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

I thank the member for Bendigo for her enlightening defence of the opposition's position! I thought she made a salient division between the silly and the sensible, only to undermine her argument by picking out what she thought was the sensible, and that was the payments to the maritime workers union as a way of retaining inflated wages for those working on Australian vessels, which in the end was futile, claimed for only about 250 workers and was done at a time when our maritime capacity actually shrunk by two-thirds. It is fascinating that she chose that as an example of sensibility while at the same time ignoring much of the bigger picture and possibly, I concede, more complex arrangements that she did not have talking points to deliver on.

Today I want to talk about two areas: thin capitalisation and foreign dividends. They are two really important areas. They will make a big difference. Let us take partisan politics out of this for a moment, despite the previous speaker, because this is an area where we fundamentally agree on making sure we have a fairer tax system. Particularly because we are a medium-sized, financially open economy we have to work assiduously to make sure that we collect the appropriate amount of tax for activities that are based here and are a result of work within Australia, but at the same time we cannot be overly draconian or we risk losing some of that highly mobile financial capital to other countries where they have more friendly tax arrangements. Walking that fine line is not easy. I concede it is quite complex. That is why we discuss these matters at the G20 and do not act unilaterally and spontaneously on some of these matters.

Both sides of politics have given this a crack and I think it is fair to say that both sides of politics could be doing more. There is more to be done but it is a technically difficult area and so I appreciate the time that is required. If you look at the heart of the effort that the Labor Party made in tax reform, you do not have to go far past Kevin Rudd's request of Ken Henry to do a review into Australia's tax system. At the time when we were seeing press releases from Kevin Rudd two or three times a day and then being reported verbatim by the press at the time, it seemed like just another gallant attempt to take on one of the great chestnuts in Australian policy by a Prime Minister who, at least in his own mind, was up to the task. When the Henry tax review was released we saw 128—if my counting is correct—recommendations to make Australia's tax system fairer and more effective. I think the Labor Party managed to respond to 1.5 of those 128 recommendations in some sort of policy action. Here was the great party of the Australian worker not just mesmerised but paralysed by the prospect and the complexity of tax reform. Yes, it was just all too much for the Labor Party.

The only thing they managed to have a red-hot go at was the mining tax. Why? Because that was a great way to target those nasty billionaires. It is always easy to hate the billionaires, isn't it? This comes back to the subtle subtext of the member for Bendigo, who when talking about the sensible and the silly was really effectively asking, 'How do I get an arrangement that allows easier transfers to the union movement?' While her speech may read well to her constituents in Bendigo, what I found most interesting was her assessment of microeconomics. The member for Bendigo said herself, 'The greater tax breaks you can give to low-income earners, the more money gets spent locally, because they spend it all locally.' I presume she was saying that poor people do not have access to the internet to do any online shopping. No. Let us get this quote right—poor people, in contrast to the wealthy, will spend it all locally. Her claim about 'wealthy' was most interesting. If you give any kind of tax break to the wealthy, that money she said 'goes away'. I am not quite sure where it goes, but she did say that it is put away for a rainy day. That was an incredibly insightful and educated explanation of what happens when high-income and low-income earners actually receive some form of tax expenditure from the government through a tax concession.

Let us go back to the bill. The bill does seek to take on a couple of the areas that will build well on reforms that were attempted by the previous government. They were in the general anti-avoidance rules, subsection 4(a). There was some concern on our side of the House about the possible retrospectivity of those, but they were passed into law. Secondly, transfer pricing was an area where the previous government focused. Today what we are looking at—and this is in addition to tax receipts, which I want to touch on briefly—are changing arrangements for profits that are brought back into Australia by Australian entities that own foreign subsidiaries and of course the thin capitalisation rules.

I will start with thin capitalisation. Increasingly over the last few years there has been an appreciation that entities are using large amounts of leverage with debt as a way of concealing the profits that they make through domestic activities. I will try to describe that. The sense was that the firms were borrowing large, funding some activity in Australia and using the costs of that borrowing as a way of hiding their domestic profits and then therefore the amount of tax that needs to be paid to Australia. By looking at what was an increasing tendency to use higher and higher amounts of debt, they have rightly used the safe harbour provisions to have the 60 to 40 ratio—that you can effectively borrow up to 1.5 times the amount of equity that you bring to an enterprise. They have also brought down the ceiling for financial entities from I think 20 to one to 15 to one. They seem perfectly reasonable because at the same time this government has acknowledged that we do not want to be interfering at the minima level for individual taxpayers who are engaging in debt related activities so we have raised the financial threshold where you activate these provisions from $1 million to $2 million. That allows individual taxpayers to be able to take out a loan without running headlong into these thin capitalisation provisions.

