Graham Perrett (Moreton, Australian Labor Party) Share this | Hansard source

I, too, rise in support of the Tax Laws Amendment (2009 Measures No. 4) Bill 2009. This bill implements a number of budget measures and other reforms to the tax system to benefit business, to improve philanthropic trust funds and to provide capital gains tax relief for policyholders of friendly societies that demutualise. It also makes a range of other minor amendments to tax laws contained in schedules 4 and 5, which I will not go into in any great detail.

In my view, one of the key chapters in the success story that is the Australian economy was the budget assistance provided to Australian small and medium businesses. Measures like the 50 per cent tax break for eligible assets, the $10 million to help small business go online and the changes to PAYG instalments to ensure better cash-flow for small business are all helping to bolster business. They are supporting the economy and, most importantly in the current climate, they are protecting jobs.

The bill before the House implements another budget initiative to support business by boosting R&D tax credits. It was quite instructive to hear the comments from the member for Cowan relating to the comments from his constituent David Lockett about the years of malaise and how Australia had not taken every opportunity, especially of late, to progress research and development opportunities—instead they have fled overseas. When you combine that with the set of government opportunities that were handed over to the Rudd government on election night, the one that screams out to me is that productivity was at an all-time low—at zero, basically.

Why was this so? It was because the previous government had not invested in R&D and some of the opportunities that existed to make the economy leaner. What had they done? They had a full-on attack down the low-wage road in terms of what was really a political strategy rather than a realistic attempt at economic reform. It was attempted political sabotage rather than real economic reform. As any economist will tell you, productivity is the real measure of a healthy economy. Building on the comments of the member for Cowan, one of the ways that you can improve productivity is investing strategically in R&D, not trying to drive wages down—that is not the way to success for Australia.

The boost to R&D credits in the legislation before the House lifts the research and development expenditure cap from $1 million to $2 million from 1 July this year. Companies that spend on eligible R&D can choose to receive a tax offset instead of a deduction. This is a great benefit to companies in a tax loss position. The tax offset is equal to 37.5 per cent of expenditure. The higher cap on expenditure will encourage more companies to invest in R&D to encourage research intensive industries to do more research and to help get Australian businesses working smarter. I have a slightly more optimistic view of Australians’ ability to be competitive in the world when it comes to developing new technologies and developing business strategies that can take on the rest of the world—without relying on low wages as the way to do it.

This bill also implements the 2008-09 budget commitment to legislate guidelines to improve the integrity of prescribed private funds. Prescribed private funds, or PPFs, provide a way for businesses, families and individuals to start their own trust funds for philanthropic purposes. PPFs are income tax exempt and donations to PPFs are tax deductible. PPFs are only able to donate to deductible gift recipients, which are mostly charities. Since they were first set up in 2001—and I commend the Howard government for this initiative—they have received more than $1.3 billion in donations and distributed more than $300 million to charities, $300 million that has been used for the benefit of Australian society.

However, more transparency is needed to ensure the ongoing accountability of PPFs. Currently they have minimal reporting requirements and very little is known about their operation. This bill will increase the regulatory powers of the ATO by moving the administration of PPFs, logically, under the tax commissioner. It also gives the Treasurer power to legislate guidelines and gives the tax commissioner greater power to enforce these guidelines. This is not the heavy hand of government. I understand that the sector is very supportive of these changes and in fact looks forward to greater certainty as to its philanthropic obligations.

I know people often compare Australia’s philanthropic inclinations with the United States, which is not always a fair thing to do because we have slightly different marginal tax rates. Also, what we can be proud of as Australians is the fact that our philanthropic inclinations go across the board. In fact, I recall some surveys that showed that the poorer we are the more generous we are in terms of the percentage of our income that we are prepared to give. Anything that the government can do to support this philanthropic sector is to be commended.

Thirdly, I turn to the demutualisation of friendly societies. This aspect of the bill largely mirrors the legislation concerning the demutualisation of private health insurers which was debated in this House last year and which I spoke on. The demutualisation of a private health insurer or friendly society has a surprising bonus for policyholders. Any accumulated surplus from the fund is distributed to existing members of that fund, usually on the basis of the length of time they have been a member. The downside, especially if you are a long-time member, is that recipients of this surplus are subject to capital gains tax. These amendments ensure that members and policyholders of friendly societies are not subject to capital gains tax when their friendly society demutualises and becomes a for-profit entity, so we will ensure that Mr Swan receives only what is appropriate.

Policyholders who have received shares or a cash payment under these demutualisations would have had to include a capital gain in their 2008-09 tax return. However, as these amendments are retrospective, people who have lodged their return before this legislation is enacted will be entitled to have their assessments amended. This gives certainty to members and policyholders of friendly societies that have demutualised. They can have confidence that they will not face any capital gains tax on shares or payments they have received.

Friendly societies provide life insurance, private health insurance, aged care and other services to their members and policyholders. In the Brisbane area there are friendly societies such as the Sureplan Friendly Society in Spring Hill and the CUA Friendly Society in Brisbane, which are both in the electorate of the Hon. Arch Bevis, and the Family Care Friendly Society, which is based at the Mater in the electorate of Griffith, represented by the Prime Minister, the Hon. Kevin Rudd. This bill will benefit their members by ensuring they do not incur capital gains tax as a result of demutualisation. Potentially up to 1.6 million members around Australia will appreciate the changes that the Rudd government has brought to the House.

This bill also contains a range of other minor amendments to the tax system to correct drafting errors or technical flaws. Such amendments include ensuring that gifts to deductible gift recipients, such as bushfire relief funds, do not result in an employer having a fringe benefits tax and that the foreign income tax offset and foreign loss rules apply as intended. I will not elaborate on these as other speakers have covered them quite adequately, especially the member for Blair. I commend the bill to the House.

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