Michael Keenan (Stirling, Liberal Party, Shadow Assistant Treasurer) Share this | Hansard source

Before I was interrupted by the adjournment last night, I was outlining to the House that the ALP has come up with a plan to make Australia a financial services hub for our region. I was saying that I thought it was a terribly good plan, a very sensible thing for us to do, and of course it was something that the coalition government had been pursuing for 11 years before the Labor Party came across it as a great idea. Extraordinarily, this measure seems to be the extent of what they believe will make Australia a hub within our region. They do not say anything about possibly reducing personal tax rates further, as the coalition had been doing for a number of years; they do not talk about making the regulatory regime better—again, improvements that were pursued extensively by predecessors in the roles of Treasurer, Assistant Treasurer and parliamentary secretaries of the previous government. The reduction in the withholding tax seems to be the extent of their vision. I have not even got to the most absurd part of that yet, but I will in a moment.

I note that the draft regulations that were published for this legislation actually exclude some of the most important players in our region. They exclude Singapore, Korea, Malaysia and the Philippines. They also exclude some players outside of the region: Switzerland, Austria and Belgium are countries that we have treaties with, but it was judged that we do not have an effective exchange of information with them. This measure is designed to make us a hub within the region, but it excludes some of the most important players in our own region.

Now I want to turn to what I think is the most extraordinarily silly part of this legislation. If you are a foreign investor in America, the UK or Japan and you decide that you would like to invest in Australian property trusts—and we reduce unilaterally our rate of withholding tax here in Australia—then what will happen is that your tax rate will go up correspondingly in your home jurisdiction. So let us just say you are a Japanese investor and you want to invest in Australian property trusts. We unilaterally reduce our rate, but that means that your tax liability will go up in Japan. If that is the case, there is absolutely no incentive for any individual to invest extra funds in Australia under this measure. This is the absurdity of it. It gives no incentive for individuals to actually invest under these circumstances. Essentially, what we are doing is taking money out of the pockets of the Australian taxpayer and directly transferring it from the Australian Treasury to treasuries in other parts of the world. Perhaps the US Secretary of the Treasury will write to Wayne Swan and thank him for this free gift that he has given taxpayers in his country. Sadly, it is something that will cost Australian taxpayers but will not enhance the investment environment in Australia one iota. That is the absurdity of this measure.

I will move on to a little bit of the background about what the coalition did. We were always concerned to make Australia as competitive as possible in the international arena. We asked the Board of Taxation to review our international tax arrangements with a view to seeing where we are competitive and where we are not competitive. They came back and they recommended that net rental income distributed by property trusts to nonresidents be taxed at a rate of 30 per cent, subject to a reduction of 15 per cent on a reciprocal basis in double taxation agreements. The recommendations sought to reduce the compliance burden on trustees, who were required to withhold tax at various rates according to the non-resident investor’s circumstances. The coalition government accepted the board’s recommendations, which were some of the many recommendations that were designed to promote Australia as a global financial services centre.

Despite alternative rates of withholding tax applying for basically the last decade, what we have witnessed in Australia is a substantial inflow of foreign money into Australian property trusts. So it does not appear that this rate of withholding tax was necessarily a barrier for investment. Indeed, you could probably make the case that commercial property in Australia is pretty well awash with investment in many cases. In fact, commercial property has proved to be an extraordinarily good investment over the past 10 years. The withholding tax rates have not seemed to be a barrier to foreign investors wanting to invest in those trusts in Australia.

I will conclude by referring briefly to the second measure contained within this bill—a measure we consider important. It will exempt the recipients of the Prime Minister’s literary award from income tax. The opposition support this measure. We think it is a sensible measure. We would have been very happy to split the bill to pass these measures straightaway. That offer was made by the shadow Treasurer to the Treasurer on Monday but, unfortunately, we have yet to receive any acknowledgement or response to that correspondence, which I think is a shame, because I would have liked that measure to have passed this House straightaway.

The Labor Party has completely misled the Australian people about what this measure would cost. This measure is essentially going to take money from the Australian Treasury and give it away to foreign treasuries for no corresponding benefit to the Australian investment environment. We are just taking money from our pockets and giving it to foreign governments for no good reason. What they will do is correspondingly increase the tax liability of individual investors in their home jurisdictions. So why would it be an incentive for individuals to invest in Australian property trusts? That is the absurdity of this measure.

The opposition believes it is appropriate that some of these issues are aired. I would very much like subsequent speakers in this debate to explain to us why this 7½ per cent rate is appropriate. The government is grudgingly giving the coalition’s tax cuts in this budget but, apparently, the government believes that the only other people who are worthy of a tax cut are foreign investors in Australian property trusts, who will gain no net benefit, because their tax liability will just go up within their home jurisdiction.

I think these are the sorts of questions that would be appropriately referred to a Senate committee. I, therefore, move:

That all words after “That” be omitted with a view to substituting the following words: “whilst not declining to give the bill a second reading, the House:(1)   calls for the provisions in the bill relating to managed investment trust income to be referred to the Senate Economics Committee for review, thereby enabling greater understanding of why the withholding tax regime should particularly favour foreign investors in property trusts; and(2)   urges the Government to ensure that the provisions in the bill relating to the exemption of the Prime Minister’s Literary Award be put forward in a separate bill that can be dealt with more quickly”.

This is a $630 million measure. It is the only tax cut given, with the exception of the coalition’s tax cuts, in the budget. Let the Senate have a look at this legislation and go out into the community and try to find out why it is that this government seem to favour foreign investors in Australian property trusts over any other form of investor in Australia and why it is that they believe it is appropriate to transfer funds directly from the Australian Treasury to foreign treasuries for absolutely no net benefit to Australia.

See this speech in context