Richard Marles (Corio, Australian Labor Party) Share this | Hansard source

It is my great pleasure to be here speaking today and following on from the member for Corangamite. Since the member for Corangamite and I were elected to this place, this is the first time that we have spoken consecutively in the House of Representatives, which leads to the conclusion that five o’clock today really is Geelong hour in the House of Representatives—as, of course, we very much know that five o’clock will be Geelong hour at the MCG this coming Saturday! We take this as a portent for what is to come in the next 72 hours.

I rise to speak in support of the International Tax Agreements Amendment Bill (No. 2) 2008, which will incorporate into law the 2008 protocol agreement between South Africa and Australia relating to taxation and amend the International Tax Agreements Act 1953. The protocol that was signed earlier this year enhances and updates the existing Australia-South Africa tax treaty, which was first signed in 1999. This new protocol will assist in promoting trade between our two nations. It will also assist in providing communication and better cooperation between the tax agencies in South Africa and in Australia. It will also encourage greater investment by each country in the other. It will do this specifically by lowering the withholding tax rates on interest and royalties which are related to trade. This bill comes before the House of Representatives having first gone to the Joint Standing Committee on Treaties, which recommended that the bill be passed through the parliament and that the protocol become law in Australia.

Australia and South Africa share much within their history. Both countries had European settlement occur in the context of the British Commonwealth. The Boer War was in essence the first major conflict that Australians fought in as Australians. After that war many Australians stayed in South Africa, and in 1904 the South African census recognised over 5,000 Australian settlers. In this country we saw the first wave of South African immigration to Australia around the 1850s, when approximately 1,500 South Africans came to Australia in pursuit of gold—and approximately half of those South Africans ended up living in my home state of Victoria. Today it is estimated that there are 115,000 South Africans who reside in Australia and, correspondingly, that there are 7½ thousand Australians who reside in South Africa.

Australia and South Africa established diplomatic relations with each other back in 1947. Of course, those relations soured following the Sharpeville massacre in 1960 and subsequently during the apartheid era. It is to this country’s great credit that, throughout that time, Australia strongly opposed the apartheid government in South Africa. Prime Minister Malcolm Fraser spoke out vigorously against apartheid, particularly at the 1977 Commonwealth Heads of Government Meeting in Scotland, where he argued that the Commonwealth should become institutionally opposed to apartheid. Bilateral relations between our two countries have been enhanced since 1994, with the first post-apartheid all-party elections and the introduction of very strong democratic institutions into South Africa. It is of interest that, since 1994, Australia has provided $120 million worth of development assistance for this, in a sense, emerging democracy.

Australia and South Africa have also worked very closely together on defence issues since 1994, despite our contrasting geography, being in different longitudes of the world. The chief of staff operations for the South African National Defence Force visited Australia in August 1996 and, since then, there have been numerous visits back and forth between our two defence forces. We all remember the Australian Defence Force in 2001 praising the South African National Defence Force for its help in apprehending an illegal fishing vessel which had fled Australian waters.

At a parliamentary level there has also been a lot of discourse and connection between our two countries. There have been significant parliamentary delegations and ministerial visits since 1994. The first was undertaken by the current member for Fraser, the then Minister for Trade, Bob McMullan, back in March 1995. Under the Howard government, there were nine official visits by ministers and parliamentary secretaries, including the Prime Minister, John Howard, in 1999. There have also been four parliamentary delegations since 1997. The current Speaker of the House, the member for Scullin, represented Australia at the 118th Assembly of the Inter-Parliamentary Union in Cape Town in April this year. South Africa is the only African member of the Cairns Group.

But the legacy of apartheid has not been easy for South Africa to shake. South Africa still confronts many difficult domestic issues as a result of apartheid. There are large income disparities and there is high unemployment in South Africa, and there is, as in Australia, a skills shortage. The skills shortage in South Africa is caused, in part, by the brain drain which occurred during the apartheid era. I mentioned earlier the differing numbers of South Africans in Australia and Australians in South Africa. The very large number of South Africans in Australia is an example of that brain drain.

There are also regional issues which make South Africa’s domestic circumstances all the more difficult, particularly as it borders Zimbabwe and experiences the current Zimbabwean crisis, which has seen a significant influx of refugees into South Africa. That and other issues, such as the rate of HIV-AIDS infection in Africa, have made for very difficult circumstances for the South African government and governmental resources.

I say all of that because, despite all of those challenges and difficulties, post 1994 South Africa has prospered and become the political and economic powerhouse of Africa. South Africa currently is ranked 28th in the world in terms of GDP. World Bank statistics measure South Africa’s GDP at US$227 billion. South Africa is by far Australia’s largest trading partner on the African continent. Overall, the two-way trade between South Africa and Australia equates to $3.88 billion annually. South Africa currently accounts for about 1½ per cent of the Australian export market, or $2.5 billion. That figure represents what has been a year-by-year growth in trade with South Africa of about 10½ per cent. Right now, South Africa is our 16th largest merchandise export market overall. Australia supplies 1.8 per cent of South African imports and, correspondingly, we are the 16th largest importer into the South African market. The major Australian export items into the South African market include medical equipment, including veterinary equipment, which accounts for $814 million; coal, which accounts for $173 million; meat, which accounts for $57 million; and civil engineering equipment, which accounts for $47 million. In addition to that, Australia also exports $347 million worth of services to South Africa, the vast bulk of which is really made up of inbound tourism to South Africa.

