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

Due to the rather unusual concurrence of events this morning and the series of valedictory addresses, I will be indicating the Labor Party’s position on the Tax Laws Amendment (2007 Measures No. 6) Bill 2007 from the position of second Labor Party speaker. Labor will be supporting this bill. Schedule 1 provides a deduction for capital expenditure for the establishment of trees in carbon sink forests. Expenditure incurred in establishing trees in a carbon sink forest will be immediately deductible in the period 2007-08 to 2011-12. After this initial period, establishment costs will be deductible under a write-off rate of seven per cent per annum for 14 years and 105 days. This provides a substantial encouragement for people to develop carbon sinks, and that is a worthy public policy outcome. The effective life of a forest is, of course, much longer than 14 years, so this write-off is very concessional to encourage the establishment of carbon sink forests. Carbon sink forests are forests which are established for the primary and principal purpose of sequestering carbon from the atmosphere. The carbon stored in the growing forest can then be used for greenhouse gas abatement purposes.

Currently, the costs of establishing trees in carbon sink forests are not deductible. The bill amends the uniform capital allowance rules to allow a deduction for capital expenditure for the establishment of trees in carbon sink forests as long as certain conditions are met, including that, to claim the deduction, the taxpayer must be carrying on a business. The explanatory memorandum makes it very clear that the definition of ‘carrying on a business’ is sufficiently broad to allow those businesses that wish to abate their own greenhouse gas emissions via a carbon sink forest to be eligible for the deduction even though that business may not directly involve the property in question. The primary and principal purpose of establishing the trees must be for carbon sequestration and cannot include the purposes of felling the trees or using them in commercial horticulture. However, this is flexible, so that a secondary purpose to the forest is allowed. That is a sensible caveat.

The deduction is not available for expenditure on establishing trees in a carbon sink forest incurred by a managed investment scheme or a forestry managed investment scheme. As the House knows, because of the relevant debates, there are different schemes to cover those managed investments. The amount of the deduction is the amount of the expenditure incurred in establishing the trees. Expenditure on assets separate from the trees is not considered to be establishment expenditure. Examples of this include fencing, water facilities for the trees in the carbon sink forest, roads within the forest, and fire breaks. It is also sensible that the deduction applies only where the land used for the carbon sink forest was cleared before 1990 which is used as the base year for the Kyoto protocol.

Unlike many members opposite, we on this side of the House take the issue of climate change seriously. We do acknowledge that it is happening—unlike some members opposite—and we certainly take it seriously in terms of a policy approach. Labor supports this measure as an environmental measure; however, this measure should certainly not be seen as a panacea. As the Australian Conservation Foundation said:

Due to their impermanent nature, carbon sinks cannot permanently offset emissions from burning fossil fuels. Carbon sinks should only be established to replace vegetation where it has been lost from logging and clearing.

The ACF do not oppose this measure, but they certainly do not see it as a panacea, and neither do we. Most importantly, it is also not an excuse for not doing more. And it is not an excuse for not signing Kyoto. It is not an excuse for not giving families more support to invest in renewables and make their homes more energy efficient. It is not an excuse for not investing more in renewables more generally. The government has been caught napping on climate change, and it is kidding itself if it thinks this bill is a huge step forward. It is a welcome step, but not a huge step.

My colleague the member for Kingsford Smith and shadow minister for climate change will be speaking in this debate a little later after question time and he will further outline the Labor Party’s position on some of the more detailed elements of schedule 1.

Schedule 2 ensures grants under the Tobacco Growers Adjustment Assistance program to tobacco growers are tax free. Tobacco growers can receive up to $150,000 under the Tobacco Growers Adjustment Assistance program to assist them to exit the tobacco growing industry and move into alternative business activities. In 2006 legal tobacco production ceased in Australia, and the last state in which tobacco production ceased was Victoria. Licences to produce tobacco can only be issued by the Australian Taxation Office in the case where a grower has formal arrangements to sell tobacco to manufacturers and there are currently no licences on issue.

Government grants paid to business to assist them to exit an industry are generally subject to capital gains tax. This bill lists the grant made under the Tobacco Growers Adjustment Assistance program 2006 as exempt from capital gains tax as long as the recipient exits all agricultural enterprises for at least five years. The bill also lists the grant as exempt from income tax, to put beyond doubt that the grants are not taxable income. These measures ensure that these grants are tax free in the hands of the former tobacco farmers. Labor supports this as a sensible and worthwhile measure.

