Andrew Laming (Bowman, Liberal Party) Share this | Hansard source

To summarise as I close the debate today on the Tax Laws Amendment (Election Commitments No. 1) Bill 2008 and cognate bills, we are effectively considering the reduction of withholding tax from the 30 per cent that it is at the moment down to 22½ per cent, 15 per cent and, curiously—and this is what this debate has focused on—7.5 per cent from 2011. I know that we are all very busy and that the member for Lindsay will be departing shortly. I think he succinctly stated where much of this debate has focused: why are we reducing taxes on foreign entities investing in Australian property trusts to the extraordinarily low level of 7.5 per cent? His answer to that very key question put by the member for Stirling was that many of these investors are pension funds who are low-tax or no tax entities from other countries. That is correct. So any investor who effectively moves into the Australian market gets a credit for the tax that they are paying, once back in their home country. Many of those institutions as described, pension funds, are exempt. But effectively they are extensions—many of them publicly owned, publicly controlled or quasi-controlled—of foreign treasuries. That is the very point that the member for Lindsay arrived at. If we are trying to attract foreign investors into the managed trust sector in Australia, which is very significant but at the moment 97 per cent Australian, will they be attracted by this measure?

There are two types of entities out there. One of them, as the member for Lindsay described, is predominantly tax-favoured overseas pension funds, which are effectively sending back, in many cases, the profits of their enterprises to maintain pensions in overseas countries. They are an extension of government. This is the very point. In this global tax debate where we are looking for some form of level playing field, IFSA and the Property Council of Australia just said, ‘Get us to 15 per cent, where we can be globally competitive and where we are roughly the same as other competing sectors.’ What we on this side of the House do not understand is why you would drop the tax rate to 7½ per cent by 2011. At that rate of dropping tax you might as well move it the following year to zero, because that is what has happened in the three previous years. This may well be a $630,000 tax expenditure by this government, having already in just six months instituted some extraordinarily painful taxes to raise about that much revenue, but, in this tax expenditure on forgone collection to Treasury, we need to be asking exactly why in an international tax environment we need to do it at all.

Who are we helping here? With any policy change, we start by defining the problem. Is our property sector struggling? Is our property sector not overheating? Is there a skills crisis for people in the construction industry that could be aggravated by expanding that sector? I will accept that a $1.3 trillion property sector could move to $2.5 trillion, but is it the intent of the legislation to further overheat that sector? Most of these investors do not go into residential property, I accept, but it is one sector, be it residential or commercial. We are yet to even define the problem that this legislation is fixing. Everyone here agreed to drop withholding tax to 15 per cent; there is no quarrel. My question is about dropping it further to 7.5 per cent.

I think we have to rewind to April last year when the then Labor opposition costings were around $15 million for this. But that has now been disputed by Treasury. There is this regular revision when the government realise that their figures do not match up with Treasury’s figures. We saw this with private health insurance. We saw this with the alcopops minute that was dutifully sold by the health minister as a health initiative when it was just a tax grab.

For those who are tuning in, we are talking about charging 7.5 per cent withholding tax in 2011 to entities that invest in Australian property trusts. I sure wish I could get 7½ per cent. There are a lot of working Australian families who would like to pay 7½ per cent. The whole intention of the election campaign last year was to find ways of helping working families, but this is something that actually takes money out of their hands. It is $630 million over four years that is not being collected for working families.

You can almost see the strategists sitting in a circle, the member for Charlton among them, thinking, ‘How can we intellectually distort this debate and turn it into an argument about the labour movement?’ And he almost succeeded. But it is the labour movement that sees $630 million evaporate from the pockets of working families through this simple measure, and it has virtually gone unnoticed and unreported. Can you imagine sitting down and saying, ‘We may well be helping Japanese working families to invest in our managed investment funds—Japanese millionaire families may well be benefiting’? But now we have had the admission that most of the investors are pension funds that often have extraordinarily close and quasi connections to their own treasuries.

So this tax expenditure just transfers money that should be collected in Australia but is not, and then the entities that should have paid the tax simply go home and get a credit. They say, ‘Before you tax me, I get a credit on everything that I’ve left behind in Australia.’ Whether it is 15 per cent, 10 per cent or seven per cent, it does not matter: they still pay tax on the difference at home. So, instead of collecting it for Australians, you are giving it away to the South-East Asian economies. I am not talking about Singapore, Malaysia and Korea, which already have direct tax agreements with us; I am talking about all the others with whom we have these understandings to exchange information on tax. To me, that is just not smart.

As a humble backbencher I come in here to hear the contributions of those in the government just to try and understand why you would want to tax these kinds of transactions at 7½ per cent. The case that has been prosecuted so far is: ‘We need to grow this nation as a financial hub.’ That is a very hard thing with which to disagree. You will get everyone agreeing on that. But if you truly wanted to achieve that then I think you would want to reduce the tax on dividends, interest and royalties. This is a discount on tax upon income, and income is basically rent and capital gain. That is not going to be of enormous interest. What is going to be of enormous interest to investors are the dividends, the interest and the royalties. Why not have the legislation pertaining to those areas? It does not and that defies explanation.

We know that here in Australia we have a booming housing and commercial property sector. It is going strong. The member for Macarthur, here in front of me, is from a part of Western Sydney where you can barely find a builder, where rates for people in construction—and I do not begrudge that—are at all-time highs. We do not have a problem to fix here. We already have a booming property sector which will expand simply by dropping the rate to 15 per cent. The debate today is about the need to move it to 7.5 per cent, creating an enormous tax distortion.

