Ewen Jones (Herbert, Liberal Party) Share this | Hansard source

I may be far off, I may be out on the boundary, but I am a damn sight closer to sitting on the treasury bench than you are at the moment!

I love the Labor Party! They just spent six years in government, their credit card got so hot they had to get special gloves to handle it—that is how hot it got—and now they come in here and they have all these measures for us where we are missing out on tax revenue. They have all these ideas about where we are missing out, yet they did not implement a single one in their six years. They did nothing in six years except spend, spend, spend. But now they say we are missing opportunities and this bill does not go far enough.

This bill is dry by necessity, and therefore I want to concentrate in my contribution on what we are actually doing—not the bits and pieces that Labor think we should be doing but the bits and pieces that we are actually doing. I will concentrate on the Treasurer's second reading speech and make some personal points in conclusion.

This bill aims to improve Australian taxation laws by bringing together different taxation measures, ranging from multinationals' profit-sharing to the breakdown of everyday Australians' tax payments. The bill will assist small business. It will lead to around 1,200 taxpayers being excluded from the application of the thin capitalisation rules, out of 2,500 taxpayers currently subject to the application of the rules. I will give a more detailed definition of 'thin capitalisation' further on in this speech. We will be reducing more red tape and helping small business to get on with what small business should be doing, and that is what we as a government hold as a core belief.

This bill also delivers on the government's election commitment to introduce a tax receipt showing individual taxpayers where their tax dollars are actually spent, and continues the government's work on restoring the integrity of the taxation system, so poorly lacking under the previous government.

Soon after we were elected to government last year, we were advised that 96 tax and superannuation measures had not been legislated. We speak often about the Hawke and Keating governments in this parliament; we look back on them almost wistfully and sigh over what has gone before. I will always remember when Paul Keating stood at the dispatch box and around the country and stated that the tax cuts he had announced were 'l-a-w law'. The only problem with these 96 measures is that they were not e-n-a-c-t-e-d enacted. The previous government stand condemned for making all sorts of promises and laws and then squibbing on the task of getting them enacted—and now we find that they are actively opposing a lot of the measures that they believed in before.

The backlog created significant operational uncertainty for businesses and consumers. We acted swiftly to clean up Labor's mess and to provide certainty and reduce red tape for all taxpayers: investors, small business and corporate Australia. The government announced on 6 November 2013, just short of 12 months ago, that it would proceed with reforms to tighten up thin capitalisation limits. Schedules 1 to 3 of this bill implement measures announced but never developed or legislated by the previous government.

Labor's shadow Assistant Treasurer, Andrew Leigh, the member for Fraser, is a good man. However, his claim in The Sydney Morning Herald on 8 September 2014 that the Abbott government was not taking serious action on multinationals' taxation avoidance is wrong. The coalition has cracked down and will continue to crack down on tax evasion by multinationals. Dr Leigh has also wrongly claimed that the government walked away from closing $1.1 billion in tax loopholes relating to the taxation of multinationals. This is not reflected by the facts. Rob Heferen, Executive Director, Revenue Group, Treasury, said:

… through public consultation on that, it became apparent that the proposal that stood would not be a sensible proposal to proceed on.

The source is the Hansard of the Senate Economics Legislation Committee budget estimates hearing on Thursday, 5 June 2014. While the member for Fraser continues to get it wrong, the coalition is taking real action to crack down on tax-evading multinationals.

If Australian operations are funded by excessive debt, they are said to be thinly capitalised. Multinationals have the flexibility to determine where international financing can occur and how debt will be allocated within the group through intragroup funding arrangements. This provides them with the opportunity to influence the jurisdiction in which deductions for interest are claimed, for example, by allowing them to claim a greater proportion of debt deductions in higher-taxing jurisdictions where debt deductions are often more valuable. This can effectively reduce or negate Australian income tax while improving after-tax profits for the multinational group.

Thin capitalisation rules are designed to prevent multinationals from profit-shifting by allocating a disproportionate amount of debt in their Australian operations and claiming excessive debt deductions in Australia, thereby reducing their Australian taxable income. The current rules were introduced in 2001, following the Ralph review. It consisted of a number of debt limit tests. These tests calculate the maximum debt deductions allowed to be claimed for a multinational's Australian operations.

What this bill does follows extensive consultation with stakeholders, including business, tax practitioners and the Australian Taxation Office. The changes to the thin capitalisation statutory safe-harbour limits are in line with industry expectations following the Business Tax Working Group's consideration of this matter in 2012. We will introduce a worldwide gearing test for certain inbound investors. The legislation fixes thin capitalisation rules by making sure that repayments of interest to companies in Australia from overseas subsidiaries are subject to tax even when they are dressed up as dividends. These amendments take effect from 1 July this year. We are tightening the statutory safe-harbour limits to prevent erosion of the Australian taxation base.