In terms of investment, the ABS puts Australian investment in South Africa at $893 million, but really that represents only the tip of the iceberg because in fact a lot of companies do not report their investment figures to the ABS on account of commercial confidentiality. To give you a sense of how large the actual figures are: the Department of Foreign Affairs and Trade has estimated that Australian mining companies have approximately $15 billion invested in South Africa. Some companies—for example, Aquarius Platinum and BHP Billiton—are involved in platinum mining. GRD Minproc is involved in providing engineering services to the mining sector. International Ferro Metals is involved in both chrome mining and the ferrochrome process for amalgamating iron and chrome into ferrochrome. Mineral Commodities is a company which is involved in both nickel and chrome mining in South Africa. Palabora Mining, Rio Tinto and Riversdale are all involved in copper mining in South Africa. Tawana Resources is involved in diamond mining in South Africa.

Other Australian organisations that are involved in South Africa include Monash University, which has a campus in South Africa, and Macquarie Africa, which invests in infrastructure projects in that country. To that end, a very significant company based in my electorate of Corio in Geelong is the Costa Group. The former chair of the Costa Group, of course, is Frank Costa—and, to return to the earlier theme, he is the current President of the Geelong Football Club, so my best wishes at this moment absolutely go to Frank and the team. I know that he is sitting very nervously in the lead-up to Saturday. The Costa Group is a very significant Australian company, and it currently provides logistics for a major supermarket chain in South Africa called Pick n Pay. Costas in turn employ 850,000 South Africans locally in South Africa. So there is a very large Australian company based in my electorate that has very significant interests in South Africa.

Australia is South Africa’s 12th largest export market. It represents two per cent of South Africa’s exports and it accounts for $1.35 billion in trade. The principal merchandise items that are being exported out of South Africa into this country are passenger motor vehicles, which account for $663 million worth of exports; motor vehicle parts, which represent $47 million worth of exports; pig iron, which represents $45 million; and transport vehicles, which represent $39 million of exports out of South Africa into this country. Australia also imports $303 million worth of service items from South Africa, and again that is principally made up of South African tourists coming into this country. In terms of investment, at the end of 2007 South Africa had $1.2 billion invested in this country. That gives you a sense of the economic ties which exist between our two countries—they are very significant indeed. This only highlights the importance of this bill before the House today.

The protocol which is the basis of this bill was signed by Australia’s High Commissioner to South Africa, His Excellency Mr Philip Green, and the Acting Minister of Finance in South Africa, the Hon. Ms Geraldine Fraser-Moleketi, in South Africa on 31 March of this year. The bill amends the existing taxation agreement, which, as I said earlier, first came into being in 1999. The new protocol was prompted by the need for Australia to meet the most favoured nation obligation which exists in the 1999 taxation agreement. What that in effect meant was that there was an undertaking given by Australia to South Africa that it would have the most favourable terms possible in our international relations. Australia and the UK signed a tax treaty in 2003 which enhanced the relationship between us and the UK and which bettered the existing position between Australia and South Africa. The most favoured nation obligation clause obliged both countries to renegotiate the tax agreement, which then led to the protocol which was signed this year.

The principal measures contained in the protocol, and which are therefore contained in the bill before us today, are amendments which govern withholding tax rates levied on dividend flows between Australia and South Africa. These provide for a five per cent withholding tax rate for non-portfolio intercorporate dividends, which is a very long term that basically means that companies which have a more than 10 per cent interest in a company in either country have their withholding tax rate applied to the dividends which derive from that child company, if you like, at five per cent. In terms of portfolio holdings in the normal course of holding shares in a company, the withholding tax rate will be 15 per cent for dividends derived from those share portfolios. These changes and those rates conform with existing OECD norms and they also reflect the situation which exists in South African domestic law.

The new protocol also contains a number of other measures which are significant. It will provide for much greater sharing of information between the tax agencies in South Africa and Australia. It will provide for much greater cooperation, particularly between the two tax agencies, in cross-border tax collection. It will provide for much greater consistency in the arrangement that we have in relation to tax with other countries around the world. The new tax agreement with South Africa will be much more in line with the various arrangements that we have with other countries around the world. Importantly, the protocol will provide for the insertion of a non-discrimination article. This will have the effect of preventing any discriminatory tax practices which exist in either South Africa or Australia. The protocol, which leads to the bill, will also give rise to an expanded list of taxes which the agreement applies to.

The passage of the bill through the parliament in the spring session would allow for the enforcement of the new protocol by the end of this year. That is particularly important given that South Africa has already completed all its domestic requirements for enacting the protocol in its jurisdiction and in a sense is now waiting for us to do the same.

In conclusion, Australia and South Africa, as I stated, have shared a very long and fruitful history. It is important that we build upon that, and that is what this bill will seek to do. This bill will absolutely assist in enhancing the already significant two-way trade between South Africa and Australia. In doing so, it will facilitate much greater investment opportunities for Australian companies in South Africa and for South African companies in Australia. It will also decrease the taxation barriers which exist between the two countries. That is very important in the context of the Rudd government’s commitment to ensuring that Australian exporting companies have every means available to them to export their products into a global market—in this case, the South African market.

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