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

I rise to talk about the Tax Laws Amendment (2008 Measures No. 4) Bill 2008. The bill before us contains three separate schedules. Schedules 1 and 3 are pretty straightforward, but schedule 2 is perhaps one of the silliest and most destructive of the changes that this government has proposed for the tax system so far. I say that because the stated rationale for proposing this measure, which is allegedly savings, has been completely exposed by the Senate Standing Committee on Economics, yet the government still barrels headlong into making these amendments for no apparent reason. I will deal with schedules 1 and 3 first, and then I will move on to talk about schedule 2.

Schedule 1 of this bill amends the Income Tax Assessment Act 1997. The object of this schedule is to provide capital gains tax relief for private health insurance policyholders who receive a cash payment when their insurer demutualises. It is specifically a response to the demutualisation of NIB last year and MBF this year. This is a sensible schedule. It builds on the coalition’s strong record and demonstrated commitment to providing all Australians with the choice of adopting private health insurance—a commitment that the government obviously does not share.

Schedule 3 of this bill amends existing taxation laws to ensure the proper operation of the taxation system. It makes relatively straightforward and minor changes to existing taxation laws to promote their intended operation, and it does have the coalition’s support.

I will move to schedule 2, which is the schedule within this bill that deals with family trusts. This schedule amends schedule 2F of the Income Tax Assessment Act 1936. The object of this schedule is to limit the definition of lineal descendants of the test individual or of the test individual’s spouse and remove the ability for a family trust to make a one-off variation of the test individual specified in a family trust election. This schedule is another very clear example of the Labor government’s inability to understand Australia’s tax system.

After extensive consultation, the coalition government introduced amendments in 2007 that updated the definition of ‘family’ to reflect the evolution of Australian family dynamics. These changes received widespread support throughout the community, although they were opposed at the time by the Labor Party, who seem to retain some sort of ideological objection to family trusts. The amendments made by the coalition government reduced the restrictions and compliance burdens that were placed on small business, farmers and professionals who use family trusts for perfectly legitimate purposes, including asset protection and business succession planning. The amendments included changes to the definition of lineal descendants, former spouses and widows, among others, and allowed family trust elections to be varied or revoked in certain circumstances, including the death of a particular individual. The coalition’s amendments received very broad support from a range of stakeholders across the country. Reversing the coalition’s amendments will substantially increase the compliance burden on all those small businesses, farmers and professionals who use family trusts, as I said, for perfectly legitimate purposes.

We often hear from the Labor government that they are concerned about red tape, they are concerned about compliance costs and they want to simplify the tax system. Yet time and time again we see that when they talk of cutting red tape or simplifying the tax system all they are really doing is repeating motherhood statements and slogans while they continually do the opposite—that is, increase bureaucracy, increase red tape and increase compliance costs. Schedule 2 of this bill is a great example of that. There are over 400,000 family trusts in Australia. The amendments in this legislation will burden a substantial portion of those and will increase compliance costs and potential penalties and taxes.

The Labor government has justified these changes—rather absurdly, I think—as a savings measure. I say ‘rather absurdly’ because this rationale has been completely demolished by the Senate economics committee and by those who gave evidence before that committee when they were conducting hearings into this bill.

Indeed, the evidence that was presented there by the government’s Treasury indicates that the compliance costs with this measure will be enormous, whereas the savings will be paltry. Treasury believes that the savings for the amendments relating to lineal descendants will be around $1 million over the forward estimates. Yet, as we see from the evidence presented to the committee, the compliance costs will be enormous. So the government might save $1 million, but they are pushing literally tens of millions of dollars, perhaps hundreds of millions of dollars, of compliance costs with this measure onto the Australian community. That is the absolute absurdity of what we are debating here today.

I want to take this opportunity to inform the House about some of the evidence that was given to this Senate committee and to quote some specific passages from the dissenting report that was submitted by Senators Eggleston, Joyce and Bushby and which completely demolishes the rationale for this schedule in this bill. This passage relates to the alleged savings that occur within this bill. The dissenting report says:

... the methodology for calculating the quantum of savings was seen to be less than rigorous and, at least as far as it extended to the proposed amendment relating to lineal descendants, almost entirely absent ...

I will also quote from one of the Treasury officials who appeared before the committee, talking about where they found these alleged savings:

The costing of this represents the reversal of the earlier measure, so it is based essentially on the earlier costing of the changes to family trusts and family trust elections.

…            …            …

My recollection of the costing of this is that the lineal descendants, over the forward estimates period, is a very small part, probably around $1 million.