The bill also seeks to reduce compliance costs for small businesses by increasing the de minimis threshold from $250,000 to $2 million in debt deductions. The main entities affected will be larger multinational enterprises with investments in Australia with business models that rely on high Australian gearing levels. The changes to the thin capitalisation rules and the exemption for foreign non-portfolio dividends are expected to provide an increase in revenue of $755 million over the forward estimates period. It is important to note that, while infrastructure projects and electricity generators generally carry high levels of debt and could fail the new statutory safe-harbour limit, they will continue to be able to access the arm's-length debt test that will allow higher levels of debt in those areas.

Other sectors likely to be affected by the reduced statutory safe-harbour limits are finance and insurance providers—those who are not in the business of on-lending—manufacturing, mining and construction. The changes will also affect Australian multinationals investing offshore with high Australian gearing levels. Small business stakeholders have welcomed the increase in the de minimis threshold, as this will reduce compliance costs for small business. The changes to the thin capitalisation rules and the exemption for foreign non-portfolio dividends—schedules 1 and 2 respectively—are expected to provide an increase in revenue of $755 million, as I said, over the forward estimates period.

This bill provides an exemption for certain foreign non-portfolio dividends—that is, holdings of more than 10 per cent paid to an Australian company. The exemption helps ensure that offshore investments by Australian companies are able to compete on an equal footing with other businesses in that foreign country. We will modernise the foreign dividend exemption so that it is available to all Australian entities which are taxed as companies and that the exemption only applies to returns on instruments treated as 'equity interests' under the debt-equity rules. This is intended to broaden the exemption to apply in respect of a broader range of equity-like interests, rather than interests that involve significant voting rights and to exclude any returns on 'debt interests' from the exemption. By excluding 'debt interests' from the exemption, it also ensures the integrity of the thin capitalisation rules. That is the core to it. Obviously, the object of the foreign resident capital-gains tax regime includes ensuring that interests in an entity remain subject to Australia's capital-gains tax laws—if the entity's underlying value is principally derived from Australian property.

This bill will amend the income tax laws to improve Australia's foreign resident CGT by stopping double counting of certain assets under the principal asset test. This test determines an entity's underlying value is derived from Australian real property. By removing this double counting of assets, we will ensure that foreign residents' interest in an entity derives its value principally from Australian real property within Australia's tax net. Under Australia's taxation laws a foreign resident is subject to CGT only where the disposed asset is either a direct or indirect interest in Australian real property or where the asset is used in carrying on business through a permanent establishment—for example a branch—in Australia.

The amendments in this bill extend the original 2013-14 budget announcement to include interests in unconsolidated groups, as well as in consolidated groups held by foreign residents, to ensure the principal asset test operates as intended. We made the election commitment that from 1 July 2014 the ATO would begin issuing tax receipts under the Tax Commissioner's existing powers. The bill amends the tax laws to provide better transparency to taxpayers about how their tax money is spent. We will ensure this government is, and future governments for that matter are, held accountable for the way they spend taxpayer contributions and the debt they maintain. The tax receipts amendments in schedule 4 are of major interest to mum and dad taxpayers. These amendments ensure that future governments are obliged to continue what we began in 2014—issuing receipts to taxpayers to show how their hard earned tax contributions have been spent.

We went to the last election with four main pillars to our commitment to the Australian people. We said we would axe the bad taxes, such as the carbon and mining taxes; we said we would stop the boats; we said we would build the roads and the infrastructure of the 21st century; and we would fix the budget mess left to us by Labor. The carbon and mining taxes are gone, and we are seeing price relief from that coming through now. We have had one successful boat this year; Minister Morrison has led a team that means business, and we are now closing detention centres across the country. We said we would build the roads and infrastructure of the 21st century and, despite the member for Grayndler telling the country that all these projects have already been delivered, he was talking in the same sense as the aforementioned Paul Keating was about the l-a-w law. He may have s-t-a-r-t-e-d some of these projects, but he has not started any; he did not fund them; and he did not get the tender organised; he just a-n-n-o-u-n-c-e-d them.

We have to follow through on what the Treasurer and the Prime Minister have said about being open for business. We have to fix the mess. If you are saddled with interest and principal repayments, your cash goes to that, and your options are reduced. We do not have the cash at home to withstand international events. We must run tight fiscal policy if we are to be the responsible leaders of our community. Above all, we must respect the tax dollar given to us by the people of this country and we must make sure we take every step to ensure we do not miss opportunities which are fair and right and just to collect that tax.

This bill does not close every international tax loophole; it does not address every single issue that those opposite suggest that we should. What it does is set out the plan that we are going about in trying to rectify the budget mess with which we were left. What it does is say to the people of Australia that we are getting on with the business of government; we are opening our doors to opportunities for people to get on with their lives and to deliver for themselves the opportunity to create wealth and employment. That is no more and no less than the people of Australia demand of us. We must make sure that we use these things to do it properly, but we cannot simply go through and cut and rape and blast the place open. We are doing the calm, methodical job that the Prime Minister and the Treasurer said we would. You have seen what happened in Cairns on the weekend: we are talking to the world on so many fronts and we are doing the right thing. This bill goes about that part of the business. I thank the House.

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