On another level we have the issue of foreign dividends. These are some clever arrangements where an entity purchases or moves into a foreign subsidiary and then, with these debt equity rules, by making equity look like debt they can get more friendly tax treatment at home. This is another clever way in which money can be basically repatriated to Australia as a result of your work overseas and, by making it look like debt, there is a way of disguising these dividends and making sure that you do not have to pay tax on them. Again it is not the provision of an eye surgeon, but there is an accountant down here, the member for New England, nodding his head telling me that I am not doing a bad job of explaining the challenge. In that respect also, there will be much closer scrutiny to make sure that we get what the Australian taxpayer deserves.

It is often forgotten that every time one offers a deduction that is effectively tax expenditure—it is money that you are passing up. It is often tempting when you have representations about making concessions on having to pay tax, but it is effectively tax that the nation will never see and effectively simply tax that we have to collect from somewhere else or offer fewer services. To that end, I want to finish on the general Labor Party approach to this area. Increasingly, there has been a general opacity in the way the Labor Party operate around how they collect their tax and how it is moved around to taxpayers.

The tax receipt notion of the coalition delivers on our election commitment to be transparent around not only where the money is collected but how it is spent—how it is broken down. What we are saying to a taxpayer—on this side of the chamber; you do not hear it from the other side—is: 'Thank you very much for paying tax. Thank you very much for the contribution you make. We don't hate you because you've earnt money and you are wealthy; we actually thank you for doing it.' We particularly say that to our net tax payers, who actually pay more in tax than they receive in dividends. I say to those people: I want to hug you. I want to say, 'Thank you for what you do for Australia.' What is the point of hating the very people who run the systems that make Australia such a great place to live? To those people who are net tax payers in particular, and even to low-income earners, who make their small but significant contribution, we need to be saying (a) 'Thank you,' and (b) 'This is what we are doing with your money. No, it's not our money. We know you earned it and we are giving it to someone else who didn't earn it. For that, we want to say thank you. For that, we are going to tell you how we spend it, where we are spending it, where it is going and the categories in which it is being spent. And, fundamentally, in situations where we couldn't raise it from a taxpayer because the Labor government didn't have the wit to find a way to raise it and instead took the easy option and financed these activities in debt, we will tell you how much debt was taken out and we'll tell you how much this debt costs.'

In the great, superficial world of the Labor Party, where you are simply pinching money from people when they least suspect it or borrowing it from overseas entities, in the Middle East and China, predominantly, the great day of payback will never come. Under the Labor Party's arrangements, where there were unlimited and unending budget deficits, the debt, as many up here in the gallery who have probably studied economics know, sequential deficits simply add to debt. Even at the moment, where we can bring Australia out of the spiral of increasing deficits—even at that point where we balance a budget—we have not started to pay off one cent of the debt because the debt has been racked up year after year from the moment you voted out a coalition government. It will stop being increased from when we finally can arrest the spiral, which at this point is 2017-18. That is our plan. I know there is not a lot of support on the other side of the chamber. We are intent on balancing the budget, but you need to know, from the pain of budget 2014, with everyone putting their shoulder to the wheel, and of subsequent years, we will only balance the budget, potentially, by 2017-18. Had we kept the Labor government in power, there was simply no chance of even arresting the death spiral into debt.

This brings us into the debate about whether our debt-to-GDP ratios are (a) any larger than other economies or (b) growing at a rate, which is the issue, faster than other economies. It was not that we had not racked up enough debt—no, we did not have a Labor government in there long enough to do it. That is why we do not have a lot of debt. What we did have was debt increasing at an alarming speed, and that is the underpinning of the budget emergency. It was a government where, no matter what it told you about getting into surplus, it was patently obvious to everyday Australians that that was never going to happen because it is beyond Labor's capabilities to say no to someone who holds out the hand seeking somebody else's money. For that reason, what we saw was not only consecutive budget deficits, despite the rhetoric, but no hope in the forward estimates that Labor was ever going to pull Australia as an economy out of the death spiral.

What we are talking about here are two significant measures to take Australia along the road to reducing profit shifting. It is an important step. I concede that there were steps taken by the previous government as well. Together with Australia's chairmanship of the G20, we can look to agreements being struck between major economies, which in the end is the only way that we can genuinely, without creating sovereign risk, ensure that we have profit shifting brought to an end globally.

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