So the government is prepared to push all of these compliance costs onto people in the Australian community—and there are 400,000 family trusts in Australia—for a saving of $1 million. How absolutely ridiculous. Evidence that was received from other witnesses suggests strongly that there will actually be no savings from the amendment relating to lineal descendants. So you really need to ask yourself: why are we debating this here today? The government says it is a revenue-saving measure. All the evidence suggests that there will be minor savings, if any, yet the government still barrels headlong into pushing this through the parliament. For what rationale? I certainly have not heard the answer from the government and I will be interested if other speakers in this debate are able to provide any even remotely sensible reason as to why they want this legislation to pass this House.

I will read a little further from this evidence, because it is very compelling. I quote again from the dissenting report:

Despite the questionable calculations of savings, any savings that may be achieved as a result of the proposed changes will be well and truly lost by the cost that so many of the 400 to 500 thousand trusts will have to incur in order to re-adjust for the changes with no economic gain to the economy from this expenditure.

So the government seem happy to talk about how they want to reduce red tape and attack compliance costs within the economy yet, every time they are presented with the opportunity to do so, they do the exact opposite. Of course, like so much with the Rudd government, all that ever happens with these things is talk; it never translates into any meaningful action.

The Senate evidence, and the fact that the government have not been able to provide a rationale for making these changes, further highlights the incompetence of this administration in managing Australia’s tax system. I think that with these proposals the government have demonstrated a whole new level of incompetence. They have introduced a tax measure that will allegedly provide for greater revenue to the government. Of course, we find out that it hardly does that. What it will do is provide greater revenue to accountants, advisers and lawyers, who will be forced to advise confused Australians who are having to contend with these ridiculous changes to the administration of family trusts.

Like a lot of what this government do—and again a big song and dance was made in the lead-up to the last election by the then shadow Assistant Treasurer, the now Assistant Treasurer, about how they were going to consult widely when they introduced changes to the tax system—these measures were introduced without any consultation at all. This is so typical of this government. They always talk a big game, but it never, never translates into action.

There is very wide agreement within the industry about these two measures. What the industry say, and what they have said to the Senate economics committee inquiring into this bill, is that these two measures will create substantial compliance difficulties for families involved in small businesses and farming in particular and will not deliver revenue savings to the government.

The Senate committee received seven submissions from leading industry groups and experienced practitioners, each expressing condemnation of these changes. For the benefit of the House I will read the names of those who made submissions, because it is a pretty impressive list of stakeholders who deal in taxation in Australia. The individuals and institutions who made submissions opposing this measure include: the Institute of Chartered Accountants in Australia, CPA Australia, the Taxation Institute of Australia, Family Business Australia, the Financial Planning Association of Australia, Mr Mark Leibler of Arnold Bloch Leibler and Halperin and Co. Pty Ltd—seven submissions, all of them strongly opposing this absurd measure.

Typically, trusts will have a vesting period of between 80 to 100 years. The measure limiting the definition of family falls short of the expected duration of trusts, which will lead lineal descendants outside the proposed definition to be subject to a penalty tax, family trust distribution tax, of 46½ per cent. This is another example of Labor’s high-taxing policy agenda for Australia’s tax system.

Because people have an increasing life expectancy in Australia, many people now live to enjoy watching further generations of their family grow up. It is foolish in the extreme to then limit the use of family trusts to two generations at best and only a single generation in some circumstances. I would just like to provide the House with an example of how silly this measure will be. A brother and a sister carry on a business under a family trust, where the sister is the nominated test individual. The proposed measures will mean that only the grandchildren of the sister and children of the brother are included. This excludes the grandchildren of the brother and the great-grandchildren of either. The absurdity of this schedule is that it penalises the family when the test individual passes away.

As illustrated, the proposed measures will intentionally introduce a taxation anomaly to Australia’s tax system, and these measures simply cannot be justified as an integrity measure. The government has really proposed a de facto inheritance tax at the top marginal rate to all those Australians who have set up family trusts to provide certainty for future generations. These measures jeopardise the main instrument used for business succession and protecting family assets for future generations. The proposed measures will create complicated hurdles for family businesses to be passed through the family.

Labor’s national platform states that they will ensure that we have a taxation system that minimises compliance in collection costs. Again, we hear members of the government talk about this all the time. They talk about cutting red tape, they talk about reducing compliance costs, but never do we ever see this government’s good intentions translated into action. These proposed measures show that either Labor is incompetent in understanding the consequences of what they propose for Australia’s tax system or they have become so arrogant since the last election that they are just going to push measures through that are patently absurd when the rationale for those measures has been demolished by an independent inquiry in the Senate.

The coalition is not going to be part of this farce. We are going to oppose unnecessary complications of our tax system. I would like to inform the House that we did give the government an opportunity to excise this silly schedule from this bill so that the House could pass schedules 1 and 3, which we support because they are sensible schedules. The shadow Treasurer wrote to the Treasurer on 25 August offering to do just that. I am happy to table a copy of his letter for the benefit of the House.

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