Schedule 3 of the bill amends the Income Tax Assessment Act 1997 to update the list of deductible gift recipients or DGRs. This schedule allows deductions for gifts to the Council for Jewish Community Security from 10 August 2007. The Council for Jewish Community Security was established to assist in the provision of security and protection for members and institutions of the Australian Jewish community.

The date of 10 August on which this measure comes into force is a very significant one. It is the date that the Assistant Treasurer and Minister for Revenue issued his press release announcing the measure. As I recall—and I recall it quite well—it was a press release issued quite early in the morning. It also happened to be the day that the Leader of the Opposition, and the shadow minister for education, the member for Perth, released Labor’s schools security policy. We know that the government received a tip-off that that announcement was coming and it was a cynical attempt to play catch-up that they announced their measure before we announced our schools security policy. Perhaps they thought that by whisking out a press release very early in the morning when the Leader of the Opposition was in the car on his way to announce Labor’s schools security program that they would somehow derail our announcement.

No wonder people are growing cynical about this government. After 11 years in office they whisk out a press release when they hear on the grapevine that the Leader of the Opposition and the member for Perth are in the car on their way down to make Labor’s announcement. They had 11 years to deal with the issue and they did not deal with it until they knew that the opposition was about to make a very substantial announcement in this regard.

Of course tax deductibility of these donations does not derail Labor’s announcement; our announcement is quite separate from tax deductibility. There is a clear difference. The government believes that tax deductibility is enough. The government says that, if they make donations to the Council for Jewish Security tax deductible, that is their contribution to this very important matter. We agree with tax deductibility. We violently disagree that it is enough. We violently disagree that this closes the matter. We support tax deductibility and our schools security project. We are prepared to give bipartisan support to tax deductibility and we call on the government to give bipartisan support to the schools security program.

The schools security program does not of course deal only with Jewish schools but also with schools that are in a sensitive environment in relation to their security, and Jewish schools are a very prominent part of that subset. We have recognised that schools in the Jewish community and in other communities need more support to ensure their security. There is nothing more important than ensuring the security of young children at school. For parents of those children it is of course a vital matter and it is not one where they expect to see games being played like a press release being issued when the Leader of the Opposition is on his way to make an announcement. So we will support tax deductibility on a bipartisan basis because it is sensible and worth while. But if the government were serious they would in turn support Labor’s schools security package or come up with their own or make some sort of other measure to fund independent schools that have issues with security. Labor’s position is very clear: we support tax deductibility and we support the extra funding of $20 million in order to assist independent schools that have established security issues.

This schedule also extends the DGR listing of Australia for UNHCR until 27 June 2012, which was established to raise funds for the work of the United Nations High Commissioner for Refugees, which safeguards the rights and wellbeing of refugees worldwide. Labor of course also supports this measure and wishes this organisation well.

Finally, schedule 4 amends the Farm Management Deposit Scheme to align the tax laws with the guidelines for declaring either all primary producers in a geographical area, or specific classes of primary producers within a geographical area, to be in exceptional circumstances. The Farm Management Deposit Scheme is designed to allow primary producers to set aside taxable primary production income in profitable years, to be withdrawn, usually in lower income periods, in order to deal with adverse economic events and seasonal fluctuations, and of course the drought. Deposits are tax deductible in the year they are made. When the farm management deposit is withdrawn the amount of deduction previously allowed is included in their assessable income in the repayment year.

To qualify for the tax deduction, farm management deposits cannot be withdrawn within 12 months of the deposit other than in certain specific outlined circumstances. However the deposits can be withdrawn within 12 months if the farm is in an exceptional circumstances, or EC, area and the deposit was made prior to the area being EC declared.

A minor inconsistency exists under the current law which denies eligible primary producers the tax benefits of a farm management deposit as a consequence of withdrawing their FMD early. Certain classes of primary producers in an area that has been declared in exceptional circumstances within 12 months may be denied the tax deduction because they withdraw from the deposit that was made when the area in which their farm is located was an EC area at the time of the deposit, even though the exceptional circumstances declaration did not apply to them because of their producer class. This amendment will remove this minor inconsistency to allow these farmers the tax benefits available under the FMD scheme. This minor amendment is in addition to the more substantial changes made earlier in the year in the Tax Laws Amendment (2006 Measures No. 7) Bill 2007. That bill increased the threshold of non-primary production income from $50,000 to $65,000 and increased the deposit limit from $300,000 to $400,000 to allow more primary producers to become eligible for the FMD scheme. Labor supported that measure, as it supports this one, and it supports the other measures contained in this bill.

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