, and only came back in for the kill when they could see that the real issue was back on the agenda. I congratulate Mr Clements on his work. I also congratulate Michael Murray from Gwydir Water. I know he has been talking to the member for Prospect and others and to the minister’s office. He has obviously put in a lot of work in relation to the detail of the Treasury response and the way in which this matter has gone on and on over a period of time.

In my view, the water debate, and this issue in particular, is 10 years overdue. In the past 12 months we have been talking in this parliament about a $10 billion Murray-Darling plan, part of which is to claw back entitlements. I take the parliament back to 1995, when the national competition agreement for reform of four basic areas, water being one, was signed. Two major issues were addressed in the document that the states and the Commonwealth signed at the time: firstly, that a proper operating market for water be achieved across the four states and, secondly, that property rights be recognised. Over a 10-year period, property rights have never been recognised. There has been constant movement of the goalposts. We have gone through a whole lot of intergovernmental agreements, bilateral agreements and catchment management blueprints. I remember the member for Gwydir standing up and saying, ‘Property rights have been achieved because they are in the catchment management blueprints, because I put them there.’ They are unsighted today. They do not exist. Some people have claimed that schedule 7 of this bill is in fact recognition of a property right. It is not at all. I ask the minister to address the issue of property rights. The Prime Minister, in answer to questions that I have asked him on this issue, used the words ‘properly conferred water right’ and said that it should be treated as compensatable.

If, at the time of the 1995 agreement, there had been real leadership in the water debate, recognising the overallocation of some of our river and groundwater systems, recognising a property right and recognising that the community would compensate for the removal of some of those rights, we would not be going through this fantasy of another $10 billion package to save the Murray-Darling. When you analyse the flow of money under the national competition arrangement from the Commonwealth to the states that could have been used for water reform, you find that something like $8.5 billion has been expended through water quality and salinity arrangements, various intergovernmental agreements, bilateral agreements, catchment management blueprints, the Murray-Darling Basin Commission, the National Water Initiative—and on and on it goes. We have never addressed the underlying problem. No wonder irrigators and communities are suspicious of government. Government signed off on an arrangement and the current government endorsed that arrangement in 1996 and has carried it on ever since. The states have taken the money and have not repatriated those who have had to make major adjustments to their income streams. On and on it goes, and now we have another one, called the Prime Minister’s cigarette paper plan, which is going to save the Murray-Darling and is going to look at the overallocation issue and the entitlement issue and is again going to save the world. No wonder people are very suspicious of those issues.

When we look at the removal of a licence, the rollover provisions and the trigger mechanisms, I think we should learn from what we did not do all those years ago and remember that there are human beings involved in this who were allocated licences legitimately. The Commonwealth has been saying for years, ‘That is a state problem.’ Now the Commonwealth is saying, ‘Through the cigarette paper plan we will be able to overcome those problems in a policy sense by taking charge of the Murray-Darling.’ I did not support the previous legislation, because I think it is flawed in many ways. But this is not the forum for debating that. What it does show is that there have been issues in the past that could have been addressed by the Commonwealth. The Commonwealth had control of the money. That was what the national competition arrangements were about—control of the wallet to force an agreement. Time and time again the member for Gwydir, the Prime Minister and the Treasurer would say: ‘We will not allocate the money to the states. We have control of the money.’ I think Queensland were in breach of the national competition arrangements for tobacco, a $10 million arrangement, back in the 1990s. Very rarely has the National Competition Council actually used its powers to force the states to comply with the original agreement.

Whilst the shadow minister is in the chamber—and I think he has a reasonable chance of being the minister in a few months time—I would ask him to look very closely at that particular issue. It was decided back in those days that the basic issue of property rights be recognised. If it sets a precedent, so be it. These people who are going to lose entitlements that were due to be granted to them should not be treated with the disdain with which they have been treated over the last decade. I would ask the shadow minister to have a very close look at the implications for those human beings and those communities if his party comes to power.

See this speech in context