The forward estimates that were rolled out today do not even account for secondary effects. They only account for the tax that is not collected by dropping the rate. They do not account at all for the distortions that will be achieved by lowering these rates to 7½ per cent. Now, you may well have more entities wanting to invest, and I put it to the government: do we really desperately need that in the property sector at the moment? I am all for foreign investment—there is no problem with that—but I have to keep the whole thing in balance.

In the tax system, you need to be looking at areas in which there are tax expenditures and lost opportunity. With this legislation, you are simply creating one such area. You are creating a loophole for others to scratch their heads about in the years after 2011 when these very low tax rates will remain for foreign entities from South-East Asian countries to invest in the property market. That is the simple question that I would really like someone from the government benches to answer.

Six hundred and thirty million dollars is nothing to sneeze at. That is the kind of tax measure that has already been introduced with the famous or ill-fated alcopops tax. Was it really necessary to slug every single trackie- and singlet-wearing worker who loves a Bundy and Coke in the name of stopping binge drinking and yet forgo the same amount of money in this barely publicised measure? The answer is no. The answer is that the government did not need to give it away. It did not need to make this foolish slip from 15 per cent to 7½ per cent. I challenge anyone on the other side right now to tell me anything else that is taxed at 7.5 per cent, apart from some minor state duties. If you are fishing around and looking for a favourable tax rate, one has just been created by the government with barely a whimper.

We had the member for Charlton linking the labour movement to the important growth of compulsory super savings, but at the same time they are bleeding out the back door in payments to foreign treasuries. That is where this money ends up. I respectfully differ and say we could do a lot with that money here in Australia. We could do a lot for working families. I did not see, last year, bumper stickers on the backs of utes saying, ‘you’ll rate a tax discount if you’re a foreign investor in our managed trusts’. I did not see that bumper sticker. So why don’t we look at this level again and ask if there is any need to go beyond the international standard of between 10 and 15 per cent? Finding a rate below 10 per cent is extraordinarily difficult. Mr Deputy Speaker, you need to go to one country and one country only, and that is Singapore, to find that they are actually moving their rate up from 10 per cent, not down. Their listed trusts, a small number of them, are taxed at 10 per cent but they are actually going to move to 20 per cent.

So what kind of signal is this? Is it a signal to say that we are a financial hub? If it is, you need to rewrite the legislation and incorporate dividends, interest and royalties. If you are serious about making Australia a financial hub, I will give you a list of 50 things, which will be non-controversial on both sides of the House, to do to achieve that. There is no disagreement on the need to set the rate at 15 per cent.

There has been a lot of discussion in the last six months about overpromising and underdelivering. I wonder if this is a tiny hoax being run by the government to give themselves a moment of space to be able to debate that fairly superficial argument that they are now the economic managers of choice and that they are about being pro-globalisation, acting in the national interest and being progressive about tax policy. If the government are serious about that, I would respectfully put this suggestion to them: let us start working on Australian company taxes for small businesses out there which still pay 30 per cent; let us start working on income tax, which the Howard government, over 10 years, ramped down to record low levels with strong economic management; let us start working with ordinary Australian families and reducing tax there. With the greatest respect, I see nothing here but an exercise in tax flight and the earnings from the Australian managed property fund sector going directly to the coffers of other countries and their treasuries.

If we are going to drive the demand side by dropping tax rates to 7.5 per cent, we are going to encounter a few other issues as well. These are natural distortions, so that those who seek out the lowest tax rates merely move into a sector that, I have already made the case, is completely overheated. It is not that I do not want to see a strong property sector, but the way to do it is not by creating a 7.5 per cent tax level. All that the government had to do was to take the Treasury advice and accept that they got their figures wrong in April last year. Then we would not even be having this debate today. You would probably find that there would be no disagreement and that you could not even find speakers to talk about the bill, it would be so non-controversial. There is no doubt that we support the move to 15 per cent. You only have to go onto the web and have a look at the royalty percentages set by each of the economies in our region to know that 15 per cent fixes the problem. So I find it absolutely unbelievable that we come to the end of this debate and that that simple proposition has not been contested. That proposition is that we simply move funds to near neighbours and sovereign states and to their treasuries, because that is effectively what is going to happen. The other thing that has not been modelled at all by the government is whether even one extra dollar will arrive in our sector from overseas investors under this measure. I have made the case already. These investors effectively gain a credit for whatever tax they pay in Australia, so moving it below 15 per cent may well be utterly futile.

In the last couple of weeks we have heard about an Asian union from the Prime Minister, something akin to the EU. It was timed just prior to a visit to Japan. We have heard about eliminating nuclear weapons from the globe, another massive project from the Prime Minister. There may well be coming, in the next week or so, plans for the first Australian to land on the moon or the first manned project to Jupiter. What is the next really big-ticket item from the government? We have had these completely defocused thought bubbles on global issues, and yet we see money leaching out through the back door in measures such as this. Right now, what we are looking for, I think, is just something that helps Australian working families and not something that helps Japanese working families or Japanese retirees. It is a simple proposition, and I challenge the government to answer that simple question.

There is something we also had from the previous speakers on the other side. I have to quote the member for Charlton: ‘You really have to ask why more emphasis was not placed on this issue by the Howard government.’ I think that the tax record of the Howard government speaks for itself. I think that the evolution of Australia as a financial hub and the fact that the member for Corio has acknowledged that Australia is the fourth largest onshore fund management sector in the world is evidence of that. Allow me to ask the question: where is the problem once we move these levels to 15 per cent, a move which was completely non-controversial? I do not see a reason for going below 15 per cent. Those on this side see significant challenges and distortions and, effectively, a tax loophole from doing so. I would put it to the other side that the only way to truly understand the implications of this decision is to refer it to a Senate committee for further analysis, and it would be that movement that I would support.

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